Victorian Civil and Administrative Tribunal|2005-09-30

Palang Engineering v MCM Chemical Handling (Civil Claims) [2005] VCAT 2154 (30 September 2005)

Costs - no evidence to support claim - whether costs should be awarded on an indemnity basis - tenancy dispute - basis for assessment of costs - lease providing for payment of costs by tenant in certain circumstances - whether costs should be awarded on solicitor client basis - stay of execution

Order that the Applicant pay the Third Respondent's costs of this proceeding including its costs of this application, such costs if not agreed to be assessed by the Registrar in accordance with Scale "D" of the County Court Scale from 2 December 2004 until 29 April 2005 and thereafter on an indemnity basis, save for any costs that have been unreasonably incurred.

Order the First and Second Respondents to pay the Applicant's costs of this proceeding including its cost of this application, such costs, if not agreed, to be assessed by the Registrar in accordance with Scale "D" of the County Court Scale.

The application by the Applicant for the amendment of the Tribunal's order of 9 June 2005 pursuant to s.119 of the Victorian Civil and Administrative Tribunal Act 1998 is dismissed.

Order that there be a stay of execution on the payment of the costs hereby ordered and also on paragraphs 1 and 3 of the order of 9 June 2005 and paragraph 1 of the order made on 21 July 2005, until the determination of the Supreme Court appeal No 7031 of 2005 or further order.

1. This matter came back before me for consequential orders following the decision on made on 9 June 2005. The order made on that day was that the First and Second Respondents pay to the Applicant the sum of $144,348.70, that the Joined Party pay the First Respondent's costs of these proceedings to be assessed if not agreed on an indemnity basis and that the Applicant's claim against the Third Respondent ("Envirochem") be dismissed. I also reserved liberty to the First Respondent and the Joined Party to apply for further orders consequential upon the findings made in the proceeding.

2. On 21 July 2005 I made an additional consequential order pursuant to s.108(2) (j) of the Fair Trading Act 1999 that the Joined Party provide indemnity to the First Respondent in accordance with the terms of the policy of insurance that was the subject of the proceeding involving the Joined Party. I was then informed that the two orders against the Joined Party were the subject of a proposed appeal to the Supreme Court of Victoria and that the application for leave to appeal was to be heard shortly. An affidavit had been filed on behalf of the First and Second Respondents to the effect that they lacked assets and the means to pay the order in favour of the Applicant without recourse to the proceeds of the policy which were the subject of the proposed appeal. On this basis I granted a stay of execution on paragraph 1 of the orders until 4.00 p.m. on 23 September 2005 when it would be known whether leave was granted by the Supreme Court of Victoria to the Joined Party to appeal the decision. The Applicant and Envirochem applied for costs and those applications were adjourned to 23 September 2005.

3. When the matter came before me again on 23 September 2005 I was informed that leave to appeal had been obtained by the Joined Party and it was expected that the appeal would be heard before Christmas. Submissions were made to determine the following applications:

(a)

The application by Envirochem for an order that its costs be paid by the Applicant;

(a)

The application by the Applicant for an order that its costs be paid by the First and Second Respondents and that Envirochem's costs be paid by the First and second Respondents;

(a)

The application by the Applicant for an order pursuant to s.119 of the Victorian Civil and Administrative Tribunal Act 1998 that the order of 9 June 2005 be amended to include an award of interest in the damages payable by the First and Second Respondents;

(a)

The application by both the Joined Party and the First and Second Defendants for a stay pending the determination of the appeal.

4. Mr Moore of Counsel appeared on behalf of the Applicant, Mr Raniga, Solicitor, appeared on behalf of the First and Second Respondents, Miss Turner of Counsel appeared on behalf of the Envirochem and Mr Murdoch of Counsel appeared on behalf of the Joined Party. After hearing submissions on behalf of the parties I indicated that I would continue the stay of all orders until midday on 30 September 2005 to allow me time to consider the various parties' submissions.

5. Miss Turner pointed out that no evidence was led at the hearing on behalf of the Applicant to the effect that the damage to the factory complained of was due to any default on behalf of Envirochem. She pointed to paragraph 72 of the Reasons for Decision where I stated that there was no evidence at all that Envirochem was responsible for any of the damage. Indeed, following the evidence in the principal proceeding I indicated to Miss Turner that I did not require to hear from her and that the case against her client was dismissed.

6. Envirochem was initially brought into the proceeding by the First and Second Respondents as a Joined Party. On 23 November 2004 the Tribunal received a letter from the First and Second Respondents' Solicitor to the effect that the dispute between them and Envirochem had been resolved and requested that their claim against it be withdrawn with no order as to costs. On 29 November 2004 the Applicant's Solicitor wrote to the Tribunal opposing the granting of leave to the First and Second Respondents to withdraw the claim and stating that the Applicant wished to claim against Envirochem on the basis previously argued by the First Respondent. Attached to that letter were further amended Points of Claim alleging that Envirochem had, during its earlier tenancy, damaged the premises and failed to reinstate them at the conclusion of their lease. Particulars of the alleged breach were set out. On 1 December 2004 the Tribunal granted leave to the Applicant to join Envirochem as the Third Respondent to the proceeding and to file and serve amended Points of Claim. Further directions were given for Points of Defence by Envirochem and for other interlocutory steps.

7. From this it is clear that Envirochem remained in the action as from 1 December 2004 solely to meet a claim brought against it by the Applicant.

8. Miss Turner relied upon an offer of compromise made by Envirochem to the Applicant's Solicitor by letter on 15 April 2005 that the Applicant withdraw its claim against Envirochem and pay its costs. That offer was rejected. On 29 April 2005 Envirochem again offered to settle the proceedings on the basis that the Applicant withdrew its claim and paid its costs of $10,000.00. That offer was also rejected.

9. Miss Turner sought indemnity costs as from 1 December 2004 or alternatively, indemnity costs as from the 15 April 2005, being the date of the first offer. She referred to s.109(3) of the Victorian Civil and Administrative Tribunal Act 1998 and suggested that, in the circumstances, the Applicant's proceeding against Envirochem was vexatious and that the relative strengths of the claims made and the nature and complexity of the proceeding was such as to warrant an order for costs. I agree that an order for costs as between the Applicant and Envirochem is warranted.

10. Miss Turner referred to a number of authorities on the granting of indemnity costs and said that the application was hopeless, had no chance of success and was in wilful disregard of the known facts. She pointed out that in opening the case the Applicant's Counsel Mr Moore said that it was not contended by the Applicant that Envirochem had caused the damage. Rather, that it was its primary contention that the damage was caused by the First and Second Respondents. Envirochem was joined in case it should appear from the evidence that it had caused the damage as the First and Second Respondents had earlier suggested. Miss Turner said that there was an absence of any evidence in the witness statements to the effect that any of the activities of Envirochem had caused any damage to the premises and that the Applicant ought to have known at the beginning of the case that it had no case to bring against it.

11. Miss Turner referred to a number of authorities where the circumstances in which orders for indemnity costs will be granted were discussed. However, as Winneke said in Bass Coast Shire Council v King (1997) 2 VR 5 at p.29:

"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."

12. As the cases point out, special circumstances are required to justify an order for indemnity costs. Those relied upon here by Miss Turner are that no case against Envirochem was established by any of the witness statements that were filed and the Applicant led no evidence against her client. Notwithstanding that it was aware that it had no evidence to lead against Envirochem, the Applicant persisted with the claim right up to the end of the hearing and caused it to incur the costs of defending itself.

13. Early in the proceeding Miss Turner had submitted that the question whether the Applicant's claim against Envirochem was, in any event, statute barred, should be the subject of a preliminary hearing. Although it appeared that there may have been some strength in the submission that she wished to make I declined to deal with it on that basis because it was the first day of the hearing and any such application should have been made earlier.

14. Despite the absence of evidence against Envirochem, the Applicant's Counsel, Mr Moore, stated at the strat of the hearing that evidence to be elicited in cross examination may well establish a case against it and on this basis he did not wish to withdraw the Applicant's claim. Again, I was not prepared to dismiss the claim against Envirochem on a summary basis on the first day of the hearing. Any such application pursuant to s.75 of the Act ought to have been made before trial. Miss Turner nonetheless indicated at the time that, at the conclusion of the proceeding, she would apply for indemnity costs. She now makes that application.

15. In opposing the application for indemnity costs Mr Moore said that the Applicant did not know whether or not Envirochem caused the damage and that it had relied upon paragraph 11 of the First Respondent's Points of Defence which stated that the Applicant had:

"... failed to take into account, properly or at all, the operations and use to which the premises had been put by other tenants, including the Third Respondent (in its own right as well as during the sub tenancy or licence arrangement with the First Respondent between about 1994 and 1997) since its construction in about 1987;"

16. I note however that paragraph 12 of the Points of Defence goes on to say that, given Envirochem's permitted use of the premises for contract chemical packaging and recycling, the First Respondent proposed to seek contribution from it pursuant to s.23(b) of the Wrongs Act 1958. It was this proceeding by the First Respondent against Envirochem that was withdrawn before the Applicant sought its joinder as a Respondent.

17. Mr Moore said that the First Respondent and Envirochem had shared the premises for a substantial period of time and the Applicant was never told that the allegation by the First Respondent against Envirochem was baseless. That may be so, but it was nonetheless aware that the claim had been withdrawn.

18. Mr Moore referred to paragraph 7 of the witness statement of the Second Respondent where he set out the chemicals handled by the Envirochem during its occupation of the factory and also to paragraph 4 of his supplementary statement to the same effect. He said that two key pieces of evidence did not come out until the trial that is, the storage by the First Respondent of the drums of hypochlorite and the water heating operations and their consequences. He said that on this basis either Envirochem should pay its own costs or alternatively, they should be paid by the First Respondent who had alleged that the damage was Envirochem's fault.

19. I do not accept these submissions. By the time of trial the Applicant and its advisors were aware that it had no evidence to sustain a claim against Envirochem and that therefore the claim was bound to fail unless some fresh evidence which may or may not exist should fortuitously arise in cross examination. In effect, the Applicant was requiring Envirochem to incur the costs of a lengthy hearing on the off chance that something might fall out in the evidence to support a claim against it. Such a speculative enterprise ought to be at the risk of the party bringing it. In the end, there was no justification at all for leaving Envirochem in as a party and no justification at all for subjecting it to the costs that it was forced to incur by the refusal of the Applicant to abandon its claim against it when it knew that it had no supporting evidence. This is an appropriate case I think to award indemnity costs.

20. However, it was not until the filing of the witness statements for all parties that the Applicant and its advisors were able to satisfy themselves that there was no case against Envirochem. At that time, Envirochem's solicitors wrote to them and pointed this out, requested that the case against it be withdrawn and that its costs be paid. I think from the date of this letter it is appropriate to award indemnity costs. Prior to that date I think it is appropriate to award party-party costs because the First Respondent had brought Envirochem into the case and made allegations against it and the witness statements to be filed by the First and Second Respondents might well have set out some factual basis for those allegations.

21. I do not accept Mr Moore's submission that I should order that Envirochem's costs be paid by the First or Second Respondents. A party that brings a case against another party does so at its own risk in terms of costs if the case should not succeed. At the time that it joined Envirochem to the proceeding it knew that the First and Second Respondent had withdrawn against it and the Applicant cannot say that it joined Envirochem at the invitation of the First and Second Respondent. There will therefore be an order that the Applicant pay Envirochem's costs on a party-party basis up to and including 15 April 2005 and thereafter on an indemnity basis, save only for costs that have been unreasonably incurred.

Applicant's costs against the First and Second Respondents

22. Mr Moore referred to clause 2.1.11 of the lease which states that the tenant will pay on demand the landlord's reasonable expenses of any breach of the lease by the tenant or the exercise or attempted exercise by the landlord of any right or remedy against the tenant. On this basis, he said the Applicant should be entitled to its costs against the First and Second Respondent on a solicitor / client basis. In the alternative, he said that the provision in the lease should be taken into account for the purpose of s.109 (3) of the Act to justify an order in those terms. No authorities were cited by counsel either for or against this argument but I have found some unreported decisions which bear on the point.

23. In the case of Ensabella v Players On Down Under [2000] VSCA 73 a similar question arose in connection with the exercise of the costs discretion in s.109 of the Act and a similar submission was made and rejected by the Court of Appeal In paragraphs 43 and 44 of the judgement of Phillips J A (with whom Ormiston and Charles J J A agreed) the learned Judge said:

"The landlord claims to have costs on an indemnity basis, by virtue of clause 1(20)(a) or alternatively clause 1(21) of the lease. The first obliges the tenant to pay "costs charges and expenses" incurred by the landlord "in consequence of any default in the performance or observance of any covenant or agreement" in the lease; and the second obliges the tenant to pay "costs of and incidental to ... any renewal [of this lease]" or "other costs charges and expenses" incurred by the landlord "as a consequence of any default by the lessee in the performance or observance of any covenants or agreements contained or implied herein". I should have thought that this proceeding could be characterized as one brought in consequence of the tenant's default in performing or observing "any covenant or agreement" in the lease; for the tenant was seeking to avoid the application of the first proviso of clause 3(15) and any liability under the concluding provision to pay rent as formerly, pending the determination of the valuer. On the other hand, the landlord was seeking to hold the tenant to its obligations under the lease.

But supposing that the costs of this proceeding, which is the subject of the dispute, fall within clause 1(20)(a) and further or alternatively clause 1(21) of the lease, neither provision refers expressly to how such costs should be taxed and there is some authority that, in the absence of express mention, such costs of a proceeding should be taxed on a party-party basis. The landlord claims costs on an indemnity basis by virtue of the provisions of the lease, although why that should be was not made clear."

24. The matter was adjourned for further submissions to be made as to that question and in the judgement subsequently delivered the Court found no sufficient reason for ordering anything other than party-party costs, there being "nothing in the lease to compel another view".

25. Similarly, in Carvure Pty Ltd v Brile Pty Ltd (No 2) [2002] VSC 313 a landlord defendant was ordered to pay the costs of the successful tenant plaintiff on the claim but sought its own costs on the counterclaim on an indemnity basis. The ground for this application was that there was a covenant in the lease to the effect that the tenant should pay the landlord's reasonable expenses of any default by the tenant in observing the provisions of the lease and the exercise or attempted exercise of any right or remedy of the landlord against the tenant. The counterclaim was a claim for failure to pay rent due under the lease. Balmford J referred to the decision in Ensabella and continued:

"It seems to me that, if the general discretion as to costs was called into play under s.109 of the [Victorian Civil and Administrative Tribunal Act 1998] the order should have been for the tenant to pay the landlord's costs. As I have said, there seems no reason now to deprive the landlord or any party of those costs. But should those costs simply have been awarded on a party-party basis or, as the Landlord claims, on an indemnity basis by reason of the provision of the lease."

26. She referred to the English case of Gomba Holdings (UK) Limited v Minories Finance [1993] Ch 171 at 194 whereby the Court of Appeal found that costs were always in the discretion of the Court but that the discretion should normally be exercised to reflect any contractual right the parties have. However, after considering the wording of the case before her, she considered that it could not be said that the relevant clause of the lease plainly and unambiguously required the costs to be paid on anything other than a party-party basis and that was what she awarded.

27. The wording of the lease in this case requires the Tenant to pay "on demand". There is no evidence of any demand for these costs having been made but even leaving that possible difficulty aside, the obligation is to pay "the Landlord's reasonable expenses" of any breach or the exercise or the attempted exercise by the Landlord of any right or remedy against the Tenant. It does not in my view plainly and unambiguously state that the Landlord is entitled to anything more than party-party costs. Accordingly, I do not think that it would be an appropriate exercise in my discretion under s.109 to award anything more than party-party costs merely on the basis of the clause in the lease.

28. I think this is an appropriate case in which to award costs against the First and Second Respondents. It was a very difficult case occasioning the expenditure of a great deal of money in preparing the case and engaging experts and conducting a lengthy and complex hearing. The Applicant's case against the First and Second Respondents was strong and their responsibility was clearly established.

29. Mr Moore also referred me to an offer of settlement made by the Applicant on 4 February 2004 pursuant to s. 112 of the Act to accept an amount of $162,749.15 in full settlement of the claims against the First and Second Respondents. Section 112 of the Act states, where relevant:

"112. Presumption of order for costs if settlement offer is rejected

(1)

This section applies if -

(a)

a party to a proceeding (other than a proceeding for review of a decision) gives another party an offer in writing to settle the proceeding; and

(b)

the other party does not accept the offer within the time the offer is open; and

(c)

the offer complies with sections 113 and 114; and

(d)

in the opinion of the Tribunal, the orders made by the Tribunal in the proceeding are not more favourable to the other party than the offer.

(2)

If this section applies and unless the Tribunal orders otherwise, a party who made an offer referred to in sub-section (1)(a) is entitled to an order that the party who did not accept the offer pay all costs incurred by the offering party after the offer was made.

(3)

In determining whether its orders are or are not more favourable to a party than an offer, the Tribunal -

(a)

must take into account any costs it would have ordered on the date the offer was made; and

(b)

must disregard any interest or costs it ordered in respect of any period after the date the offer was received."

30. Even allowing for any costs that might have been awarded at the time the offer was made I am not satisfied that the orders that were ultimately made were "not more favourable" to the First and Second Respondents than the amount of the offer. Indeed, the amount that was awarded was substantially less and the offer was made very early in the proceeding when costs would not have been substantial.

31. For these reasons costs will be awarded in favour of the Applicant against the First and Second Respondents to be assessed if not agreed in accordance with Scale "D" of the County Court Scale on a party-party basis.

The application for amendment of the order pursuant to s.119.

32. Mr Moore submitted that, since interest was sought by the Applicant against the First and Second Respondents in the Points of Claim and since the order of the Tribunal did not deal with the matter of interest I should find that there has been a mistake in this respect and correct the order pursuant to s.119 of the Act. That section provides:

(1)

The Tribunal may correct an order made by it if the order contains-

(a)

a clerical mistake; or

(b)

an error arising from an accidental slip or omission; or

(c)

a material miscalculation of figures or a material mistake in the description of any person, thing or matter referred to in the order_; or_

(d)

a defect of form.

(2)

The correction may be made-

(a)

on the Tribunal_'s own initiative; or_

(b)

on the application of a party in accordance with the rules_."_

33. An entitlement to interest by the landlord is to be found in clause 2.1.10 of the lease which states in effect that the tenant must pay on demand interest at the rate stated in Item 14 on any rent or other money which the tenant has not paid within 7 days of the due date. Interest is to be calculated daily from the due date and continues until the overdue money is paid. The rate stated in Item 14 of the lease was 2 per centum higher than the rate prescribed from time to time pursuant to the Penalty Interest Rates Act 1983. It should be noted that all rates and other moneys payable by the First respondent pursuant to the lease were duly paid, save for the cost of reinstating the premises to a lettable condition.

34. The clause was pleaded in the Points of Claim and a claim for interest pursuant to the clause was set out in the prayer for relief. However loss of rent was also claimed which I allowed. The amount awarded was the cost of repairing the premises together with an allowance for the loss of rent of the premises up to the date of the hearing and for the time thereafter that it should reasonably have taken the Applicant to repair the premises to a condition where they could be relet. I could not allow both loss of rent and interest on the money awarded to repair the premises. The reason for the loss of rent allowance was that the Applicant was not paid the sum by the Tenant that would have permitted it to repair the premises and return them to a lettable condition. To allow both rent and interest would be double counting.

35. In any event, it does not seem to me that there has been a mistake in the order within the meaning of the section. Whether the Applicant should have been awarded interest is, at best, arguable and I did not award it. If the Applicant were dissatisfied about the manner in which the damages were calculated the appropriate avenue was an appeal not an application to correct the order under s.119. The same applies to Mr Moore's other submission that I should increase the allowance for loss of rental because the effect of the stay has been to deprive the Applicant of the money that it needs to repair the premises. I cannot do that under s.119.

36. The Joined Party seeks a continuation of the stay of the order until such time as its appeal is heard. It was anticipated by Counsel at the hearing that this would be before Christmas and I have since been informed by the Registrar that it is to be heard on 6 December 2005.

37. The stay is with respect to an order that the Joined Party indemnify the First Respondent with respect to the insurance policy and also pay its costs of this proceeding on an indemnity basis. Affidavits filed by the Second Respondent depose that, despite having a high turnover, the First and Second Respondents have few assets and would be unable to meet the order made against them in favour of the Applicant. From this it would appear that, if the Joined Party were to pay the amount of the judgement to the First Respondent it would be used by it to satisfy the judgment debt to the Applicant and would no longer be in the possession of the First Respondent. If the Joined Party's appeal should then be successful it is doubtful that it would be able to recover any of the money so paid from the First Respondent because the First Respondent would have no sufficient assets available from which the amount to be repaid could be raised. I think this is a reasonable apprehension on the part of the Joined Party and since the appeal is likely to be heard before Christmas it is appropriate to continue the stay until the determination of the appeal or further order.

38. The First Respondent also seeks a stay of the order made against it in favour of the Applicant. The ground of the application is that it is unable to pay the judgement because of the stay awarded in favour of the Joined Party and that, since it incurred the cost of insurance to protect it in such circumstances, it should not be in a position where it might be wound up or have its assets seized simply because it is unable to execute its judgement against the Joined Party.

39. The Second Respondent is not entitled to any indemnity under the policy from the Joined Party but the effect of the orders currently made is that he will not have to meet the judgement because that will be met by the Joined Party.

40. The Applicant objects to any stay and says that there is no reason it should be shut out of the fruits of its judgement, which is not the judgement under appeal, because of an appeal by the Joined Party. This is true but I have a discretion in this matter and having granted a stay to the Joined Party for sound grounds it will be most inequitable to refuse a similar stay to the First and Second Respondents.

41. The Applicant and its directors are also, according to the evidence, without funds as a result of the stay granted in favour of the First and second Respondents. I think that it would be unjust to allow a situation where, because of a stay that I have granted to other parties it should be placed in a position of facing execution of its only substantial asset, being the damaged factory to pay Envirochem's costs. There will be probably be some delay in any event in assessing the amount of costs to be paid and since the appeal is to be heard in early December I think it is fair to stay execution upon the order for costs in favour of Envirochem.

Civil and Administrative Tribunal Act 1998

Interest Rates Act 1983

Palang Engineering v MCM Chemical Handling

At a glance

Court

Decision date

Source

Judgment (55 paragraphs)

Palang Engineering v MCM Chemical Handling (Civil Claims) [2005] VCAT 2154 (30 September 2005)

Parties

Legislation Cited (2)

Cases Cited (1)