Peet Limited v Richmond [2010] VSCA 71

Court of Appeal (Vic)|2010-03-26|Before: NETTLE and NEAVE JJA

COSTS - Special scale - Indemnity costs - Whether open to trial judge to make indemnity costs order in respect of abandoned claims - Australian Securities Commission v Aust-Home Investments Ltd [1993] FCA 585; (1993) 44 FCR 194, distinguished; Aljade and MKIC v OCBC [2004] VSC 351, applied.

2 The applicant contends that the judge erred in embarking upon an hypothetical trial of the abandoned issues; further or alternatively, in deciding on the efficacy of the abandoned claims by restricting consideration to the claims as they were pleaded, as opposed to the way in which they might have been amended; and further or alternatively, in deciding on the abandoned claims on the basis of the evidence which was before the judge as opposed to evidence which might have been adduced.

3 The principles which govern an application for leave to appeal against an indemnity costs order are tolerably clear. As Ormiston JA observed in Transport Accident Commission v O'Reilly:[1]

[I]t is extraordinarily difficult to show that a court of first instance or a tribunal with wide discretionary powers has erred in the exercise of its powers to award costs, if there be some basis for making an order other than the conventional order in favour of the successful part.

4 More generally, an appellate court will not overturn a judge's decisions on costs unless the judge is seen to have failed to exercise his or her discretion on reasonable grounds or has applied wrong principle or taken a manifestly erroneous view of the facts.[2]

5 The applicant contends that this case comes within that description. The respondent submits that the judge's decision is not attended by sufficient doubt to warrant appellate intervention.

6 Before turning to the detail of applicant's submissions, it is convenient to say something of the context in which the application arises.

7 The applicant's claim concerned commercial dealings between the applicant and the respondent, in the period between late 2002 and 2006, relating to the rezoning and redevelopment of land owned by the respondent. During that period, the applicant provided a number of services to the respondent which were admittedly of substantial value to the respondent and for which the respondent acknowledged she owed the applicant reasonable recompense.

8 In January 2007 the applicant instituted proceedings in the Commercial and Equity Division alleging four causes of action; namely, (a) a claim in contract; (b) a claim in estoppel; (c) a claim in unjust enrichment; and (d) a quantum meruit.

9 By her defence the respondent admitted that the applicant was entitled to a quantum meruit. Thus, so far as that claim was concerned, the only issue was the appropriate amount to be paid to the applicant. The respondent, however denied the other claims.

10 From time to time during the interlocutory stages of the proceeding, the applicant announced that it was its intention to amend its statement of claim. But, in the event, it did not amend the pleading at any time before the first day of trial in October 2008.

11 The trial began on Monday 20 October 2008 on an estimated duration of ten days' hearing. At the outset of the trial, however, counsel for the applicant announced without explanation that the applicant abandoned its claims in contract, estoppel and unjust enrichment. Thereafter, the trial ran simply as an assessment of the quantum meruit over the next four days. Judgment was delivered in April 2009 for a sum of approximately one third of what was claimed.

12 Subsequently, the parties were heard on the issues of interest, GST and costs and the judge gave judgment on those issues in December 2009. Her Honour upheld the respondent's application for indemnity costs of the abandoned claims upon the basis that the applicant, if properly advised, should have known that it had no chance of succeeding in those claims and thus that they should be presumed to have been commenced or continued for some ulterior motive or because of some wilful disregard of known facts or clearly established laws.[3]

13 Beginning with the contention that the judge erred in conducting an hypothetical trial of the abandoned claims, counsel for the applicant submitted that her Honour's approach was contrary to authoritative statements of Hill J in Australian Securities Commission v Aust-Home Investments Ltd,[4] and of McHugh J in Re Minister for Immigration and Ethnic Affairs of the Commonwealth of Australia; Ex Parte Lai Qin,[5] that it is rarely if ever, appropriate to engage in an hypothetical trial even for the purposes of awarding costs.

It will rarely, if ever, be appropriate where there has been no trial on the merits, for a Court determining how the costs of the proceeding should be borne to endeavour to determine for itself the case on the merits or, as it might be put, to determine the outcome of a hypothetical trial,...'[6]

In an appropriate case, a court will make an order for costs even when there has been no hearing on the merits and the moving party no longer wishes to proceed with the action. The court cannot try a hypothetical action between the parties. To do so would burden the parties with costs of a litigated action which by settlement or extra-curial action they had avoided. In some cases, however, the court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action ...[7]

15 Counsel for the applicant acknowledged that the judge had taken into account the content of witness statements filed in anticipation of the abandoned claims, but submitted that the mere existence of those statements was insufficient justification for departure from the established practice of eschewing hypothetical hearings.

16 In my view, the applicant's submissions are not persuasive. It is plain from the judge's reasons that her Honour was well aware of the significance of Hill J's observations in Aust-Home Investment. She expressly referred to them in her reasons for judgment, and to a number of other authorities in which the same principle has been applied in cases in which an action has been settled prior to trial. But as the judge went on to reason, in effect by analogy with cases in which one party has effectively surrendered to the other prior to trial, and the court is prepared to order that the surrendering party pay the other party's costs even though the court has not heard evidence in relation to the proceeding, there is no reason in principle why a judge ought not determine an application for indemnity costs based on an effective surrender.

17 No doubt, to inquire into costs when parties have settled a proceeding or avoided trial by extra-curial action could in some cases impose such a burden on the parties that the exercise should be avoided. It is also fair to say that in many instances a court will simply not have available to it the information necessary to determine an indemnity costs application without undertaking the sort of enquiry which would be just too burdensome and expensive an exercise for all concerned. But as the judge observed:

In this case not only is there the unexplained surrender, but the Court is in the unusual position of being able to assess the strength of the abandoned claims. That is because the usual commercial list orders had been made; namely, that evidence-in-chief be by witness statement with no additional evidence to be led in-chief without leave of the Court and all documents sought to be relied upon be included in the court book. Peet's witness statements and almost all of the court book were put in evidence before me for the purposes of determining quantum meruit.[8]

18 Given then that the judge did have all of the evidence in chief on which the applicant proposed to rely in support of its abandoned claims and, as will be seen, the applicant did not suggest that there was any more evidence available to be offered in support of those claims, it seems to me that it was within the judge's discretion to proceed to deal with the claim for indemnity costs as she did.

19 Counsel for the applicant contended that, assuming it were open to the judge to consider the viability of the abandoned claims, her Honour erred in deciding the viability of the contract claim as pleaded, as opposed to the way in which it said that it might have been developed, if necessary after appropriate amendment.

20 More precisely, the contract as pleaded was said to be partly oral and partly implied and the judge held that the content of the witness statements did not make out the oral aspect of such a contract. In the applicant's submission, her Honour failed to take into account that it was possible that, if the claim in contract had gone to judgment, the applicant might have succeeded in establishing a contract which was wholly implied or, alternatively, might have sought and been granted leave to amend its particulars of oral contract and proved the existence of a contract in terms as so amended.

21 I am not persuaded that there is much in that point either. In the course of oral argument before the judge, her Honour invited submissions as to any evidence which supported the pleaded contract and also any material which may have been relevant to a wholly implied contract, and junior counsel for the applicant addressed her Honour at length on the evidence which she submitted would be capable of supporting a contract wholly implied from conduct.

22 As an aside, it would be fair to say that the exercise appears to have involved a vigorous exchange of views between Bench and Bar as to the significance of the material relied upon. But in the end, as I read the transcript, counsel was obliged to and did fairly concede that, on the view of the evidence most favourable to the applicant, the highest she could put the case was that the parties proceeded with work while undertaking pre-contractual negotiations on the understanding that a contract would be entered into. The point is encapsulated in the following exchange between the judge and counsel, after counsel had gone through all of the evidence which, in her submission, supported the existence of a contract implied from conduct:

HER HONOUR: These [the facts relied on by counsel] are all just perfectly consistent with pre-contract negotiations.

COUNSEL: Your Honour, we would submit that they also consistent with Peet undertaking the work, that is well known to Your Honour, on the understanding that a contract would be entered into.

HER HONOUR: Would be entered into. Exactly, these are negotiations for a future contract.

23 Such an arrangement or understanding, if proved, would have fallen a long way short of a binding contract constituted wholly of conduct in the terms alleged in the applicant's statement of claim. Nor did counsel propose or identify any further amendment which, consistently with the available evidence, might have saved the case on contract, whether partly oral or wholly implied. Consequently, I see no error in the judge's conclusion.

24 Of course, one may conjecture all sorts of possibilities which might or might not have been decided if a different sort of case had been presented. But the judge was bound to decide the case on the basis that it was presented. As counsel for the respondent submitted, therefore, the real point is not the theoretical prospect that a wholly implied contract might have been found to exist if the contractual claim had been amended to one of wholly implied contract and if evidence had been adduced sufficient to support the existence of its implication. The real point is that the judge received all of the evidence which the applicant professed itself able to offer in support of its contractual claims, oral or implied, and concluded that, on the basis of that evidence, such claims were untenable.

25 Put another way, whatever theoretical conceptions might have been invoked in support of a case in contract, they were and are meaningless in the absence of evidence to support them. And, as it was before the judge, it is now, that there was no such evidence or hint of its existence.

26 The judge dealt with the estoppel claim as follows:[9]

In order to have succeeded, Peet would have needed to plead and prove the creation or encouragement by Mrs Richmond in Peet of an assumption that a contract would come into existence, and reliance on that by Peet in circumstances where departure from that assumption by Mrs Richmond would be unconscionable.[10] No doubt whoever drafted the proposed amendments to para [7] was aware of this problem, and was seeking to rectify it by the proposed amended statements of claim, which were circulating in the six weeks or so prior to trial. But those amendments were never formally made, and the estoppel case as pleaded was doomed to failure.

27 The applicant contends that the judge erred in so assessing the viability of the claim as pleaded, as it were devoid of an allegation of reliance, when there were in existence proposed amendments to the claim which would have overcome that deficit. Counsel for the applicant argued that so to approach the matter compounded the injustice which he said resulted from conducting an hypothetical enquiry into the viability of the abandoned claims. Further and in any event, in his submission, if the judge had approached the estoppel claim as if it had been amended to allege reliance, it would not have been open to the judge to conclude that the claim was doomed to fail.

28 The difficulty with all that, however, is that although the judge did make a great deal of the fact that the pleadings were never amended to allege reliance, it is apparent that her Honour then went on to consider the matter also upon the assumption that the pleadings were so amended, and she concluded that the result would have been no different.[11]

29 I agree with the judge that it would not have made any difference. As has been observed, the highest that counsel was able to put the applicant's case in implied contract was that the parties proceeded with the work, at the same time as they undertook their pre-contractual negotiations, on the understanding that a contract would be entered into upon terms yet to be decided. As it was put before the judge, and again before us this morning, it was that same alleged assumption which was said to found the estoppel. Self-evidently, that was and is inadequate to sustain the pleaded contention that the respondent was estopped from denying that it was bound by an extant agreement in the terms identified in the statement of claim, and of which it sought specific performance. Such a claim would be bound to fail.

30 Finally, counsel for the applicant argued that the judge erred by giving no or insufficient weight to the applicant's belief as to the strength of the abandoned claims, and to the respondent's failure to draw the futility of the abandoned claims to the applicant's contention. The judge was also wrong, he said, to presume that the abandoned claims were commenced or continued for some ulterior motive, or because of some wilful disregard of the known facts or the clearly established laws.

31 Taking those points in turn, I do no think that there is any substance in the first of them. There was no evidence as to the applicant's belief in the strength of its abandoned claims, and no reason to suppose that the applicant would have believed that there was any strength in them. To the contrary, the dearth of evidence in support of the abandoned claims, and the manner in which they were abandoned without explanation at the outset of the trial, strongly implied that the applicant believed that they were likely to fail. Why else limit its claim to a fraction of what was sought under the contractual and estoppel causes of action?

32 Nor do I think that there is anything of substance in the second point. The judge dealt specifically with the question of whether the respondent had sufficiently identified to the applicant what the respondent conceded to be the weaknesses of the abandoned claims. Her Honour said this:

Even if the abandoned claims were futile (which it denies), Peet says that it should not face a special costs order because Mrs Richmond never tried to strike out the abandoned claims, and never drew to Peet's attention her assertion that those claims were futile.

As a matter of principle, if one party has drawn the futility of the case to the attention of the losing litigant, and the losing litigant has wilfully ignored that, those may be circumstances supporting a special costs order.[12] But it does not follow that a special costs order can only be made if the successful party has drawn the futility to the other side's attention.

The suggestion that Mrs Richmond should have sought to strike out the abandoned claims is misconceived, for the most part. In particular, the pleadings as to contract and unjust enrichment were in acceptable form and disclosed arguable claims, which would not have been amenable to strike out on a pleading summons.

Mrs Richmond repeatedly denied the existence of any binding contract at numerous stages, both prior to and during the proceeding, and challenged Peet to explain its case. She offered to pay Peet for the work it had done for her benefit. It is really not clear what more she should reasonably have done to make her position clear.[13]

33 With respect, I see no error in that. While the failure of a party to point out weaknesses in opposing party's case may sometimes be relevant to an application for a special costs order, each case must depend on its own circumstances. As was observed by Redlich J in Aljade and MKIC v OCBC[14] in the different but related context of an application for a special costs order following rejection of an offer of compromise, and was subsequently confirmed by this Court in the same context in Hazeldene's Chicken Farm v Victorian WorkCover Authority:[15]

Whether there is a need for the offeror to descend to specificity as to why the offer should be accepted, must depend upon a consideration of all the circumstances existing at the time of the offer. The extent to which the weakness of a party's position is exposed through the pleadings affidavits and the various communications between the parties during the course of the litigation may bear upon the significance of the absence of specificity in the informal offer.

34 So too is that the case, in my view, when the application is for a special costs order in relation to claims that were bound to fail. While failure expressly to draw the weaknesses of an opponent's case to their attention may in some cases be inimical to the application, in other cases it may well be sufficient that the weaknesses of the abandoned claims are exposed through the pleadings, affidavits and various communications between the parties during the course of the litigation. Here, as the judge concluded, that was the position.

35 Finally, I see nothing in the point concerning the judge's statement that it should be presumed that the abandoned claims were commenced or continued for some ulterior motive, or because of some wilful disregard of known facts or clearly established laws. Read in context it appears to me to be unexceptionable.

36 Importantly, it came at the end of a long section of the judge's reasons in which her Honour set out her conclusions about the abandoned claims. They were as follows:

Most of Peet's lay witness statements, including Mr Lennon's, were filed in August 2008. Further statements were filed in September 2008. Although these statements may be the first time that any of the witnesses 'signed up' to their account of events, it seems inconceivable that the witnesses had not been spoken to earlier about their accounts. If they were not, they should have been.

Mr Lennon is a director of Peet, based in Melbourne. He is specifically mentioned in the pleadings as being present at the September meeting, which is critical to the entire contract claim (and therefore also the unjust enrichment claim). He should have been spoken to before the relevant pleadings which mention him were drawn.

For a long time prior to the commencement of the proceeding, Mrs Richmond had been denying the existence of any contract and requesting Peet to provide details of the alleged contract, something which Peet steadfastly refused to do until the writ. The particulars in the statement of claim endorsed on the writ were brief, and further and better particulars were sought and provided. Knowing that there was a dispute about the existence of any contract, Peet and its lawyers should have taken all reasonable steps to obtain the information necessary to plead Peet's claims and provide further particulars.

Reasonable legal advice would have been that the estoppel claim, as pleaded, was doomed to failure. It would also have been that Peet's pleaded contract claim (and therefore also it unjust enrichment claim), was not supported by the evidence.

Peet could have explained to the court why it chose to abandon the claims - for example, that there had been a change in legal advice, or a witness had changed his earlier evidence. By the time its solicitor swore his affidavit in relation to costs, Peet was well aware from Mrs Richmond's outline that one of the grounds on which she would be arguing for indemnity costs related to the abandonment costs. Peet chose to offer no explanation for the abandonment.

Given that the damages sought in respect of the contract claim exceeded $60 million, and that all the evidence in relation to the abandoned claims had already been prepared and included in the witness statements and court book, one might have expected the contract claim to be run if Peet thought it was even arguable.

For the reasons given earlier, I am satisfied that Peet, if properly advised, should have known that it had no chance of success in respect of the abandoned claims. In that case, the proceeding 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 laws.[16]

37 Viewed in that context, it will be seen that her Honour's mention of what might be presumed had nothing really do with any presumption. Rather it was a means of describing an inference, which her Honour evidently drew from all the considerations to which she referred as to why the applicant, if properly advised, should have known that the abandoned claims had no chance of success. Since there was a dearth of evidence to support the abandoned claims, and a complete absence of explanation for the applicant persisting with them until the first day of trial, only then to abandon them at the outset, I consider that it was open to the judge to draw that inference. Indeed, it is hard to think of what other possible explanation there might be.

38 Counsel for the applicant submitted that the judge's conclusion was deficient because it was based on what he described as her Honour's flawed conclusions as to the hopelessness of the abandoned claims. I have dealt with that already. In my view, the judge's conclusions were not flawed or at least not attended by sufficient doubt to warrant the grant of leave.

39 Counsel for the applicant also complained that her Honour came to the conclusions she did in the absence of any evidence as to why the abandoned claims were abandoned. But I have dealt with that too. So far from amounting to reason to doubt the efficacy of the judge's conclusions, I consider that the absence of evidence or explanation as to why the abandoned claims were persisted in up till trial, only to be abandoned at the outset of trial, was a powerful indication amongst several that the abandoned claims were commenced or continued for an ulterior purpose or because of wilful disregard of known facts or clearly established laws.

40 So to say is not to overlook the applicant's counsel's submission that it is one thing to conclude that a claim is flawed and another to be satisfied that it ought to have been apparent to the applicant or its advisers that the claim was bound to fail. Nor is it to ignore the importance of the observations of Davies J in Regatta Developments v Westpac[17] that it is the task of lawyers to advise their clients as a matter progresses and that, because advice must be given as more facts become known and the lawyers come to understand the ensuing ramifications, it should not lightly be concluded that the abandonment of a claim implies that it was viewed as hopeless from the outset or maintained after so much became apparent. But each case must depend on its own facts and, as has been explained, in this case they were singular. The judge in this case had an extraordinary insight into all of the evidence which could have been adduced in support of the claim and she judged it to be inadequate.

41 In the result, I am not persuaded that the judge's order is attended by sufficient doubt to warrant the grant of leave to appeal. I would, therefore, dismiss the application.

1. The application for leave to appeal is dismissed.

2. The applicant shall pay the respondent's costs of the application.

[2] McFadzean v Construction Forestry Mining and Energy Union [2007] VSCA 289, [150].

[10] Austotel Pty Ltd v Franklins Selfserve ('Austotel') (1989) 16 NSWLR 528, 585 (Kirby P) and 610, 612 (Priestley JA).

[12] See for example: Williams v Minister for Environment & Heritage [2004] FCAFC 58.

[16] Reasons, [129]-[135] (emphasis added).

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Judgment (66 paragraphs)

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Cases Cited (5)