Plaintiffs v Defendants

1 In this matter I gave judgment for the defendants on 21 May 2004 and indicated that I would hear the parties on the question of costs. The case had a number of unusual features which seemed to me to potentially bear on the issue of costs and I took the step of alerting the parties to some of those features to enable them to have the opportunity to address them, if they wished.

2 The matters that I alerted the parties to were, in brief summary, the following.

3 First, the fact that it seemed to me that the plaintiffs had been induced to believe that they had a good claim because of allegations made by the third defendant, Mr Ceravolo, in proceedings between him and the Commonwealth of Australia ("the Commonwealth") that were closely related to this proceeding.

4 Secondly, the evidence given by Mr Ceravolo in relation to certain matters, and in particular his evidence concerning a letter he said had been written to him by his solicitor and his reaction to a call for production,[1] his evidence about a $12,000 cheque,[2] and his evidence about the disclosure of a matter to Mr Tomassi, one of the plaintiffs.[3]

5 Thirdly, the fact that notwithstanding that the plaintiffs had failed, I did find that the third defendant, Mr Ceravolo, had made a misrepresentation to them on 10 September 1991.

6 Fourthly, a series of belated admissions by the successful defendants in the course of the hearing of matters which, it seemed to me, also formed part of their own case and as to which it was difficult to understand why admissions had not been made at a much earlier time.

7 Today I have heard argument from counsel on the question of costs. Mr Tsalanidis has made submissions pointing out the strength of the ordinary principle that a successful party should have their costs, and referring to the kinds of unusual circumstances that justify departure from that principle, as referred to in Ritter v Godfrey,[4] and in more recent cases in Victoria, Thorne v Doug Wade Consultants Pty Ltd[5] and Verna Trading Pty Ltd v New India Assurance Co Ltd.[6]

8 He submitted that the kind of conduct which ought to lead to a successful party being deprived of their costs is not to be found here. He submitted that the plaintiffs were not induced to bring the proceeding by anything other than their own greed, which is why they waited to see whether Mr Ceravolo succeeded in his claim against the Commonwealth before bringing the proceeding. He also pointed to the fact that the plaintiffs had comprehensively failed, not establishing an entitlement to relief on any ground.

9 In relation to the matters I had pointed to concerning Mr Ceravolo's evidence, he submitted, correctly, that none of those matters had been directly relevant in the sense of establishing any entitlement to relief. In relation to the belated admissions he submitted that this was not an uncommon circumstance in litigation and that there was no evidence of any increased cost as a result of any belated admissions.

10 Mr Tsalanidis, as I understand him, did not ask for any order beyond the ordinary order in favour of a successful party, that is, costs on a party/party basis, but he did refer to two further factors that sometimes justify an order on a more generous basis by way of fortifying his submission that an order on the ordinary basis ought to be made here.

11 The first factor he referred to was the unproven allegation of fraud, and the second factor he referred to was the fact that on 26 March 2004 the defendants had made an offer to the plaintiffs to settle the proceeding on the basis that the proceeding be discontinued and each party bear their own costs. The 26th of March was a Friday; the trial had commenced on Wednesday 24 March. Mr Tsalanidis handed me a copy of the faxed letter, without objection, and it bears a note indicating that it was faxed at 3.55 pm on Friday 26 March 2004. The plaintiffs were given until 10.30 am on Monday 29 March 2004 to accept. Express reference was made to the decisions in Calderbank v Calderbank[7] and MT Associates Pty Ltd v Aqua-Max Pty Ltd (No 3).[8]

12 Section 24 of the Supreme Court Act 1986 provides that costs are in the discretion of the Court. Mr Schlicht, on behalf of the plaintiffs, submitted that this was one of those unusual circumstances where costs ought not to follow the event. His submission was that there should be no order as to costs. In making that submission he principally relied upon the fact that the plaintiffs were induced to believe that they had a good claim by relying upon what the third defendant, Mr Ceravolo, had pleaded against the Commonwealth. He pointed to the fact that the allegation that the representations made were untrue in the original statement of claim was particularised solely by reference to the pleading that Mr Ceravolo had delivered in the proceeding involving the Commonwealth.

13 In relation to the Calderbank offer he submitted that this was not a genuine offer and that it could not be expected that a plaintiff would accept such an offer in the circumstances. He pointed to the fact that the offer was made early in the trial. He also submitted that it was impossible to say, as matters presently stood, that the plaintiffs had in fact achieved a worse outcome than what was offered in the letter. Until the question of costs is determined it cannot be said, Mr Schlicht submitted, that the plaintiffs have in fact achieved a worse outcome than what they were offered on Friday 26 March 2004.

14 The discretion provided for by s 24 of the Supreme Court Act 1986 is unfettered in its terms, and the authorities have emphasised that there are no strict requirements that regulate the exercise of the discretion. The discretion must, however, be exercised judicially and it must be exercised upon proper materials, and with regard to the principles which have guided the courts for centuries in relation to questions of costs. In the ordinary case a successful litigant will recover its costs on a party/party basis. This is a principle which is important to the conduct of litigation as we understand it. There are circumstances, however, where a successful party will not recover its costs, and indeed there are circumstances where a successful party might be ordered to pay the unsuccessful party's costs.

15 In Verna Trading, a case relied upon by Mr Tsalanidis, Kaye J, with whom McGarvie J agreed, considered in some detail the authorities concerning the circumstances in which a successful defendant might be deprived of its costs, and the circumstances in which a successful defendant might be ordered to pay all or part of an unsuccessful plaintiff's costs. In that case Kaye J emphasised that the discretion could not be fettered by the application of rigid principles, such as had been suggested by Atkin LJ in Ritter v Godfrey. Mr Tsalanidis submitted that Atkin LJ's statements of principles nevertheless provide guidance as to the sorts of circumstances that justify a successful defendant being deprived of its costs and I accept that that is so.

16 The decision in Ritter v Godfrey, as analysed by Kaye J in Verna Trading, does show that amongst the grounds upon which a successful defendant might be deprived of its costs are:

(a) where the defendant has brought about or induced the litigation, or has induced a belief in the plaintiff's mind that the plaintiff has a good claim;

(b) where the defendant has conducted himself in a way that has occasioned increased litigation and expense; and

(c) where the defendant has done wrongful acts in the course of the transaction of which the plaintiff complains.

17 Even more extraordinary circumstances must be found to exist before a successful defendant would be ordered to pay the plaintiff's costs, but such circumstances are not unknown and Beach J's decision at first instance in Verna Trading is an example of such an order. Beach J indeed went so far as to order costs against a successful defendant on a solicitor/own client basis. The misgivings that Ormiston J expressed in the appeal in that matter may well be related to this aspect of Beach J's approach.

18 Kaye J's analysis in Verna Trading has since been relied upon as setting out the appropriate principles to be applied.[9] I proceed on the basis that his analysis is the correct one.

19 In the circumstances here it seems to me that there is not a proper basis for ordering the second and third defendants, who have succeeded, to pay any part of the plaintiffs' costs. However, I consider that the circumstances here do require that the successful defendants be deprived of an order for costs in their favour.

20 The factors that lead me to conclude that this is the appropriate course are the following.

21 First, in my view, the defendants did induce in the plaintiffs a belief that they had a good claim. The plaintiffs' claim was at least in part prompted, in my view, by untrue allegations made by Mr Ceravolo in the related proceeding between him and the Commonwealth. If the allegations that Mr Ceravolo made against the Commonwealth had been true, and had been established in this proceeding, the plaintiffs would have succeeded on the substantial factual issues raised by this case.

22 The defence and counterclaim of Mr Ceravolo in the Commonwealth proceeding alleged that he had reached an agreement with the Commonwealth whereby settlement of the sale would be postponed until the Commonwealth had provided Mr Ceravolo with proof of non-contamination of the land. It was also alleged that misrepresentations had been made to Mr Ceravolo by officers of the Commonwealth or their agents prior to entry into the contract. It was not until Mr Ceravolo's oral evidence and cross-examination, occupying days 8-10 of this proceeding, that it was revealed that many, if not all, of these claims were without factual foundation.

23 Mr Tomassi, one of the plaintiffs, said in his evidence that after reading the applicable paragraph of the defence and counterclaim in the Commonwealth proceeding, he discovered that it was "not true what he [Mr Ceravolo] was saying to us all along." Similarly, Mr Wilson said that after reading the defence and counterclaim he found that the Commonwealth had not been pressing for settlement or payment of penalties. Dr Loizou also gave evidence that he had read the defence and counterclaim, although he was unsure when he did so.

24 It is particularly significant that the original statement of claim filed on 15 June 1998 relied upon the allegations made against the Commonwealth by Mr Ceravolo as being the basis for the allegation that the representations Mr Ceravolo had made to his partners were untrue.

25 This is the most important factor which leads me to conclude that an unusual course should be taken in this case. If the dealings between Mr Ceravolo and the Commonwealth had been clear to the plaintiffs, a different course might have been taken by them.

26 A second factor which bears on the matter and creates an unusual position is the evidence that Mr Ceravolo gave in this proceeding, which, in certain respects, was most unsatisfactory in my view. It is necessary to say that I formed the view that Mr Ceravolo was not prepared to reveal the truth of some matters, and, accordingly, was not assisting the Court as much as he could have in determining these difficult disputes.

27 It transpired that the matters with which I am concerned were not critical to the outcome of the case, but in my view they do bear upon the question of costs. The matters which particularly concerned me in that regard are those to which I alerted the parties and to which I have referred earlier. Additional unsatisfactory aspects of Mr Ceravolo's evidence are set out in my judgment delivered on 21 May 2004.

28 In this respect I was also concerned at the approach taken by the successful defendants and their advisers in the interlocutory stages of the proceeding. It seemed to me that there had been a failure to admit a number of matters which subsequently became part of their own case. In particular, I refer, by reference to the second amended defence, to the admissions eventually made in paragraphs 12, 13, 16, 23(b) and 23(c).

29 The final factor which leads me to conclude that an unusual course should be taken here is the fact that I have found there was some wrongdoing by Mr Ceravolo in relation to the relevant transactions. In this respect I refer to my finding as to the misrepresentation regarding the Popovic land made by Mr Ceravolo on 10 September 1991.

30 It is said on behalf of the defendants that the plaintiffs would have failed in any event because of the successful laches defence. There would be merit in that submission were it not for the fact that that defence was introduced into the proceeding and pleaded for the first time on day nine of the trial. In the circumstances, the late introduction of the laches defence is a factor also militating towards a refusal of an order for costs in the defendants' favour, notwithstanding their success.

31 The allegation of fraud is one which, if it is not made out, would ordinarily have costs consequences for the person making the allegation. The circumstances here are, again, in my view, unusual. If the allegations that Mr Ceravolo made against the Commonwealth had been true, as particularised in this proceeding in paragraph 26 of the original statement of claim, then Mr Ceravolo would have made representations to his partners which he must have known to be untrue. Thus, it seems to me that the allegation of fraud was also induced by the false allegations which Mr Ceravolo made against the Commonwealth in his pleading in the Commonwealth proceeding.

32 Finally, Mr Tsalinidis relied upon the Calderbank offer made on Friday 26 March 2004. Ordinarily there ought to be costs consequences for failing to accept such an offer, but the circumstances here are unusual. As at Friday 26 March 2004, the plaintiffs still did not know what Mr Ceravolo's evidence would be, or what his case would be, about the arrangements between him and the Commonwealth. This did not become clear until days 8-10 of the trial when it became apparent that Mr Ceravolo could not provide any factual basis for the relevant allegations he had made against the Commonwealth concerning agreement to delay settlement, and in fact disavowed any such agreement as alleged.

33 If, on 29 March 2004 when the offer expired, the position as it was subsequently revealed to be had been known, it is not at all clear what the costs consequences would have been if the plaintiffs had decided to discontinue. They might well have successfully argued that the defendants ought to pay the costs, as the defendants had never made it clear that Mr Ceravolo's pleading against the Commonwealth was untrue.

34 If, instead of sending a Calderbank offer, the defendants had made an offer under Order 26 that the plaintiffs withdraw, which had been accepted, the Court might have been called on to decide what ought to be done about the issue of costs.[10] If the facts, as subsequently found, had been revealed then, it seems to me to be unlikely that the Court would have been persuaded to "otherwise order" under Rule 26.03(7). If so, the defendants would have had to pay the plaintiffs' costs.

35 The sorts of concerns which led courts at one time to be dubious about imposing costs consequences where there had been "all in" offers are particularly apparent here. I accept what Gillard J said in Aqua-Max that sometimes it is very easy to tell whether an "all in" offer ought to have been accepted or not. That is not the case here. It is not easy to tell whether the plaintiffs reasonably ought to have accepted the offer made to them on 26 March 2004, and, in the circumstances, I do not intend to depart from the course I would otherwise have taken because that offer was made.

36 It could be said that it was not until day 10 of the trial that the plaintiffs were really in a position to assess whether they ought to have accepted the offer made on 26 March 2004 or not. The material before me indicates that the offer remained open until 10.30 am on Monday 29 March 2004. By day 10 of the trial, the offer was not open to them.

37 It is an unusual course to deprive successful defendants of their costs but in the very unusual circumstances of this proceeding that is the course which I intend to take. The orders will be that the plaintiffs' claim is dismissed and that there be no order as to costs.

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[1] Transcript 734.

[2] Transcript 765-771, 862-863.

[3] Transcript 837-840.

[4] [1920] 2 KB 47.

[5] [1985] VicRp 48; [1985] VR 433.

[6] [1991] VicRp 12; [1991] 1 VR 129 ("Verna Trading").

[7] [1976] Fam 93.

[8] [2000] VSC 163 ("Aqua-Max").

[9] See Gatt v Norlin [1998] VSCA 140, [42] (Phillips JA) and Development Ventures Pty Ltd v Bayside Health [2003] VSC 111.

[10] Supreme Court (General Civil Procedure) Rules 1996 r 26.03(7).