Plaintiffs v Defendants

• in the second summons, an order giving them leave to join those solicitors as defendants to their counterclaim

3 In my judgment of 14 March 2007 I refused to grant the injunction and gave leave for the joinder. [1]

4 The facts of the litigation are fully described in that judgment and need not be repeated here.

5 I was case-managing this proceeding but that responsibility has now been transferred to another judge of the court.

6 I still have to decide who should pay the costs of the summonses and whether I should make the formal order for joinder. For the following reasons, I will dismiss the first summons, order the defendants to pay the costs of the plaintiffs of that summons, make an order joining the plaintiffs' former solicitors as a party to the defendants' counterclaim, as sought in the second summons, and reserve the costs of the parties to that summons.

7 The second summons was supported by a proposed amended defence and counterclaim. The parties were agreed there should be an amendment along the lines sought. I think I should leave the terms of the amendment to the judge now managing the proceedings. Likewise, I will leave to that judge the steps to be taken in the light of the joinder of the solicitors.

8 On the first summons, the plaintiffs submit costs should be awarded in accordance with the event. They rely on the well-known principle stated in Oshlack v Richmond River Council.[2]

9 Having argued costs should follow the event, the plaintiffs next contend the "event" is the outcome of the application for the injunction, which was aimed at restraining them from continuing to use their solicitors and counsel. The plaintiffs argue the application for joinder was secondary to the main proceeding. Therefore the defendants' success in the joinder application did not constitute the "event" for the purposes of determining costs in the first summons. As will be seen, I accept that submission.

10 The plaintiffs and the solicitors joined argue that leave to join was a procedural indulgence for which the defendants must pay the costs. They rely on Golski v Kirk[3] where an amendment was sought to an application. The court had to decide whether the amendment introduced substantially new issues, so as to expand the claim itself. In awarding costs against the party who sought the amendment, the court ruled "it is usual for a party seeking an indulgence to pay the costs of the application, especially where, as here, the application throws up a difficult legal question."[4]

11 I do not accept the defendants' application to join the solicitors to their counterclaim can be here equated with an application to amend a pleading. Bringing legal proceedings is a fundamental right. It is not much different where doing so involves joining someone as a party to an existing proceeding. In that situation, the court has to decide whether or not to give leave, and a number of considerations are relevant. That function is not properly characterised as deciding whether or not to grant an indulgence. When appropriate, joining parties to an existing proceeding rather than commencing separate proceedings is to be encouraged. Ordering costs against the applicant for joinder would be discouraging.

12 The plaintiffs further submit a cost order is compensatory, not punitive, and that they have incurred considerable expense in defending the challenge to the retention of their legal advisers. They rely on the fact that the injunction application lasted six and a half days, while the joinder application took only two hours. This is correct. The great bulk of the hearing of the summonses was occupied with the defendants' application to restrain the plaintiffs' lawyers from acting for them. The defendants failed in that attempt.

13 Pursuant to rule 63.28, the plaintiffs also seek indemnity costs. The plaintiffs argue that the defendants' application for an injunction did not have a proper basis and was undertaken for tactical reasons. They cite Herald & Ors v Worker Bee (Brisbane) Pty Ltd & Ors[5] in support of their application for indemnity costs. In that case, the court held the plaintiffs' application was not bona fide because it lacked the necessary supportive material. This left open the inference that the plaintiffs should have known that they had no chance of success.[6]

14 The defendants accepted the principles on which the plaintiffs relied, especially that a successful party is justified in having a reasonable expectation of being awarded their costs. Their submissions focussed on establishing they were the successful party.

15 The defendants maintained there were grounds for seeking the injunction restraining the solicitors for the plaintiffs from acting in the principal proceeding. Those grounds included that the solicitors acted for and gave advice to them, that the same solicitors received confidential information from them and that the sixth defendant (Michael Artusa) would be a witness on contentious issues in the principal proceeding. The defendants submitted that, had the injunction application been heard on its merits, it would likely have succeeded against the solicitors.

16 Where a hearing on the merits has occurred, but the case does not proceed to determination, or becomes moot, the defendants submitted costs should be awarded by reference to the likely outcome of the application. In support of this submission, they relied on Yates Property Corporation Pty Ltd v Boland.[7] There the defendant had entered a counterclaim and a hearing was held. The decision was reserved. It was not given as the issue in the claim became moot. However, the arguments presented at the initial hearing were sufficient to enable Goldberg J to determine the likely success of each party, and to rule on costs accordingly.

17 I accept the principle applied in Yates. But, had I still been the case-managing judge, I would have been in difficulty in ruling on this part of the defendants' submissions. It rested in part on issues of credit concerning some key witnesses. Now that I am not the case-managing judge, I am free to say I do not accept the defendants' assessment of their case. Having considered everything they put forward in support of their application for the injunction against the plaintiffs' solicitors, it was not likely to succeed. That is not to say it was, from the start, baseless or fore-doomed to fail.

18 The defendants argued the injunction application, as regards the plaintiffs' solicitors and counsel, and the joinder application, as regards the former, were not put on a discrete basis. Rather, the applications were run together. Nobody, they say, incurred separate costs in relation to the injunction application. Alternatively, if separate costs were incurred, they were minimal.

19 I do not accept that submission. The motive force in this interlocutory proceeding was the defendants' application to restrain the plaintiffs' solicitors and counsel from continuing to act. For separate reasons, the solicitors ceased to act. That was known from an early stage. The defendants continued their application against the plaintiffs' counsel. It failed. That was the substantive event. Relatively, the joinder application did not take up much time.

20 Further and in the alternative, the defendants argued they are entitled to costs on the basis that the court effectively granted them the result they sought, albeit not by an injunction. They submitted the application for the injunction was not rejected as such, but was rendered irrelevant when the court itself identified an alternative route by which the defendants could travel. In support of this argument, they relied on Farrow Finance Co (in liquidation) v ANZ Executors and Trustee Co Ltd (Farrow),[8] where Hansen J held:[9]

although the result for which the liquidator contended was upheld, the substantive submissions of the liquidator were not. In other words... the liquidator was held to be right but for the wrong reasons... Although the submissions of the second defendant (Pyramid) were rejected, part of those submissions exposed what I determined to be the real issue in the proceeding.

21 Accordingly, the defendants submitted they have been substantively successful in both the injunction application against plaintiffs' solicitors and the joinder application, and have failed only in respect of the application regarding the plaintiffs' counsel. They further relied on the principle enunciated by Goldberg J in Dr Martens Australia v Figgins Holdings Pty Ltd (No 2)[10] that the court should not be too ready to disallow costs because a party has failed on one issue.

Reasons for ordering costs against the fifth and sixth defendants

22 Pursuant to s 24 of the Supreme Court Act 1986, the Supreme Court has a wide discretion to award costs, but the discretion must be exercised judicially.[11] The principles that apply in exercising this discretion are well-established and I discussed them in Martin v Fasham Johnson Pty Ltd.[12] In summary the principles are:

• the grounds on which the decision to award costs is made must be connected with the litigation[13]

• the purpose of awarding costs is to compensate the successful party, not to punish the unsuccessful party[14]

• costs should follow the event in most cases, regardless of whether the successful party was successful on all parts of their claim[15]

• an exception to this rule can arise if the issue was raised unreasonably,[16] or where the party succeeded on the basis alternative to the one argued, but failed to establish the issues it originally argued[17]

• the court may apportion costs amongst the parties to avoid the need for separate costs orders or cross-claims.[18]

23 The principal proceeding is that brought by Main-Road Property Group and others against Pelligra & Sons and others. That proceeding arose out of a dispute relating to a property development project being conducted by a unit trust. The plaintiffs claim the return of properties and units they say were wrongly obtained, and an accounting for profits they say were wrongly taken, by the defendants. In those proceedings, the defendants issued the two summonses.

24 As I noted in my substantive judgment on the summonses,[19] the claims brought by the defendants in the counterclaim are legally distinct from the principal proceeding, although the factual matrix overlaps to a significant extent. In the way the hearing of the two summonses ran, it was the injunction application in the principal proceeding that overwhelmingly dominated, as I have already said. I will therefore award costs on the basis that the relevant "event" is the application for the injunction. Costs relating to the application for joinder will be considered separately.

25 The defendants argue they have substantially succeeded in both applications, because they have achieved the result of preventing the plaintiffs' solicitors from acting in the principal proceeding, and they will be joined as a party to the amended counterclaim. This argument is flawed.

26 As to the injunction, it ignores three important considerations. First, the plaintiffs said early in the proceedings their then solicitors would not be acting for them if they were joined as parties to the defendants' amended counterclaim. Second, the grounds for the injunction sought against the solicitors were not established. Third, the plaintiffs' counsel were not restrained from acting, despite the injunction being pressed heavily against them.

27 As to the joinder, this was granted in recognition of the defendants' right to issue proceedings (by joinder) against the plaintiffs' then solicitors. Of itself, the joinder says nothing of the defendants' chances of success in that substantive claim, except that it was not fore-doomed to fail. The issue of whether the claim is likely to succeed is one that is reserved for the trial. The granting of a joinder effectively resulted in the solicitors not acting on a basis entirely unrelated to the injunction. It says nothing about the likely fate of the defendants' injunction application against the plaintiffs' solicitors.

28 As we have seen, the defendants submit their application for the injunction was not rejected as such, but rendered redundant by court's identification of the alternative route. They relied on Farrow[20] where the court took into account that "the liquidator was held to be right but for the wrong reasons..." This analysis cannot be accepted.

29 The present circumstances involved two separate parts of a proceeding - a substantive claim and a counterclaim. The reasons for which the solicitors are no longer acting for the plaintiffs are connected with the counterclaim. As regards the injunction application in the substantive claim, the defendants have failed entirely to establish the grounds for the injunction. Therefore they are incorrect in claiming they were "right but for the wrong reasons". When it became clear the plaintiffs' solicitors would not be continuing to act if joined, the defendants strongly pressed the injunction application against the plaintiffs' counsel. That became their main forensic objective. It failed.

30 As we have seen, the defendants further submitted that, if the grounds for an injunction against the solicitors had not been fully argued, the application was likely to have succeeded. In support of this submission, they went so far as to argue the evidence of Michael Beswick, the plaintiffs' principal solicitor, was "unsatisfactory", such that his credibility was brought into question.

31 I reject those submissions. I repeat, the defendants' application against the solicitors was not likely to succeed. The defendants' attack on Mr Beswick's credit is without foundation. His evidence before me was not unsatisfactory.

32 For those reasons, the fifth and sixth defendants will be ordered to pay the plaintiffs' costs of the summons dated 10 August 2006. Very little time was taken up with the summons dated 20 December 2006. The issues were so mixed the plaintiffs could not have withdrawn for that small portion of the argument. In the circumstances, the most practical course is to regard all of the plaintiffs' costs of the interlocutory proceedings as being relating to the first summons. They should have the whole of their costs of participating in the interlocutory proceedings on that basis.

33 In view of that conclusion, it is not necessary for me to address all of the plaintiffs' submissions regarding costs. The only issue not determined in the above analysis is whether the plaintiffs are entitled to indemnity costs, as they have claimed. They say the application for the injunction was made for tactical reasons and lacked a proper basis.

34 Rule 63.28 makes a clear distinction between indemnity costs and other costs in recognition of the fact that they provide the most complete indemnity. Indemnity costs therefore should not be confused with other types of costs.

35 Pursuant to this rule, the court has an unlimited discretion to award indemnity costs, but it must be exercised judicially and reasonably.[21] In practice, an award of costs on an indemnity basis is reserved for occasions where there has been inappropriate conduct warranting the court's disapproval.[22] The principal reason for the reluctance of the courts to award costs on an indemnity basis more freely is the need to balance the conflicting priorities of protecting access to justice and compensating successful litigants for costs reasonably incurred.[23]

36 The authorities reveal a number of possible bases for granting indemnity costs, including the making of false allegations of fraud,[24] conduct causing loss of time to both parties,[25] conduct amounting to contempt of court,[26] failing to discover documents in a timely manner,[27] mounting a case without merit[28] and, in general, any conduct undertaken in wilful disregard of the established law and for tactical purposes only.[29]

37 The present case does not fall into any of those categories. In particular, to make an order for indemnity costs, more is needed than an unsuccessful application. It must be shown a reasonable person ought to have known their application was entirely without merit. On the facts of this case, I am not satisfied the defendants' application was entirely without merit, however weak it actually was. Although the defendants failed in their application for the injunction against the plaintiffs' counsel, and would not likely have succeeded with respect to the plaintiffs' solicitors, the application was open. The defendants have not been shown to have acted in wilful disregard of the law. I think they acted out of a genuine belief the requisite grounds existed.

38 Therefore the plaintiffs' costs of the first summons dated 10 August 2006 are to be paid by the defendants on a party and party basis. That takes me to the costs of the joinder application.

39 The defendants' joinder application against the plaintiffs' former solicitors succeeded for the reasons given in my substantive decision. By that decision, the solicitors will be joined as a party to the defendants' amended counterclaim.

40 In the circumstances, the solicitors acted reasonably in appearing independently in opposition at the hearing of the application for joinder. However, I do not accept the defendants' application for joinder was an application for an indulgence, for the reasons I have given. I would therefore not have upheld an application for costs on that basis. In the joinder application, I would have reserved the costs of the parties generally.

41 As it happened, the solicitors did not actually seek costs. They wanted the costs reserved in case the basis on which they might later seek costs should change. That accords with my view about reserving costs. I do not accept the defendants should have their costs of the joinder application. The course and outcome of the proceedings will influence that question.

42 Therefore the costs of the defendants and the solicitors to the second summons dated 20 December 2006 will be reserved.

43 The order for joinder should be made, as it follows from my substantive judgment.

• the application of the fifth and sixth defendants against the plaintiffs in the summons dated 10 August 2006 is dismissed with costs (which will include the plaintiffs' costs of their participation in the interlocutory proceedings concerning that summons and the summons dated 20 December 2006)

• the application of the fifth and sixth defendants for leave to join Kempsons Lawyers as a defendant to an amended defence and counterclaim in the summons dated 20 December 2006 is granted with costs reserved

[1] Main-Road Property Group Pty Ltd v Pelligra & Sons Pty Ltd [2007] VSC 43.

[2] [1998] HCA 11; (1998) 193 CLR 72, 96.

[3] (1987) 14 FCR 143.

[5] [2002] QSC 422.

[7] [2000] FCA 1106; (2000) 179 ALR 664.

[8] (1997) 23 ACSR 521.

[10] [2000] FCA 602, [54].

[11] See Donald Campbell & Co v Pollak [1927] AC 732; Cretazzo v Lombardi (1975) 13 SASR 4.

[12] [2007] VSC 54, [30]-[34].

[13] See Cretazzo v Lombardi (1975) 13 SASR 4; Oshlack v Richmond City Council [1998] HCA 11; (1998) 193 CLR 72.

[14] Latoudis v Casey [1990] HCA 59; (1990) 170 CLR 534.

[15] Ritter v Godfrey [1920] 2 KB 47; McFadzean v CFMEU [2007] VSCA 289.

[16] Mickelberg v Western Australia [2007] WASC 140.

[17] McFadzean v CFMEU [2007] VSCA 289.

[18] Byrns v Davie [1991] VicRp 93; (1991) 2 VR 568; McFadzean v CFMEU [2007] VSCA 289; Nolan v Nolan [2004] VSCA 134.

[19] Main-Road Property Group Pty Ltd v Pelligra & Sons Pty Ltd [2007] VSC 43, [32].

[20] (1997) 23 ACSR 521.

[21] In re Bradshaw; Bradshaw v Bradshaw [1902] 1 Ch 436, 450; Eady v Elsdon [1901] 2 KB 460, 468; Australian Transport Insurance Pty Ltd v Graeme Phillips Road Transport Insurance Pty Ltd [1986] FCA 85; (1986) 10 FCR 177, 178; Colgate-Palmolive Co v Cussons Pty Ltd [1993] FCA 536; (1993) 46 FCR 225, 230; Bass Coast Shire Council v King [1997] 2 VR 5, 29.

[22] See Australian Guarantee Corporation Ltd v De Jager [1984] VicRp 40; [1984] VR 483, 502; Re Smith; Ex parte Rundle (No 2) (1991) 6 WAR 299; New South Wales Medical Defence Union Ltd v Crawford (1993) 31 NSWLR 469, 494-495.

[23] See Re Wilcox; Ex parte Venture Industries Pty Ltd (1996) 72 FCR 151, 156, per Cooper and Merkel JJ. In that case, their Honours noted the gap between party and party and indemnity costs had grown, and that this "highlighted the conflict between two seemingly irreconcilable objectives. The first is protecting access to justice by only exposing an unsuccessful litigant in the usual course to an order for scale costs on a party and party basis. The second is relieving a successful litigant from the burden of costs which that litigant should not have been required to incur."

[24] Ugly Tribe Co Pty Ltd v Sikola [2001] VSC 189; Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd [1988] FCA 202; (1988) 81 ALR 397.

[25] Tetijo Holdings Pty Ltd v Keeprite Australia Pty Ltd (Unreported, FCA, French J, 3 May 1991).

[26] EMI Records Ltd v Ian Cameron Wallace Ltd [1983] Ch 59.

[27] National Australia Bank v Petit-Breuilh (No 2) [1999] VSC 395.

[28] Salfinger v Niugini Mining (Australia) Pty Ltd (No 4) [2007] FCA 1594.

[29] Unioil International Pty Ltd v Deloitte Touche Tohmatsu (No 2) (1997) 18 WAR 190.