Searle v Commonwealth of Australia

Supreme Court of NSW|2018-11-16|Before: Fagan J

Judgment

On 3 July 2018 the plaintiff's claim in these proceedings was dismissed for reasons given that day: Searle v Commonwealth of Australia [2018] NSWSC 1017 ("the principal judgment"). The question of costs was reserved. In August and early September 2018 written submissions were filed concerning both costs and the Court's answers to common questions which concern the claims of Group Members in the proceedings. The Court was unable to list these matters for oral argument until 4 October 2018.
During argument on costs and on the answers to common questions there arose an issue as to whether the litigation funder of the plaintiff, Galactic Litigation Partners LLC ("Galactic"), should be ordered to pay any costs which might otherwise be awarded against the plaintiff. As Galactic was not separately represented at the hearing the defendant was directed to file a notice of motion and serve it upon the company. The defendant duly filed a notice of motion on 5 October 2018. Galactic responded on 7 November 2018 to the effect that if the Court should be minded to order costs against the plaintiff, Galactic accepted that such order should appropriately be made directly against itself.
A further brief hearing took place on 16 November 2018 following which the Court's decision was reserved. These reasons are concerned with the manner in which common questions affecting Group Members should be answered and whether Galactic should pay the defendant's costs of the plaintiff's unsuccessful action.

Abandonment of the plaintiff's claims in negligence and deceit

In par 12 of the 2FASC it is alleged that the defendant represented to the plaintiff and to the Group Members that their respective training contracts were binding in accordance with their terms ("the Contractual Representation"). Paragraphs 12A-15 plead that by reason of the plaintiff and Group Members acting to their detriment upon the faith of this representation the defendant became estopped from denying that the training contracts are legally binding.
In accordance with Garling J's order of 19 July 2017 I heard this estoppel claim fully so far as it was part of the plaintiff's case. I determined it adversely to the plaintiff: principal reasons at [127]-[137]. I did not hear all aspects of the estoppel claim so far as it was relied upon by Group Members. Their claims in this regard would depend upon whether each Group Member had understood the defendant's conduct as conveying the Contractual Representation and whether each of them had relied upon that Representation and acted upon it to his or her detriment. The estoppel claim therefore potentially would not be resolved for all Group Members by the determination of any common question. However, as it transpired the basis upon which I dismissed the plaintiff's estoppel claim is equally applicable to the estoppel claims of all Group Members.
On the basis of the alleged Contractual Representation there was also pleaded in the 2FASC a claim in deceit: par 23A. This claim was made by "the plaintiff and some or all of the Group Members": subpars d and e of par 23A. The pleading left unstated whether all or only some of the Group Members alleged reliance upon the Contractual Representation and/or claimed that loss or damage had flowed from such reliance. Question 23 of the common questions ordered by Garling J to be addressed in the hearing commencing 19 February 2018 concerned only two elements of the deceit claim, namely, whether the Contractual Representation (if made) was deliberately or recklessly false and whether the defendant intended that it be relied upon. Question 23 was in these terms: 23 Whether by making the Contractual Representation, the defendant engaged in conduct which was deceitful in that the Contractual Representation was false and untrue, the defendant made it recklessly without caring whether it was true or false, and made it with the intention that the plaintiff and the Group Members should act upon it?
Paragraphs 18-23 of the 2FASC pleaded a cause of action in negligence founded upon certain representations by the defendant to the effect that the plaintiff and all Group Members would be provided training to enable them to obtain a Certificate IV ("the Training Representation"). The plaintiff and all Group Members claimed damages under this cause of action. But of the common questions the subject of Garling J's order, the only one directed to the negligence case was Question 22, as follows: 22 Whether the defendant made the Training Representation: a in writing contained on the Defence Force webpage or webpages b in writing contained in the draft Training Contract provided to the plaintiff and the draft Group Member contracts provided to the Group Members?
On the first day of the hearing the plaintiff's counsel conceded that the plaintiff could not prove damage caused by the alleged negligent misrepresentation (the Training Representation) (Tcpt 26.43). The plaintiff's counsel said (at Tcpt 27.11): the question of loss is not part of any common question and so [Question 22] in so far as it relates to the [Group Members] is an issue concerning a part of a possible cause of action.
The defendant's counsel submitted that in light of the plaintiff's concession that he suffered no loss through reliance upon the Training Representation, "his negligence case must be dismissed" (Tcpt 42.19). The plaintiff's counsel did not immediately accept this but it was in my view clearly correct. The plaintiff's counsel agreed that, on the basis the plaintiff had "no negligence action that he can pursue" it would not be relevant to receive during the hearing evidence from him directed to a claim in negligence.
The defendant's counsel submitted (Tcpt 45-49) that if a number of Group Members, apart from the plaintiff, have causes of action in negligence, those claims could only be litigated under Pt 10 of the Civil Procedure Act if an additional plaintiff should be joined, who could then plead his or her negligence claim "as representing some or all of [the Group]": see s 157(1).
He submitted that, with respect to any cause of action to be litigated in the Pt 10 proceedings, in order for there to be "a common question of law or fact" for the purposes of s 157(1)(c), "the starting point has to be something that the plaintiff has in common with others". It was accepted by the defendant's counsel that the fact that the plaintiff did not have a cause of action in negligence could be accommodated by the expedient of the Court establishing a subgroup of those claiming in negligence and appointing a representative party on behalf of the subgroup. This would be done under s 168(2). Section 168 is in these terms: 168 Determination of questions where not all common (1) If it appears to the Court that determination of the question or questions common to all group members will not finally determine the claims of all group members, the Court may give directions in relation to the determination of the remaining questions. (2) In the case of questions common to the claims of some only of the group members, the directions given by the Court may include directions establishing a sub-group consisting of those group members and appointing a person to be the sub-group representative party on behalf of the sub-group members.
However, counsel for the defendant said his client could not be in a position to deal with negligent misstatement claims of any subgroup under such a reconstitution of the proceedings within the time frame of the hearing which commenced on 19 February 2018 (Tcpt 48-49). He said that the defendant did not know who would be in such a subgroup, that leave to proceed in that manner would have to be applied for, that no application had yet been made and that "We'll deal with it if and when it's made" (Tcpt 49.33).
On 20 February 2018 the second day of the hearing, the plaintiff expressly abandoned both his claim in negligence and his claim in deceit (Tcpt 80.25-28 and 82.24-27). In response to a question from the bench about the possibility of a future application to add a different plaintiff who represents a subgroup that can prosecute negligence and/or deceit claims" the plaintiff's counsel said: Yes, there certainly will be. Obviously it was never part of this hearing for other members to have these claims determined, it's not part of the common questions. But … there will be group members who do have and will press subsequently claims for negligent misrepresentation and deceit.
The defendant's counsel submitted that "if they are now abandoning those claims they should be dismissed". I stated that I was not willing to dismiss negligence and/or deceit claims of other Group Members at that stage. Indeed, I would not have considered it procedurally fair to do so without giving the other Group Members who may have such claims the opportunity to apply for orders under s 168(2). It was submitted for the defendant that such an application "should have happened before today". He said the utility of the representative form of proceeding would be defeated by leaving open the question of whether some Group Members might litigate negligence and/or deceit causes of action at a later stage. I did not accede to the defendant's submissions and made no order, leaving open the possibility of an application under s 168(2) at a later date.
The result of these developments was that the pleaded claims for damages for negligent misstatement (based on the Training Representation) and damages for deceit (based on the Contract Representation) were not litigated in the hearing which commenced on 19 February 2018. The plaintiff abandoned his own damages claims under these two causes of action. The way was left open for litigation, within these proceedings, of claims by any of the Group Members under either cause of action if there should be established, on application pursuant to s 168(2), a subgroup and an appropriate representative (not the plaintiff).
No such application was made during the hearing. Nor was an adjournment sought to enable a subgroup to be established and a representative appointed before the hearing proceeded. Necessarily this meant that Question 22 (concerning whether the allegedly negligent Training Representation had been made) and Question 23 (concerning whether the Contract Representation was deceitful and was intended to be acted upon) ceased to be issues for determination in the hearing. Neither party suggested that the Court should determine those questions. They were single isolated issues, fragments of possible causes of action, and would only arise for determination if some of the Group Members should in the future identify themselves as wishing to pursue damages for negligent misstatement and/or deceit and if they should obtain subgroup orders under s 168(2).
Even if either or both of the parties had requested the Court to hear evidence in relation to Questions 22 and 23 and to decide those issues, I would have refused in the absence of a pleading and evidence from at least one Group Member who alleged loss and damage and, hence, could advance a complete cause of action.
I reject the defendant's submission of 4 October 2018 that what transpired on 19 and 20 February 2018 amounted to the plaintiff abandoning the negligence and deceit causes of action on behalf of all Group Members as well as himself. The plaintiff did not purport to do that, nor did the defendant at the time contend that the plaintiff's abandonment of his own claims in negligence and deceit had that effect on the position of Group Members. On the contrary the defendant explicitly acquiesced in the proposition that with sufficient notice the plaintiff could apply for establishment of a subgroup and for the appointment of a representative, which would enable the claims on these causes of action to proceed at a later date.
When the plaintiff's appeal to the Court of Appeal has been determined, if my decision under the principal judgment stands the proceedings will have to be relisted in this Division for the purpose of directing notification to Group Members to ascertain whether any of them wish to pursue a cause of action in either negligent misstatement or deceit. If any of them do then it will be necessary to hear any application which may be made for the establishment of a subgroup and appointment of a representative. It may at that stage appear that across all of the individual cases of Group Members the sources of the alleged representations and/or the nature of reliance and/or any damage suffered are matters so diverse with respect to evidence that no common question arises and that it is not appropriate for such claims to proceed under Pt 10.

Costs

At [159]-[167] of the principal judgment I identified two considerations which may have a bearing upon the appropriate costs order. The first was that I considered the Navy was at fault in having entered into training contracts, which are in substance apprenticeship agreements, with enlisted personnel when it should have known that such contracts would be unworkable in the context of the MT2010 training regime and that they would be void as a fetter on naval command. The second consideration was that the defendant only identified at a very late stage of the litigation the legal basis upon which I was persuaded to hold, in its favour, that the training contracts are void and that the Commonwealth cannot be estopped from so asserting.
Three additional considerations, not referred to in the principal judgment, were raised by the defendant in its submissions on costs. First, the defendant adduced evidence that the plaintiff's conduct of the proceedings was financed by a litigation funding corporation with substantial resources. Secondly the defendant relied upon the fact that the plaintiff did not produce evidence that he would have abandoned his claim under the Training Contract if he had been alerted earlier to the defendant's reliance upon the legal principle by which the Commonwealth may not fetter exercise of its executive power. Further to that point, the defendant thirdly relied upon the fact that the plaintiff has sought leave to appeal and, even after a full hearing and judgment, the plaintiff disputes that the Training Contract is void as a fetter on executive power or on any other basis.
The principles upon which a successful defendant may be denied its costs were stated in Ritter v Godfrey [1920] 2 KB 47 by Atkin LJ (at 60): In the case of a wholly successful defendant, in my opinion the judge must give the defendant his costs unless there is evidence that the defendant (1) brought about the litigation, or (2) has done something connected with the institution or the conduct of the suit calculated to occasion unnecessary litigation and expense, or (3) has done some wrongful act in the course of the transaction of which the plaintiff complains.
This passage was applied by McLelland J (as his Honour then was) in Mitropoulos v Greek Orthodox Church (1993) 91 NSWLR 630 at 635. It was also cited with approval by Young JA in McCusker v Rutter [2010] NSWCA 318 at [30]. Relying upon Atkin LJ's principle (3) the plaintiff contended that the first of the considerations which I identified in the principal judgment (the Navy's legal error in having purported to enter into these void contracts) disentitled the defendant from its costs because this constituted a "wrongful act in the course of the transaction of which the plaintiff complains". In further support of principle (3) the plaintiff cited Jamal v Secretary, Department of Health (1988) 14 NSWLR 252. There Mahoney JA said (at 271-272) that a successful respondent to an appeal might be denied a costs order if "his conduct in relation to the transaction the subject of the appeal is discreditable to an extent warranting his being deprived of costs" or where his conduct justified the proceedings being brought. It was submitted that this is equally applicable to costs at first instance.
On full consideration of the submissions of both parties I am not satisfied that the Navy's error in offering and entering into these apprenticeship contracts is properly to be characterised as "misconduct" or as "wrongful" in the sense in which those terms are used in the above authorities, relevant to the incidence of costs. The degree of fault on the part of Navy is in my view considerably less than that exhibited in past cases where misconduct in the underlying transaction has been upheld as the ground for refusing to order costs.
For example in Jones v Merionethshire Permanent Benefit Building Society [1892] 1 Ch 173 the Building Society (which was the appellant, despite the title of the report) threatened prosecution of its secretary for embezzlement. His relatives, the respondents, gave promissory notes for the amount which had been misappropriated. The notes were given in consideration for an implied promise that the Building Society would not prosecute the secretary. At first instance the respondents successfully resisted enforcement of the notes on the ground that suppression of the prosecution was "not a matter of private bargain" and constituted an illegal consideration.
The Building Society's appeal was dismissed but without costs. One reason for refusing costs was given by Lindley LJ as follows (at 188): We are very much struck with the character of the defence and the circumstances under which it was raised. It is an extremely discreditable defence, to which we are compelled to give effect upon grounds of public policy. Upon [this and other] grounds, therefore, the appeal will be dismissed without costs.
I do not consider the Commonwealth's successful defence, that the training contracts were void as a fetter on naval command, can be characterised as discreditable in the sense which actuated the Court of Appeal in Jones v Merionethshire Permanent Benefit Building Society. The respondents in that case had given the promissory notes in order to preserve the secretary, their relative, from prosecution. Then in order to avoid their obligation they seized upon a rule of public policy which had forbidden them (as much as the Building Society) from making such a bargain. It would have been open to the respondents not to plead the illegality of the consideration. In contrast the ground upon which the contracts are void has been invoked by the Commonwealth in recognition of a limit upon its constitutional power of contracting. It is bound in public duty to raise the ground and to resist the imposition upon public finances of a damages award.
In Su v So, Verekers Lawyers v So [2010] NSWCA 119 and Su v So, Verekers Lawyers v So (No 2) [2010] NSWCA 303 the disentitling conduct was that of a solicitor who had permitted his client to sign documents in another person's name and falsely certified the identity of the signatory. The Court held that "to a considerable extent, [the solicitor's] conduct was instrumental in this dispute breaking out and resulting in a prolonged trial". Again that was egregious conduct of the successful litigant quite different in character from the relevant conduct of the defendant in this case.
Against the plaintiff's resistance to a costs order it must also be said there was no urgency about the bringing of these Pt 10 proceedings. After the Navy had indicated it would not honour the training contracts, in Rear Admiral Uzzell's correspondence of 13 June 2014 (see principal judgment at [55]), more than 18 months elapsed before the proceedings were commenced. That period, during which the legal consequences of the Navy's error could be evaluated, should in my view be regarded as having broken the nexus between the Navy's ill-advised signing of contracts and the conduct of the litigation. The litigation funding agreement between the plaintiff and Group Members and Galactic was made on 15 November 2015. I infer that Galactic had adequate opportunity to examine the potential claims by that date and that it had done so before entering into the agreement.
The plaintiff also invokes Atkin LJ's principles (1) and (2). In my opinion it could not be said that the defendant did anything which encouraged the litigation. By way of counter-example, in Mitropoulos v Greek Orthodox Church the defendant accepted payment of a subscription and thereby encouraged the plaintiff to believe that his application for membership of an incorporated church had become effective. Although this did not give rise to an estoppel McLelland J considered that it had induced the plaintiff to bring the proceedings in which he asserted his membership and on that ground denied the church, which had been successful, its costs.
The second consideration identified by mein the principal judgment raises the issue whether, within principle (2), the defendant's belated raising of the fetter upon naval command amounted to doing "something connected with the … conduct of the suit calculated to occasion unnecessary litigation and expense".
As summarised at [161] in the principal judgment, the defendant pleaded in its defence filed on 10 June 2016 that the training contract with the plaintiff was void but did not therein identify, as a basis for this plea, the doctrine that the Commonwealth cannot by contract fetter the exercise of its executive power. The defendant makes these submisisons: 1. It was not bound to identify in its defence legal authorities upon which it could sustain that the training contract was void and its reliance upon Ansett Transport Industries (Operations) Pty Ltd v Commonwealth (1977) 139 CLR 54 in closing submissions was not to be equated with late revelation of a successful defence. 2. The defendant having pleaded that the training contract was void and referred (in its defence) to the common law and statute by which the relationship between the Commonwealth and an enlisted serviceman is defined, Galactic as a commercial litigation funder was at no disadvantage in identifying the applicable law. It should itself have ascertained that the doctrine which nullifies contractual fetters on Commonwealth executive power would defeat the plaintiff's contractual claim. 3. If reliance upon the doctrine against fettering executive power should be regarded as a late change of position, this did not contribute to unnecessary prolongation of the proceedings because the plaintiff would have pressed on with his claim even if the precise legal point had been articulated earlier. 4. The training contract would in any event have been held unenforceable because it was unsupported by consideration and this had been pleaded by the defence filed 22 August 2016.
Submissions (1) and (2) may be considered together. On the hearing of the costs argument the defendant tendered evidence of Galactic's self-published promotional material from the Internet, describing its substantial financial capacity to fund large-scale litigation as a business enterprise. In that material Galactic estimated a recovery in these proceedings of $100,000 in damages for each of 250 Group Members. The Funding Agreement between Galactic, the Group Members and the plaintiff's solicitors was tendered in a heavily redacted form. Clause 7 entitled "Repayment and Additional Sum" is entirely obscured in the redacted document. This conceals the amount or percentage of any return to which Galactic would be entitled out of the expected $25 million total damages. Evidence was also given in the costs hearing that in July 2017 Galactic agreed to provide security for the defendant's costs in the sum of $787,000.
The effect of this evidence is that the plaintiff was a fully resourced litigant, supported by an entity funding the litigation with substantial outlay and, I infer, with a view to profit. With such a backer the plaintiff was not at any disadvantage in securing adequate legal advice and having competent and thorough research undertaken to verify whether the contract claim which was to be pressed on his own behalf and on behalf of the Group Members was sustainable. In these circumstances I am not satisfied that the plaintiff's failure to identify that the doctrine against fettering Commonwealth executive power would defeat his claim under the Training Contract can be excused or blamed upon the defendant's late citation of Ansett Transport Industries (Operations) Pty Ltd v Commonwealth, in such a way as to deny the defendant its costs. Given the defendant's pleading that the training contract was "a nullity or invalid or otherwise unenforceable" and that there could be no employer employee relationship because common law and statute governed the plaintiff's position as an enlisted seaman, the plaintiff was put upon enquiry as to the applicable law and was well resourced to make that enquiry.
With respect to submission (3) the plaintiff cited the following passages from the judgment of Bergin J (as her Honour then was) in Leading Edge Events Australia Pty Ltd v Kiri Te Kanawa (No 2) [2007] NSWSC 568: [13] In Beoco Ltd v Alfa Laval Co Ltd [1995] QB 137 the plaintiff had originally claimed damages for breach of contractual warranty as against the first defendant in respect of a heat exchanger that had been installed at the plaintiff's premises and had subsequently exploded. At the trial, the plaintiff was permitted to make an alternative claim that if the first defendant was not liable for the explosion, the plaintiff was entitled to damages for breach of warranty in respect of the cost of making good the defective equipment and consequential loss of profits. The plaintiff ultimately succeeded on the alternative claim and the first defendant was ordered to pay the plaintiff's costs. The Court of Appeal overturned the trial judge's order and awarded the first defendant its costs of the action to the date of the amendment at the commencement of the trial. Stuart-Smith LJ, with whom Peter Gibson and Balcombe LJJ agreed, said at 154: In my judgment, the judge erred in principle and his order for costs is so manifestly unfair to the first defendant that he cannot have exercised his discretion judicially. As a general rule, where a plaintiff makes a late amendment as here, which substantially alters the case the defendant has to meet and without which the action will fail, the defendant is entitled to the costs of the action down to the date of the amendment. There may, of course, be special reasons why this general rule should not be applied. An example of this is to be found in Kaines (UK) Ltd v Osterreichische Warrenhandelsgesellschaft [1993] 2 Loyd's Rep 1, 9, where the Judge was satisfied that, even if the amendment had been made earlier, the action would have been vigorously resisted. The Judge disbelieved the defendant's witnesses and the plaintiff received substantial damages. [14] The example to which Stuart-Smith LJ referred was the decision of Mr Justice Steyn, as his Lordship then was, in Kaines (UK) Ltd v Osterreichische Warrenhandelsgesellschaft Austrowaren Gesellschaft mbH (formerly CGL Handelsgesellschaft mbH) [1993] 2 Lloyd's Rep.1 (the appeal from which was dismissed (except to vary the date from which interest was awarded) by the Court of Appeal (Dillon, Stocker and Bingham LJJ)) in which he said at 9: Then I come to the question of costs. Here what is stressed on behalf of the defendants is that there was an 11th hour amendment which changed the nature of the plaintiffs' case. That is perfectly true. It is also perfectly true that the plaintiffs have been beaten down in respect of the amount recovered considerably. On the other hand, they have recovered very substantial damages and that has been the result of an acceptance of the evidence of their witnesses and the rejection of the evidence of the defendants' witnesses. What is of importance, I think, is that if that amendment had been made at a very much earlier stage, it is clear that this claim would still have been vigorously resisted. In my judgment, there is no reason why in exercise of my discretion I should make any special order for costs. I order that the plaintiffs are entitled to their costs.
The principle accepted by her Honour in these paragraphs is that if a party succeeds only on the basis of a late amendment that party nevertheless may have its costs of the proceedings if it can show that the unsuccessful party would have contested the relevant point had it been raised in a more timely fashion. Assuming, contrary to the defendant's submission, that the invocation of Ansett Transport Industries (Operations) Pty Ltd v Commonwealth in closing submissions was equivalent to a late change of its case, this principle assists the defendant. It is correct, as the defendant submits, that the plaintiff has not attempted to show that he would have abandoned his Training Contract claims if he had been told earlier in the proceedings that the defendant relied upon the fettering of Commonwealth executive power as a basis for the allegation it has always made that the Training Contract was void.
Quite apart from the absence of such evidence from or on behalf of the plaintiff, his application for leave to appeal supports an inescapable inference that he would have pressed on with disputing the argument based on fettering executive power no matter when that doctrine was raised. I was informed on 16 November 2018 that the leave application is listed for hearing in the Court of Appeal in April 2019.
With respect to the defendant's submission (4), although I found it unnecessary to decide whether the Training Contract was unsupported by consideration from the plaintiff, I indicated (at [126] of the principal judgment) that if that had to be decided I would uphold the defendant's position. The lack of consideration would not, however, have disposed of the plaintiff's estoppel case. For that the defendant had to rely upon the doctrine against contractually fettering naval command and therefore it has to overcome the complaint about having raised that doctrine late in the proceedings in order to justify an order for its costs. In order to resolve the incidence of costs it is not necessary for me to state a conclusion on the want of consideration.

Orders

For these reasons the orders of the Court will be: 1. The following questions common to the claims in the proceedings of the plaintiff and the Group Members are answered as indicated: 7 Did the defendant fail to provide to the plaintiff and to the Group Members a Training Plan as referred to in the training contracts? Yes. 18 Did the defendant arrange for a Training Plan as referred to in the Training Contract and the Group Member contracts to be signed by the defendant and each of the plaintiff and Group Members? No. 8 Did the defendant fail to take steps to provide the training that would be required to enable the plaintiff and Group Members to obtain the Certificate IV in Engineering (national qualification code MEM40105)? Yes. 20 Did the defendant evince an intention in June 2014 not to be bound by the Training Contract or Group Member contracts by announcing that the plaintiff and the Group Members would not be, and could not be, obtaining the Certificate IV in Engineering (national qualification code MEM40105) at the end of the contract? Yes. 1. Galactic Litigation Partners LLC is to pay the defendant's costs of the proceedings to date including the costs of the defendant's notice of motion filed on 5 October 2018.

Amendments 28 June 2023 - Change to Judgment (No 3) DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 28 June 2023

At a glance

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Judgment (6 paragraphs)

Parties

Legislation Cited (1)

Cases Cited (8)