Shellharbour City Council v Stewart

KEY ISSUES: Costs :- indemnity costs - whether successful respondent in class 4 proceedings entitled to indemnity costs on bases of applicant's unreasonable conduct or on Calderbank principles

LEGISLATION CITED: Local Government Act 1993 (NSW)

Calderbank v Calderbank [1975] 3 WLR 586 Dukemaster Pty Limited v Bluehive Pty Limited [2003] FCAFC 1 CASES CITED: Jones v Bradley (No 2) [2003] NSWCA 258 Morrison v Defence Maritime Service Pty Limited [2007] NSWLEC 552 Shellharbour City Council v Stewart [2008] NSWLEC 151 Shellharbour City Council v Stewart [2007] NSWLEC 727

APPLICANT: Mr F M Douglas QC and Mr K Connor SC SOLICITORS: Maddocks

FIRST RESPONDENT: LEGAL REPRESENTATIVES: Mr R Watson, solicitor SOLICITORS: Robert Watson Solicitor

SECOND RESPONDENT: Mr P Maiden SC SOLICITORS: Russell McLelland Brown

JUDGMENT: THE LAND AND ENVIRONMENT COURT OF NEW SOUTH WALES

JUDGMENT 1 HIS HONOUR: On 23 April 2008 I delivered judgment in favour of the second respondent, Councillor Geoff Rose: Shellharbour City Council v Stewart [2008] NSWLEC 151. Now before me is his motion for an order for indemnity costs against the applicant council. The council accepts that he is entitled to an order that the council pay his costs on the usual basis but resists an order for indemnity costs.

2 Councillor Rose submits that this was a minor matter because the evidence indicates that the council's general manager, Mr Weir, was not concerned by the publication of his remuneration details; the mayor, Councillor Hamilton, said he did not have any concern with people knowing of the remuneration package of Mr Weir; and Councillor Hamilton indicated that the remuneration package was to be known by the public at some stage after it was agreed. Those matters are fairly put so far as the evidence goes. However, in principle, I do not think that the disclosure of such information should be dismissed as insignificant.

3 Councillor Rose submits that it was open to the council to deal with this allegation against him through the code of conduct committee procedure, rather than putting him to the defence of court proceedings. That is true. However, the legislature has provided for the alternative course that the council pursued. I do not think that the fact that the code of conduct committee course was available should bear on the issue of indemnity costs.

4 Councillor Rose submits that the inference can be drawn that, because of the huge investigation costs of the council, the proceedings could not be ended without responsibility being sheeted home to a member of the council. I do not accept that an inference should be drawn, if this is what is being suggested, that the council was simply looking at Councillor Rose as a target to justify the costs which had been expended without any proper regard to whether the target was reasonably available.

5 Councillor Rose also submits that the council, properly advised, either knew or should have known that there was no chance of success.

6 The council submits that the salient points include the following:

(a) The council was put in an invidious position. It was confronted with ongoing leaking of information. It did not know who was leaking the information. The leaking was a serious matter for the council that went to its capacity to function. (b) The council sought legal advice. Steps were taken to investigate the source of the leaks and the postings on the internet forum. The old forum site, which was based locally, was closed down in October 2006. This occurred as a result of pressure from the council on persons associated with the site to identify the source of the leaks and to stop further posting of leaked material. Within days a new forum site was set up. This time it was located overseas so it was now more difficult to identify the local promoters. A threat or suggestion was made to leak confidential documents from the last ten years on the new forum site. Leaking of those documents commenced. The council came to a dead end in its inquiries as to the sources of the leaks and the posts. (c) The council initiated proceedings against persons associated with the website in order to attempt to remedy and restrain breaches of the Local Government Act 1993 (NSW) which were occurring. Subpoenas were issued to telecommunication carriers to attempt to identify the persons who were making the posts. Affidavits were sought in the proceedings from other defendants as to their knowledge of the source of leaks and the posts. Some were provided. In April 2007, Mr Holstein provided the council with his account of events in a statutory declaration (exhibit B). Amongst other things, Mr Holstein provided evidence of Councillor Rose's involvement in the events of 15 June 2006. (d) The council sought to join Councillor Rose to the current proceedings. Councillor Rose did not oppose that course. The proceedings occurred in a number of stages for various reasons. One reason, the council says, is that Councillor Rose's solicitors and barristers also acted and appeared for Councillor Stewart in circumstances where there was always a conflict. I would say immediately that I do not accept that it was necessarily the case that there was always a conflict. (e) Mr Holstein's evidence was to a different effect in relation to each event and in particular in relation to the events leading to the posting on 15 June 2006. Councillor Rose had contact with Mr Hollis immediately after the meeting. Councillor Rose's council computer joined the internet at about the time the post was made. Councillor Rose did not ultimately press his alibi defence. (f) Exhibit K, which did not emerge until the hearing on 11 February 2008, changed the landscape significantly in relation to the council's claim against Councillor Rose.

7 Insofar as the council's submissions include a recitation of historical events, I accept the recitation as substantially correct.

8 The principles concerning indemnity costs because of unreasonable conduct were reviewed by me in an earlier costs judgment in these proceedings concerning another respondent against whom the proceedings were discontinued, Shellharbour City Council v Stewart [2007] NSWLEC 727 at [22]:

Authorities concerning indemnity costs because of unreasonable conduct were reviewed by me in F & D Bonaccorso Pty Ltd v City of Canada Bay Council (No 3) [2007] NSWLEC 569 at [12] - [14]. There has to be sufficient special or unusual circumstance in the case justifying such an award: Harrison v Schipp [2001] NSWCA 13 at [139]. The impugned conduct must be connected with the litigation itself or, in particular, to the way the litigation is conducted; ethical or moral delinquency in the antecedent facts which have given rise to the litigation are insufficient: Mead v Watson as Liquidator for Hypec Electronics (2005) 23 ACLC 718, [2005] NSWCA 133 at [8] - [10]. The Court requires some evidence of unreasonable conduct, albeit that it need not rise as high as vexation: Rosniak v Government Insurance Office (1997) 41 NSWLR 608 at 615, Ballina Shire Council v Stubberfield (No 2) [2006] NSWLEC 538 at [21] - [22] (Pain J). In Westpac Banking Corporation v Victor Warren Ollis [2007] NSWSC 1008 at [6] - [11] Einstein J held: 6 The guiding principle in relation to whether an order for indemnity costs should be made, is whether the circumstances of the case involve some relevant delinquency on the part of the unsuccessful party or parties: Oshlack v Richmond River Council (1998) 193 CLR 72 at 89 [44] per Gaudron and Gummow JJ. 7 Cases in which courts have made orders for indemnity costs in analogous circumstances are not determinative, but may be a useful guide. In Degmam Pty Ltd (in liq) v Wright (No 2) [1983] 2 NSWLR 354 at 358C and following, Holland J held that an order for indemnity costs was appropriate where an unsuccessful party had prolonged a trial, by deliberately false defences and allegations of fact. 8 In Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 at 401, Woodward J held that an order for indemnity costs may be appropriate where a party pursues litigation in wilful disregard of the known facts or the clearly established law. So held French J in J -Corp Pty Ltd v Australian Builders Labourers Federated Union of Workers (No 2) (1993) 46 IR 301. These decisions were referred to with approval by Sheppard J in his often-cited judgment in Colgate Palmolive Co v Cussons Pty Ltd [1993] 46 FCR 225 at 233. 9 The many authorities to which references may be made include the authorities referred to with approval by Giles JA (with whom Handley and Fitzgerald JJA agreed) in Harrison v Schipp [2001] NSWCA 13 at [139]. 10 In Jeans v Bruce [2004] NSWSC 758, after referring to Degmam , the Court held at [38] that it was appropriate to order indemnity costs against the defendants, having regard to the gravity of the allegations made and the lack of reliable evidence adduced to support them. 11 In Commonwealth Bank of Australia v Saleh [2007] NSWSC 990 at [5]-[6], the Court made orders for indemnity costs against defendants who had maintained defences which, on the Court's findings, they must have known were false. 9 In my opinion, it has not been established that the council's conduct is such as to arouse the discretion to award indemnity costs on the basis of those principles. I do not consider that it has been established that the proceedings had no prospect of success, nor that they were commenced for an improper purpose.

10 Councillor Rose further submits that there was correspondence between the solicitors for the parties between June 2007 and February 2008 which should be viewed as including an offer of compromise by him of the Calderbank type; that he did better in the result than that which was offered; and therefore he should have costs on an indemnity basis.

11 Calderbank offers are a recognised means of making offers of settlement in circumstances where the offeror ultimately seeks a costs advantage if the offer is unreasonably rejected: Calderbank v Calderbank [1975] 3 WLR 586. Calderbank principles were briefly reviewed by me in Morrison v Defence Maritime Service Pty Limited [2007] NSWLEC 552 at [32]. The unreasonable or imprudent rejection or non acceptance of a Calderbank offer may warrant a costs order different from the usual order if the offeree does not achieve a better result, subject to consideration of all the circumstances: Jones v Bradley (No 2) [2003] NSWCA 258 at [5] - [12], Dukemaster Pty Limited v Bluehive Pty Limited [2003] FCAFC 1 at [7] - [9].

12 There is some difficulty in applying Calderbank principles in the context of a case such as the present, although it may not be impossible. The pre-trial correspondence between the solicitors appears to have been substantially, if not entirely, directed towards achieving one settlement against both respondents, Councillor Rose and Councillor Stewart, who at that time were represented by the same solicitors. At one stage in the negotiations, in November 2007, there was a proposal from the council that the proceedings be discontinued on the basis that it make a contribution to the respondents' costs in a sum to be agreed, that a joint statement be issued concerning the relevant responsibilities of councillors under the Local Government Act 1993 and the relevant code of conduct, and that certain undertakings be given by Councillors Rose and Stewart. Councillors Stewart and Rose jointly responded at a later point in the negotiations that they would accept $140,000 as costs and that other terms which had been proposed by the council should either be amended or deleted. Ultimately, the parties did not reach agreement. I do not think that the matter ever rose above the level of parties negotiating for a settlement for both respondents but failing to reach agreement. That is insufficient to attract the Calderbank principles.

13 Accordingly, the motion for indemnity costs is dismissed. The council seeks its costs of that motion, which is opposed.

14 The council is to pay Councillor Rose's costs of the proceedings (on the ordinary basis) except that he is to pay the council's costs of his unsuccessful motion for indemnity costs. The exhibits may be returned.

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