Smallacombe v Lockyer Investment Co Pty Ltd

REASONS FOR JUDGMENT On 31 August 1998 I gave judgment in an application by Hanave Pty Ltd ("Hanave") against Jagar Projects Pty Ltd ("Jagar") and Mr Paul Tresidder and Mr Joseph Glew and dismissed the application. I reserved on the question of costs. In the proceedings I made no order in relation to a cross claim brought by Jagar, Tresidder and Glew against Mr Robert Burke seeking indemnity and contribution. Mr Burke was a solicitor and a director of Hanave. In the reasons for judgment of 31 August 1998 I said: At various points in the proceedings comments were made by counsel for the respondents indicating that costs would be sought on an indemnity basis. I presently doubt that this is a case warranting a departure from the ordinary costs rule and the payment of costs on a party/party basis. Notwithstanding that intimation, written submissions made by the parties sought orders which have a different result. In so far as the costs of the application by Hanave are concerned, counsel for Jagar, Tresidder and Glew submitted that costs should be awarded on an indemnity basis. This was said to be justified on two grounds. The first was that in letters dated 27 March 1997, 4 April 1997, 11 April 1997 and 12 September 1997 offers were made in varying and fluctuating amounts to settle the proceedings. The letters were in substantially the same terms though the amounts and dates varied. The letter of 27 March 1997 read: We refer to previous correspondence in respect of this matter. We are instructed to make an offer of settlement to your clients upon the following terms: 1. That the Respondents pay the Applicants the sum of $150,000.00 inclusive of costs and interest in full and final settlement of Federal Court proceedings No G721 of 1995; 2. That the Applicants discontinue the proceedings against the Respondents; 3. That the Cross-Claimants discontinue the proceedings against the Cross-Respondent. This offer shall remain open for acceptance until 12 noon on 4 April 1997. This letter is intended to be a "calderbank" letter. We propose to tender this letter in respect of the issue of costs in the event that this matter proceeds before the Court on 7 April 1997. We trust that we shall receive your response in due course. The first issue which arises in relation to this letter is whether it is of a character that renders it relevant to any consideration of what costs order should be made. The amount offered is inclusive of costs and interest. It is not in terms which identify an amount offered to settle the claim coupled with an offer to pay costs or a proportion of them on an agreed basis or as taxed. Counsel for Hanave submitted that a letter in this form should not be considered by the Court in determining what costs order should be made. Clear support for this view is found in the judgment of Spender J in Smallacombe v Lockyer Investment Co Pty Ltd (1993) 42 FCR 97. In those proceedings his Honour had cause to consider evidence of several offers that had been made by the respondent to settle the matter. One had been an offer in the sum of $220,000 in settlement of the applicant's claims with costs to be taxed. That offer was rejected. The second offer made several days later in a letter dated 17 May 1991 was in the sum of $400,000 in settlement of the claims including any claim for costs. His Honour discussed the approach that might properly be taken to a Calderbank letter, that is, a letter of the type considered in Calderbank v Calderbank [1976] Fam 93 and the relationship between an offer in such a letter and the rules of the Federal Court permitting payment into court of an offer of compromise: see O 23 of the Federal Court Rules. In that context his Honour referred to the judgment of Rogers J in Messiter v Hutchinson (1987) 10 NSWLR 525. As to the letter of 17 May 1991 his Honour said: In my opinion, I think the flexible approach espoused by Rogers J in Messiter v Hutchinson is preferable, but I am firmly of the view that an "open" offer ought to be an offer to settle the claim and that an "all-up" offer of "claim plus costs" ought not to be a relevant consideration on the question of costs and does not fall to be considered in the same way as a Calderbank letter. Counsel for the respondent sought to answer these observations in the judgment of Spender J by pointing to the judgment of Heerey J in Henderson v Amadio (unreported, 28 March 1996) on the question of costs in which his Honour referred to a letter of 3 September 1993 offering to settle the matter for an amount which appears to have been a sum inclusive of costs. However his Honour later said that this letter should be disregarded as it had been marked "Without Prejudice" and was therefore privileged. It is by no means clear that Heerey J would have acted on that letter had it not been privileged. I was not referred to any other authority in which an offer inclusive of costs has been treated as relevant in determining whether indemnity costs should be ordered. The reasons given by Spender J in Smallacombe v Lockyer Investment Co (supra) for treating as irrelevant an offer which was inclusive of costs are compelling and I see no reason to depart from his Honour's approach. Accordingly the four letters written to Hanave offering to settle the matter inclusive of costs are irrelevant in any consideration of how costs should be awarded. The other ground on which the respondents submitted that costs should be awarded on an indemnity basis is that concessions were sought from the applicant were not given and thus the proceedings were prolonged unnecessarily. One set of concessions related to factual issues concerning the steps taken by Burke to investigate the property, which was the subject of the proceedings, before its purchase by Hanave. While the concessions were not made most, if not all, of the issues of fact were readily conceded by Mr Burke during cross-examination. The failure to make the concessions in any formal sense did not prolong the proceedings in any material way. The second set of concessions concerned issues of greater moment. These concessions were sought on or about 18 September 1997. In my opinion, they were not matters in respect of which it would have been apparent to counsel for Hanave that the concessions should be made because they related to propositions that were unarguably correct. Each of them related to matters where, on the evidence, there was a legitimate basis for challenging their correctness. The respondents have not, in my opinion, made out a basis for ordering costs other than on a party/party basis. This leads to a submission made by counsel for Hanave that in assessing what costs, if any, should be ordered, a relevant consideration is the conduct of Jagar and Tresidder found to have been in contravention of the Trade Practices Act 1974 ("the TPA"). I accept that there is authority that if a wholly successful defendant has done something wrongful in the course of the transaction of which the applicant complains then that might provide a basis for not awarding the wholly successful respondent its costs: see Ritter v Godfrey [1920] 2 KB 47 at 60. However, in the present case the litigation was maintained by Hanave in circumstances where it would or should have known that the conduct that was ultimately found to have contravened the TPA was not conduct that would sound in damages because it was not conduct that influenced its decision to purchase the property. In those circumstances I see no basis for departing from the ordinary rule that costs follow the event. That is, the wholly successful respondents are entitled to their costs from the applicant. Another matter raised by counsel for Hanave justifying a departure from the ordinary rule is that considerable time was taken up in litigating the cross-claim against Burke. I should add that at no point was it suggested that the hearing of the cross-claim should be dealt with in any way other than as part of the hearing of the proceedings generally. Burke was represented by the same counsel as Hanave. This submission of Hanave raises more generally how the cross-claim bears on the costs orders that should be made. It is necessary to determine what costs orders should be made in relation to the cross-claim and to consider the issue of how costs should be dealt with in proceedings where a respondent is entirely successful but is also a cross-claimant against a third party claiming indemnity and/or contribution. Often, as was the case in these proceedings, it is unnecessary to determine the cross-claim if the respondent is entirely successful in resisting the claim of the applicant. The proper approach or approaches to such a situation were discussed comparatively recently by Slicer J in Mifsud v ICT Pty Ltd (1997) 7 TasR 148. In that case proceedings had been brought by a plaintiff against the owner and occupier of a property on which the plaintiff had suffered personal injuries. The defendant brought third party proceedings against the plaintiff's employer. The defendant was entirely successful as against the plaintiff and no determination was made concerning the liability of the third party for indemnity or contribution. Notwithstanding that there had been no adjudication in the third party proceedings, Slicer J gave judgment for the third party against the defendant. Another approach would have been to have not entered judgment: see Allman v Daly (No 2) [1959] VR 614 and Devon Downs Administrators Pty Ltd v Theoporopoulos, Victorian Supreme Court, unreported, 7 April 1992 but see Krakowski v Eurolynx Properties Ltd (1995) ATPR 41-419 at 40,720-1. Having given judgment for the third party, Slicer J ordered the defendant to pay the third party's costs of the third party proceedings and that the defendant be entitled to indemnification as against the plaintiff in relation to those costs. These orders were justified, in his Honour's view (at 153) because: · The causes of action between the three parties were substantially connected and it was reasonable for the defendant to join a third party; · The plaintiff elected not to sue his employer or to claim against joint defendants, although he could argue that a different duty was owed to the third party; · If liability attached to the defendant it was likely, subject to the issue of causation, that some contribution by way of indemnity would have been ordered against the third party. In this case, however, different considerations arise. Burke was a director of Hanave and, in substance, alone conducted the business of Hanave. His role and Hanave's role in the transaction are, in many respects, indistinguishable. The liability of Burke remains undetermined. I accept that it was both reasonable for the cross-claimants to bring the cross-claim and for the cross-respondent to resist it. However, in my view, Hanave should be liable to Jagar, Tresidder and Glew for the costs of the proceedings in their entirety. That is, as respondent and cross-claimants. It may be accepted that there will be many situations where proceedings remain unresolved and neither party should bear the costs of the other: see Re Minister for Immigration and Ethnic Affairs & Anor; Ex parte Lai Qin (1997) 143 ALR 1. However at least in relation to an unresolved cross-claim against an individual who, in substance, was the alter ego of the applicant then the failure of the applicant in the proceedings generally would justify it bearing the costs of the respondents both as respondents and cross-claimants if, as was the case here, the cross-respondents acted reasonably in bringing the cross-claim. I propose to order that the applicant pay the respondents' costs in the proceedings generally.