Rivergate Marina & Shipyard Pty Ltd v Morphett (No 2)
[2017] QDC 180
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- Unreported Judgment
- Rivergate Marina & Shipyard Pty Ltd v Morphett (No 2)[2017] QDC 180
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Rivergate Marina & Shipyard Pty Ltd v Morphett (No 2)[2017] QDC 180
Rivergate Marina & Shipyard Pty Ltd v Morphett (No 2)[2017] QDC 180
DISTRICT COURT OF QUEENSLAND
CITATION: | Rivergate Marina & Shipyard Pty Ltd v Morphett (No 2) [2017] QDC 180 |
PARTIES: | RIVERGATE MARINA & SHIPYARD PTY LTD (plaintiff) v ALEXANDRA MORPHETT (first defendant, second plaintiff by counterclaim) and JOHN HARVEY (second defendant) and HUNTER VALLEY DENTAL SURGERY PTY LTD (third defendant, first plaintiff by counterclaim) |
FILE NO/S: | BM3735/2012; BD1516/2014 |
DIVISION: | |
PROCEEDING: | Civil Trial |
ORIGINATING COURT: | Magistrates Court at Brisbane |
DELIVERED ON: | 23 June 2017 |
DELIVERED AT: | Brisbane |
HEARING DATE: | (submissions in writing) |
JUDGE: | McGill SC DCJ |
ORDER: | Order that the first defendant pay the plaintiff’s costs of the claim and counterclaim, to be assessed on the District Court scale from 24 June 2014, and to be assessed on the indemnity basis, in respect of the claim from 14 October 2015, and in respect of the counterclaim from 25 January 2016. No order as to the costs of the second defendant. The plaintiff’s application for costs against the solicitors for the defendants is dismissed. |
CATCHWORDS: | COSTS – Indemnity costs – whether better offer under rules – whether Calderbank offer unreasonably rejected – whether misconduct justifying indemnity costs – costs of claim and counterclaim. Barrett Property Group Ltd v Metricon Homes Pty Ltd (No. 2) [2007] FCA 1823 – considered. Chen v Kevin McNamara & Son Pty Ltd (No. 2) [2012] VSCA 229 – applied. Colgate-Palmolive Company v Cussons Pty Ltd (1993) 46 FCR 225 – cited. Di Carlo v Dubois [2002] QCA 225 – cited. Flower & Hart v White Industries (Qld) Pty Ltd (1999) 87 FCR 134 – considered. Hartwood Architectural Timber and Joinery Pty Ltd v Redchip Lawyers [2009] 2 Qd R 499 – considered. Jackson v Arawak Holdings Pty Ltd [2016] QSC 133 – followed. Johnston v Herrod [2012] QCA 361 – cited. Martinovic v Chief Executive Queensland Transport [2005] 1 Qd R 502 – considered. Myers v Elman [1940] AC 282 – considered. Platinum United II Pty Ltd v Secured Mortgage Management Ltd [2011] QCA 229 – applied. State Mercantile Pty Ltd v Oracle Telecom Pty Ltd (No 2) [2017] QDC 60 – followed. Steindl Nominees Pty Ltd v Laghaifar [2003] 2 Qd R 683 – considered. Smits v Tabone [2007] QCA 337 – cited. White Industries (Qld) Pty Ltd v Flower & Hart (1998) 156 ALR 169 – considered. Willmott v McLeay [2013] QCA 84 – applied. |
COUNSEL: | N H Ferrett for the plaintiff P Sommers for the first and second defendants |
SOLICITORS: | Archibald & Brown Lawyers for the plaintiff Bennett & Philp Lawyers for the first and second defendants |
- [1]In this matter I delivered reasons on 31 May 2017 when I gave judgment for the plaintiff against the first defendant for $85,231.01, including $25,468.11 by way of interest. The claim against the second defendant was dismissed and the counterclaim of the first defendant was also dismissed. Subsequently I have received written submissions in relation to costs, and this is my decision in relation to questions of costs.
- [2]The plaintiff seeks costs against the first and second defendants on the indemnity basis, and also an order for costs against the solicitors for the defendants. An application to the court seeking costs against the fourth respondent has been signed, served and sent to me, and the submissions on behalf of the defendant included submissions on behalf of the solicitors. The second defendant sought his costs of the proceeding, and it was submitted that the costs recovered by the plaintiff from the first defendant should be limited to one-third of the plaintiff’s costs of the claim, together with the costs of the first defendant’s counterclaim, but on the standard basis. The solicitors resist an order for costs against them.
- [3]The plaintiff was successful against the first defendant, but not successful against the second defendant. The plaintiff sued on a contract in writing signed by the second defendant on behalf of the first defendant. Until 2016, the first defendant had denied on the pleadings that the second defendant had authority to sign the document on her behalf and the second defendant was sued on the basis of breach of warranty of authority if that were the position. It was only in 2016 that authority was admitted on the pleadings, but in spite of that, an argument was advanced for the defendants in submissions after the trial that the authority of the second defendant actually came from whoever it was who really owned the boat.
- [4]Who owned the boat was a matter which had been contentious for much of the action. The third defendant, Hunter Valley Dental Surgery Pty Ltd, was at one stage joined as a defendant on the basis that it and the other defendants alleged that it was the owner of the boat. That company had brought a counterclaim against the plaintiff based on ownership, but that counterclaim was dismissed under r 476 because of the failure of the third defendant to appear at the trial. The explanation for that is that the third defendant was put into liquidation some time ago. While the third defendant was under the control of the first defendant, all defendants claimed that it owned the boat; once the third defendant was wound up, the other defendants claimed that the boat was owned by the first defendant.
- [5]The plaintiff’s submissions sought that costs be ordered against both the first and second defendants, but in circumstances where the case against the second defendant was dismissed, in my view there is no justification for making an order for costs against him; the appropriate course is to order that any costs to be paid to the plaintiff be paid by the first defendant. There is the further consideration that the costs of the counterclaim can only be ordered against the first defendant because the second defendant was not a party to the counterclaim. It was submitted that the second defendant should have his costs against the plaintiff, but in the circumstances there is no reason to think that there is any meaningful distinction between the position of the first and second defendants in relation to the conduct of the proceedings, and since in substance the defendants lost, no order of costs should be made in favour of the second defendant. His position in the proceeding arose really only because he was the one who signed the contract, and because there was some issue as to his authority to do so for most of the time the proceeding was progressing. There is no suggestion that the defendants’ costs were not simply costs incurred by both of them in relation to the joint conduct of the litigation, and no reason to make a separate order in relation to the second defendant’s costs.
- [6]It was also submitted for the defendants that the plaintiff should recover only part of the costs of the claim, on the basis that there were a number of parts of the plaintiff’s claim on which the plaintiff was unsuccessful. That is true, but the modern trend has been away from the notion that it is appropriate for a court to keep a register of wins and losses rather than taking a global view in respect of costs. I dealt with this issue in State Mercantile Pty Ltd v Oracle Telecom Pty Ltd (No 2) [2017] QDC 60 at [21]-[24], and need not repeat what I said there. In my view it is consistent with the approach indicated by those authorities that the plaintiff, having succeeded to a significant extent in relation to its claim, should receive its costs of the proceeding. Apart from this, there were no obvious costs associated with the defence of the issues on which the plaintiff failed. Essentially, the defendants put the plaintiff to proof and the plaintiff failed. There did not appear to be any evidence called by the defendants directed specifically to the issues on which the plaintiff failed. There is no reason not to allow the plaintiff the full costs of the counterclaim.
- [7]The proceeding was transferred from the Magistrates Court to the District Court at the instance of the third defendant, which was then under the control of the first defendant, and for that reason, although the amount recovered by the plaintiff was an amount which could have been recovered in the Magistrates Court, it is appropriate to order that the plaintiff have its costs of the claim and counterclaim from the time of removal assessed on the District Court scale.
First offer
- [8]The plaintiff’s submission seeking indemnity costs was based first on an offer made under Pt 5, Ch 9 of the UCPR on 11 December 2014, which it was submitted was more favourable to the defendant than the judgment.[1] The offer was to settle the claim and counterclaim on the basis that the defendants pay the sum of $75,000 plus costs, with the plaintiff foregoing any interest. The basis of the costs sought was not particularised, but presumably the effect of the offer, if accepted, would have been that the defendants paid the plaintiff’s costs of the claim on the Magistrates Court scale, and the costs of the counterclaim on the District Court scale. In the event, the offer was not accepted, and judgment for a larger sum was given following the trial.
- [9]The judgment sum which exceeded the offer included an amount for interest without which the judgment would not have exceeded the offer. The plaintiff succeeded at trial in respect of two parts of its claim, the claim in respect of unpaid quoted work which was ultimately not contentious, and the claim for salvage costs which arose in early 2014 after the boat sank. That claim was included in the pleadings in an amended statement of claim filed on 5 August 2014.
- [10]Apart from interest the total amount recovered was $59,762.90. The mere fact that the additional amount is interest does not necessarily mean that the offer is taken out of the ambit of r 360, but the amount I held to be recoverable plus interest on the relevant basis up to the date of the offer was on my calculations less than the amount of the offer.
- [11]I am not aware of any authority on the operation of r 360 in circumstances where the judgment obtained is no less favourable than the offer only because of the accrual of additional interest since the time when the offer was made. As a general proposition however, in circumstances where the judgment is no less favourable than the offer because of something that has happened or something that has changed after the time when the offer was made, that can readily be seen as a ground which would make some other order appropriate. In my opinion that general proposition extends to a situation where the judgment is no less favourable only because of the accrual of additional interest.[2] Accordingly, in my view this is not a case where the plaintiff is entitled to indemnity costs pursuant to r 360 on the basis of the first offer.
Second offer
- [12]There was a further offer made on 21 December 2016 which was not an offer under the rules, but a Calderbank offer, being made “without prejudice save as to costs”.[3] The offer was that each party would walk away bearing their costs. It was also a term of the offer that the plaintiff be authorised by all defendants to dispose of the boat as it sees fit and at its cost. The inclusion of this further term, which was a practical matter though not the subject of any claim for relief in the proceeding, meant that the offer could not be made as an offer under the rules.
- [13]The offer was rejected by the solicitors for the first and second defendants, but they counter-offered to settle the proceeding on the basis they would pay the plaintiff $30,000 in full settlement of all claims against them, and the plaintiff would pay the second defendant $300,000 in full and final settlement of the counterclaim.[4] The counter-offer also appears to involve the first and second defendants’ consenting to the plaintiff’s disposing of the boat, though this was subject to the liquidators of the third defendant disclaiming any interest in it. In the circumstances, and bearing in mind the state of the evidence I heard at the trial, this was tantamount to an invitation to surrender; it represented about as favourable an outcome as the defendants could possibly have achieved from the trial. The plaintiff’s offer on the other hand was, particularly with the benefit of hindsight, a favourable one, certainly much more favourable than the outcome ultimately achieved, and involved a real element of compromise.
- [14]It is true that the plaintiff’s offer involved a requirement that the liquidators also agreed to the boat being disposed of by the plaintiff, but there was no material to suggest that that would have been a sticking point, nor are the defendants able to show that because of the liquidator’s attitude to that aspect of the matter the offer was necessarily futile.
- [15]I set out my views on the operation of the law in Queensland in relation to Calderbank offers recently in State Mercantile Pty Ltd v Oracle Telecom Pty Ltd (No 2) [2017] QDC 60. As far as I am aware there are no decisions of the Court of Appeal relevant to this point since the decisions discussed in that judgment, and I consider the analysis set out there, which I need not repeat, is still applicable. In terms of what I referred to in that judgment as the Hazeldene factors, the offer was made when the trial dates had been fixed, and about a month before the trial. Not much time was allowed for consideration of it, but the offer was straightforward and it was not one where any detailed consideration of complex facts was involved in assessing its impact, and in fact there was a counter-offer within the time, so the time was adequate. The extent of the compromise offered was quite substantial, particularly with the benefit of hindsight.
- [16]With regard to the offeree’s prospects of success assessed at the date of the offer, it should have been quite obvious that the defendants faced very substantial difficulties with the counterclaim, and if anything ought not to have been obvious it might have been the weaknesses that emerged during the trial in respect of the plaintiff’s claim for the additional works. It must have been obvious to the second defendant at least that substantial additional works had in fact been done,[5] and indeed there was no real dispute at the trial that works had been done, the question being whether they had been requested. There was no express foreshadowing of an application for indemnity costs in the event of rejection.
- [17]Apart from those matters, the respondents need to point to a reason for not accepting the offer beyond the usual prospect of being successful in litigation, and I do not consider that they have done so. Further, this was a case where a substantial compromise was offered by the plaintiff, and recent decisions of the Court of Appeal have placed considerable weight on the extent of any compromise. The unreasonableness of the defendants’ response to the December 2016 offer is only highlighted by their counter-offer, made on 23 December, which in my view was plainly unreasonable. Overall, I consider that the failure to accept the offer of 21 December 2016 was so unreasonable as to justify an order for indemnity costs.
- [18]There is one important difference between an offer which activates r 360 and a Calderbank offer: the former prima facie provides for indemnity costs of the entire proceeding, regardless of the timing of the offer, whereas ordinarily if an order for indemnity costs is made on the basis of the unreasonable failure to accept a Calderbank offer, the order only runs from the time when the offer was made. Given that in this case the offer was made at a relatively late stage, it would not be appropriate to order costs of the whole proceedings on the basis of a Calderbank offer made in December 2016, but that would justify the indemnity basis for costs incurred in 2017.
Defendants’ conduct of the proceeding
- [19]Apart from the question of behaviour which was unreasonable in failing to accept offers, the plaintiff relied on the proposition that the first and second defendants’ conduct of the proceeding was so unreasonable as to justify an order that they pay costs on the indemnity basis. This was based largely on the proposition that the defendants, having asserted in detail for most of the proceeding that the third defendant was the owner of the boat, changed their story after the third defendant was placed into liquidation, so that they lost control of it. I have dealt with this matter in the course of my principal judgment when assessing the credibility of the first and second defendants.
- [20]I am not at all sure that the mere fact that the parties on one side of the proceeding are regarded as not credible witnesses, or indeed dishonest witnesses, provides a sufficient basis for ordering that they pay all costs on the indemnity basis. There is however some authority that for one party to present a false case can justify an order for indemnity costs. In Barrett Property Group Ltd v Metricon Homes Pty Ltd (No. 2) [2007] FCA 1823, Gilmour J said in a passage cited but distinguished by the Court of Appeal in Johnston v Herrod [2012] QCA 361 at [13], [14]:
“It is not a case where merely arguments ‘attended by uncertainty’ were before the Court… It is not a case involving witnesses who gave evidence believing it to be true but as to which they were mistaken… This matter involved a concerted effort on the part of four key witnesses to present a false defence which has led to the applicants incurring very considerable costs over a long period in meeting and overcoming that defence.”
- [21]The issue of the standard of care owed by a ship repairer in the position of the plaintiff exercising a lien over a boat was not the subject of any prior authority I found, so that the question of whether the plaintiff was responsible for carrying out routine maintenance on the boat while it was in the plaintiff’s possession was in my view not actually unarguable, even bearing in mind the terms of the contract between the parties. It is true that there were a number of matters asserted by the defendants in the proceeding which, if not being actually unarguable, came close. On the other hand, there were significant parts of the plaintiff’s claim on which it was unsuccessful, justifying the defence of those parts.
- [22]It was not necessarily clear in this case that the third defendant was and is the true owner of the boat; as I noted in a footnote, even at the end of the trial there was, I thought, some room for doubt about the matter. The defendant’s case on the point was not without some documentary support, though I consider that the crucial documents showed that the third defendant became the owner, and I was not persuaded that it had been shown that that situation had ever changed. The question is whether the first and second defendants’ claims to the contrary, however unpersuasive they proved to be, amounted to conduct sufficiently egregious to bring into operation the principle set out in Colgate-Palmolive Company v Cussons Pty Ltd (1993) 46 FCR 225. That has been the subject of much further citation, including by the Court of Appeal in Di Carlo v Dubois [2002] QCA 225, where the judgment mentions specifically the proposition that it is important that costs on the indemnity basis not be seen as too readily available in the absence of factors such as those mentioned in Colgate: [40]. The position may be different on appeal, where there has already been a judgment at trial, and where appellants advancing a case found to be wholly without arguable merit have been ordered to pay costs of the appeal on an indemnity basis simply on that ground: Smits v Tabone [2007] QCA 337.
- [23]Overall, however, I am not persuaded that the other aspects of the conduct of the first and second defendants, in particular the content of the evidence they gave, amounted to conduct so unreasonable as to justify an order for indemnity costs of the claim. The position in relation to the counterclaim is somewhat different. The defendants’ position up to the liquidation of the third defendant was that it was the third defendant that was entitled to pursue the counterclaim, with the first defendant being put in only on a precautionary basis, if the court found (contrary to the defendants’ allegation) that it was the first defendant who was the owner of the boat.[6] From the time when the company went into liquidation however the position changed completely.
- [24]This aspect of the matter I think puts a different complexion on the costs of the counterclaim from the time of that change. For the defendants to change to a positive case that it was the first defendant who was the owner of the boat involved their having to give evidence which, apart from being inconsistent with various documents, was contrary to affidavit evidence they had given themselves previously. I have pointed out the inconsistencies in my principal judgment and need not go into them here; the essential point is that after the change of tack the first and second defendants were depending essentially on their own oral evidence, which was obviously going to be a slender reed in the light of their previous affidavit evidence.
- [25]It is difficult to see why the pursuit of the counterclaim on that basis thereafter should not be characterised as unreasonable. The first defendant was in a position where a case on this point really depended on the acceptance of oral evidence inconsistent with previous sworn statements, and inconsistent with earlier documents. That ought to have been recognised as plainly a case that was not worth pursuing, and in my opinion it was unreasonable for that case to have been pursued. For the defendants to take up the first defendant’s counterclaim in this different way after the third defendant company went into liquidation did in my view amount to conduct so unreasonable that it justifies an order for indemnity costs of the counterclaim thereafter.
Terms of the contract
- [26]There was one other matter which was raised on behalf of the plaintiff: that cl 15 of the contract, Exhibit 2, provided a contractual basis for a claim for indemnity costs. The plaintiff’s argument was that cl 15, cited in my earlier reasons at [76], provided not merely an indemnity in respect of the salvage costs, but also an indemnity in respect of “legal costs on a full indemnity basis” arising from the breach of the owner’s obligations. If, as I have found, the failure to maintain the vessel in a sound, seaworthy and watertight condition amounted to a breach of the first defendant’s obligations under the contract, and the plaintiff is entitled to indemnity in respect of the salvage costs, the plaintiff is also entitled under this clause to an indemnity in respect of the legal costs associated with enforcing that indemnity.
- [27]The effect of a provision in a contract between parties to a court proceeding on an entitlement to costs in respect of that proceeding was considered by the Court of Appeal in Platinum United II Pty Ltd v Secured Mortgage Management Ltd [2011] QCA 229. In that matter Fraser JA, with whom the other members of the court agreed said at [6]:
“The general principle is that a mortgagee is ordinarily limited to party and party costs (or “the standard basis of assessment” in r 702 of the Uniform Civil Procedure Rules 1999 (Qld) (“UCPR”)) but a court will usually exercise the discretion as to costs to give effect to a contractual provision which “plainly and unambiguously” provides for taxation on another basis. It is doubtful whether cl 15.1(C) of the agreement confers an entitlement to have costs assessed on the indemnity basis in sufficiently clear terms to justify the exercise of that discretion, but the expression “on an indemnity basis” in cl 17.4(a) clearly comprehends “the indemnity basis of assessment” of costs provided for in UCPR r 703(1).”
- [28]In Chen v Kevin McNamara & Son Pty Ltd (No. 2) [2012] VSCA 229 the Victorian Court of Appeal said at [8]:
“An agreement to pay costs will be construed as an agreement to pay costs on a party and party basis, unless it is plain from its terms that costs are to be paid on a special basis. Where the terms plainly and unambiguously provide for costs to be assessed on some special basis, the court will take such a provision into account but it is not bound to give effect to any extra-curial contract as to costs. An agreement to pay costs on a special basis is only a factor informing the exercise of the court’s discretion, but not requiring the exercise of that discretion in a particular way. Generally however, where the parties have unmistakeably agreed to the making of a special costs order, such a term will be given effect to unless there is some other discretionary consideration that militates against the making of such an order.”
- [29]Both of those passages were cited by the Court of Appeal in Willmott v McLeay [2013] QCA 84, where it was held that a clause in the contract which entitled the seller to claim damages for loss suffered from the buyer’s default including legal costs on an indemnity basis did not “plainly and unambiguously” provide for the payment of costs on an indemnity basis except in circumstances where there was a claim for damages for loss suffered from the buyer’s default: [29]. This decision suggests that the approach of the Court of Appeal in such circumstances is a fairly strict one. There are other cases where effect has been given to a clear clause, including Jackson v Arawak Holdings Pty Ltd [2016] QSC 133 at [5].
- [30]There is, in my opinion, force in the plaintiff’s submission on this point. There was a clear contractual provision in the contract for the payment of indemnity costs in respect of this part of the plaintiff’s claim. It does not however extend to the balance of the plaintiff’s claim, and in itself would only apply in relation to that part of the claim which arose from the time of the amendment in August 2014, and costs associated with the preparation of that amendment and a portion of the costs thereafter, for that part of the plaintiff’s case. This would not provide a basis for indemnity costs in respect of the counterclaim. Strictly speaking the costs of this part of the claim from 5 August 2014 should be on the indemnity basis, and the whole claim on the indemnity basis only from 23 December 2016. That however would be too complex an order, and for simplicity I allow the costs of the whole claim on an indemnity basis from 14 October 2015.
- [31]Therefore, I order that the first defendant pay the plaintiff’s costs of the claim and counterclaim, to be assessed on the District Court scale from 24 June 2014, and to be assessed on the indemnity basis, in respect of the claim from 14 October 2015, and in respect of the counterclaim from 25 January 2016, which seems to be the first date when the title of the first defendant was actively asserted in the pleadings by the defendants. There will be no order as to the costs of the second defendant.
Claim for costs against defendants’ solicitors
- [32]The power of a court to order solicitors for one party to pay the other party’s costs was recognised in Myers v Elman [1940] AC 282, where it was held that it was not limited to cases of misconduct or default but extended to cases where costs had been incurred improperly or without reasonable cause. In that case it was found that the solicitor’s managing clerk conducting litigation had knowingly filed a false affidavit of documents, and held that in such circumstances it was appropriate to order the solicitor to pay such amount of the plaintiff’s costs as the court deemed proper in view of the effect of the falsity: p 307. Lord Wright at p 319 said that it was not necessary to show criminal conduct, a mere mistake or error of judgment was not generally sufficient:
“…but a gross neglect or inaccuracy in a matter which it is a solicitor's duty to ascertain with accuracy may suffice. Thus, a solicitor may be held bound in certain events to satisfy himself that he has a retainer to act, or as to the accuracy of an affidavit which his client swears. It is impossible to enumerate the various contingencies which may call into operation the exercise of this jurisdiction...It would perhaps be more accurate to describe it as conduct which involves a failure on the part of a solicitor to fulfil his duty to the court and to realise his duty to aid in promoting, in his own sphere, the cause of justice.”
- [33]At that stage the matter was put on the basis of the power of the court to control its own officers, and as a consequence it was thought for a time that the power might be confined to superior courts responsible for the professional supervision of solicitors admitted to practice by such courts. More recently however the power has been characterised as a particular exercise of the power possessed by any court to make an order for costs against a person not a party to the proceeding.
- [34]A leading modern authority in this area is White Industries (Qld) Pty Ltd v Flower & Hart (1998) 156 ALR 169, an appeal from which was dismissed by the Full Federal Court: Flower & Hart v White Industries (Qld) Pty Ltd (1999) 87 FCR 134. In that case the solicitors acted for a development company which had entered into a building contract for the construction of a shopping centre on a cost plus basis, where there was substantial cost overruns. Proceedings were commenced against the building company alleging that there had been misleading and deceptive conduct on the part of the builder in representing that the building could be built for a particular figure, which was inserted in a cost plus contract, essentially as a nominal price. The representation was supposed to have been made orally at a particular meeting, but it was found after a trial that there was no proper evidentiary basis for the suggestion that such a representation had actually been made by any representative of the building company during that meeting.
- [35]The figure had been suggested by a representative of the developer, and after considering the matter overnight the representatives of the builder agreed that they believed they could do the job for that price. It was said that this did not amount to a representation by the builder that the contract could be completed for around that price, and as well there was no evidence that the developer relied on any such representation in any way in entering into the contract.[7] The proceedings commenced claimed relief under the Trade Practices Act for misleading or deceptive conduct in relation to the representation as to the ability to build the building for that price, an alternative claim on the basis of negligence, and a claim in fraud on the basis that the representations were made knowing that they were false or with a reckless indifference to their truth or falsity.
- [36]The proceedings were commenced after a written advice to the client that the legalities were against the client, the contractual position was weak, indeed that the developer “could not win any litigation if put to the test”.[8] Further, the letter mentioned the possibility of proceedings being commenced to give the developer at the very least a “temporary bargaining stance”. The proceedings continued for some time, with a degree of interlocutory disputation, but before the end of the trial the developer went into liquidation and the claim was abandoned.[9]
- [37]At first instance Goldberg J held that the solicitors had unreasonably initiated the proceeding when there were no prospects or substantially no prospects of success, and because there was an ulterior purpose in instituting the proceedings, to postpone and delay the outcome on the builder’s claim for payment, giving the client breathing space: p 248. As a consequence, commencing the proceedings made the solicitor a party to an abuse of process of the court. His Honour held it was also unreasonable because the solicitor had insufficient information on which to form a view that the proposed proceedings had any realistic prospect of success, and because the proceedings propounded a cause of action in fraud when there was no factual basis for the allegation and the solicitor had given no consideration to whether there was such a factual basis, and hence whether fraud should be pleaded: p 249. This behaviour amounted to a breach of the solicitor’s duty to the court: p 250.
- [38]The fact that it was legitimate to defend what became the builder’s cross-claim, and that ultimately some success was achieved in defending that cross-claim, were not an answer to this conclusion. In those circumstances it was appropriate for the solicitors to pay the builder’s costs of the proceeding, and that they be paid on the indemnity basis, essentially for the same reasons as justified an order for the payment of costs at all: p 253. His Honour had previously noted that the jurisdiction to make such an order was compensatory rather than punitive, “to reimburse to a party to proceedings costs which that party has incurred because of the default of the practitioner”.[10] In that context, if it were appropriate to make an order for costs against the solicitor, it would be likely, indeed perhaps almost inevitable, that the costs would be on the indemnity basis.
- [39]An appeal against the decision, which was dismissed, was argued on three specific bases. The first of these need not be considered. The second, which was rejected, is that there was no finding that the proceedings were based on a cause of action that was not arguable, which was said to be unnecessary in circumstances where a finding had been made that they had been brought for an improper purpose: [60]. The third was that it was not an improper purpose to bring the proceedings although planning to compromise the claim, which was rejected on the basis that this was not a situation where the client had hoped that the claim being commenced could be successfully compromised rather than having to go to trial, but rather that the compromise which was sought was of the cross-claim [63], and in any case, even in that context, where delay was the object of the exercise that was an abuse of process: [64].
- [40]The facts in that case were quite different from the facts in the present, but the decision did emphasise that something more than merely initiating or continuing an action which has no or substantially no prospects of success is not in itself a sufficient justification to order costs against the solicitor. There must be relevant serious dereliction of duty or misconduct, though that may be simply a failure to give proper attention to the relevant law and facts in making an assessment of whether there were any worthwhile prospects of success.
- [41]The decision in White Industries at first instance was referred to with approval by the Court of Appeal in Queensland in Steindl Nominees Pty Ltd v Laghaifar [2003] 2 Qd R 683 at 689, where however a qualification was added that it was rarely, if ever, safe for a court to assume that a hopeless case was being litigated on the advice of the lawyers involved.[11] The court also noted the distinction between a case which is bound to fail and a case which constitutes an abuse of process of the court. Davies JA, with whom the other members of the court agreed, said at [24]:
“To the extent that those statements state or imply that it is not improper for a legal representative to present a case which he or she knows to be bound to fail, I would reject them. I would prefer to say that it is one thing to present a case which is barely arguable (but arguable nevertheless) but most likely to fail; it is quite another to present a case which is plainly unarguable and ought to be so to the lawyer who presents it. In my opinion, with respect, it is improper for counsel to present, even on instructions, a case which he or she regards as bound to fail because, if he or she so regards it, he or she must also regard it as unarguable.”
- [42]In that particular case, orders for costs were sought against a barrister who on a direct brief had argued for an extension of time within which to appeal against a refusal at first instance to set aside a default judgment. The court was very critical of the way in which the case had been argued, noting among other things that large volumes of documents had been filed in support of a ground which was then abandoned in oral argument, and that the court had rejected the arguments advanced by the barrister. On the issue of delay, the evidence might have shown that the defendant lacked legal capacity because of his psychiatric disturbance during the time when he ought to have put in a defence, a question which the Court of Appeal held in the light of the evidence not to be completely unarguable: [16]. However, it appeared that the barrister had missed the point that there was a further difficulty, that there was no arguable defence to the plaintiff’s claim, and the defendant’s then counsel had advised the defendant to that effect: [17]. This was described as a substantial weakness which counsel appeared not to grasp during oral submissions. The decision was to some extent based on a rule in the Queensland Barristers Rules, but I suspect that much the same principles apply in the case of a solicitor. In spite of these many deficiencies however, the court was not persuaded that the circumstances justified an order for costs against the barrister personally: [37].
- [43]The decision in White Industries at first instance was also referred to in Martinovic v Chief Executive Queensland Transport [2005] 1 Qd R 502 where, after an application for judicial review was dismissed, an order for costs had been made against counsel appearing for the applicant. The appeal court held that an attempt to appeal from the further decision, that the barrister pay the costs of that application, was incompetent. In that case the judge at first instance had observed that conduct to justify an order for costs must involve fault in relation to the advocate’s duty to the court, and that it was not enough that the advocate had been arguing a hopeless case: [15]. The position was said to be different if the court concluded there had been improper time wasting by the advocate, or the advocate had knowingly lent himself to an abuse of process.
- [44]The order was made against counsel on the basis that no competent barrister in his position giving proper attention to the prospect of success would have perceived the judicial review application to be appropriate, and he had either deliberately ignored his professional obligation or acted recklessly and heedless of them [2]. Ultimately however the only part of the order sought to be appealed against was the order that the barrister pay the costs of the application for costs brought against him personally on the indemnity basis. The majority of the Court of Appeal regarded that application as incompetent, on the ground that there had been a failure to obtain leave to appeal against that costs order.[12]
- [45]These principles were applied in Hartwood Architectural Timber and Joinery Pty Ltd v Redchip Lawyers [2009] 2 Qd R 499 where the respondent firm obtained ex-parte a freezing order on behalf of clients. The order did not follow the draft in the practice direction about such orders, in that it omitted an undertaking to provide security to support the undertaking as to damages. The omission of this from the draft order by the solicitor with conduct of the matter was deliberate, and the solicitor had omitted to draw the attention of the judge who granted the freezing order to this deficiency. In fact counsel instructed in the matter indicated that the draft order did follow the form [2], and this statement was not corrected by the solicitor who had deliberately omitted this part, who was instructing him at the time.
- [46]An application to set aside the freezing order was heard and upheld on this and other grounds, with costs, and subsequently an application was made for an order for costs against the solicitor. That application was upheld, because the failure to draw attention to this deliberate omission from the practice direction order involved misleading the court, and a breach of the duty to make full disclosure of material facts when applying for an order ex-parte: [30]. This impacted on the worth of the undertaking as to damages given by the client companies, which ultimately went into liquidation. The provision or absence of such security was therefore a material matter for the consideration of the judge hearing the application. This amounted to a serious dereliction of duty to the court, which attracted the jurisdiction of the court to order costs against the firm which employed him: [47].
Consideration
- [47]The applicant’s argument was factually based on the assistance given by the solicitors to the first and second defendants in preparing and filing affidavits to resist an application for summary judgment in 2016, and in particular the proposition in those affidavit that the defendants had not received legal advice about who owned the boat when affidavits asserting that the company owned the boat were prepared and sworn by them with the assistance of a solicitor in 2013. It was submitted that, given the importance of the question of ownership to the summary judgment application in 2013, it defied belief that that solicitor gave no advice on this topic when he prepared affidavits to be sworn by them about this. Reliance was also placed on a concession in cross-examination that the defendants had had legal advice in relation to the ownership of the boat.
- [48]The difficulty with this argument however is that it is one thing to say that the evidence of a defendant is unreliable because the defendant has said two different and inconsistent things on oath at different times, and another thing to say that the solicitor acting in 2016 knowingly put forward a false affidavit in order to resist a summary judgment application made at that time. The proposition relied on particularly by the plaintiff, that the defendants were not given legal advice, may have been intended to refer only to the situation in 2013, although on its face it was expressed more generally than that. But in any event, there was no reliable evidence that that statement was false.
- [49]The proposition that legal advice had been received was put forward on the basis of the second defendant’s concession under cross-examination, and on the basis that the proposition that an affidavit would not have been prepared to resist the application for summary judgment dealing with the question of ownership of the boat without the solicitors who prepared the affidavit at that time having given legal advice on that question. But this evidence of the second defendant was significant only as one of the factors contributing to the destruction of his credibility; once that point was reached, it is of no value as evidence of the truth of what he said under cross-examination about this, and it remains the case that there is no reliable evidence that legal advice had been given in 2013, or indeed in 2016, or in between. Indeed, the second defendant’s evidence as to the content of that advice, that it all depended on who paid for the boat, detracts from the proposition that the evidence that such advice was given was correct. The issue was who was the legal owner of the boat, not who might have been the beneficial owner.
- [50]I do not find the proposition, that a solicitor could prepare an affidavit in response to an application for summary judgment dealing with the question of ownership of the boat as it was dealt with in the 2013 affidavits without having actually given advice on that question, to be inconceivable; on the contrary the defendants’ position at that time might have been that “of course the company owned the boat”, and there was no question of their needing any legal advice about that matter. The same is true really in 2016; at that point they were making a case to the contrary.[13] That could have been achieved without seeking legal advice as to ownership.
- [51]There was no evidence about whether the current solicitors inherited the file of the solicitor acting in 2013, and no reason to assume that, if they did have access to that file, it contained documents demonstrating that such legal advice had been given. The position is that the plaintiff has failed to establish the factual foundation relied on for the proposition that the solicitors for the defendants in 2016 were in breach of their duty in relation to the proper conduct of litigation, by preparing, filing and relying on an affidavit known to be false. There is no reliable evidence to support a positive finding that the affidavit was false, and no evidence at all to support a conclusion that the solicitor knew that the affidavit was false.
- [52]It is certainly a situation where it ought to have been apparent to the solicitors that, after the change of tack in relation to the ownership of the boat, the counterclaim was essentially hopeless, for the reasons given earlier, but it must be remembered that it was not hopeless because of any specific legal bar; the position was simply that for the counterclaim to succeed it was necessary for the court to accept oral evidence which was inconsistent with contemporaneous documentation and prior sworn evidence from those witnesses. In theory, that was possible. The case was certainly in a practical sense hopeless, and the clients should have been advised of that, but if the clients gave instructions to pursue the case notwithstanding that, on the authorities the solicitors were entitled to pursue it provided that in doing so they did not act in breach of their duty to the court and to the administration of justice.
- [53]I am not persuaded that in this case the solicitors did act in breach of their duty to the court, and therefore circumstances do not exist which justify an order for costs against the defendant’s solicitors. The plaintiff’s application for costs against the solicitors is therefore dismissed.
Footnotes
[1] Affidavit of Moore sworn 8 June 2017, Exhibit LEM16.
[2] This is in a sense unfair because the large delay since the making of the offer, so it seems, has been largely attributable to a successful delaying campaign by the defendants. That point however was not specifically raised and has not been the subject of specific argument, so I should not decide the question on that basis.
[3] Affidavit of Moore sworn 8 June 2017, Exhibit LEM17.
[4] Ibid, Exhibit LEM18. This aspect was particularly inappropriate as there was no counterclaim by the second defendant.
[5] Since he had inspected the boat after that work was done.
[6] Further amended defence and counterclaim filed 26 June 2014 para 64.
[7] [1999] 87 FCR 134 at [11].
[8] Ibid, at [15].
[9] A cross-claim by the builder for money owing under the contract continued to judgment, with some success for the developer.
[10] 156 ALR at p 229.
[11] Citing Ridehalgh v Horsefield [1994] Ch 205 at 233-4.
[12] Contrary to the restriction then in the Supreme Court Act 1995, s 253.
[13] I do not accept the submission that the affidavits were merely putting forward the objective evidence and relying on the proposition that the issue of ownership was uncertain, since the general tenor of the affidavits in 2016 was that it was the first defendant who owned the boat.