Kelly v Slade[2018] QDC 18

DISTRICT COURT OF QUEENSLAND

Introduction

1. [1]
   On 7 December 2017, I dismissed the plaintiffs’ claim and the defendants’ counterclaim and sought submissions on costs.  The plaintiffs’ submissions were provided on 29 January 2018 and the defendants’ submissions on 2 February 2018.
2. [2]
   The defendants seek an order that the plaintiffs pay the costs of the proceedings on standard basis to 25 May 2015 and then on an indemnity basis.  They rely on the following matters.
3. [3]
   First, the defendants contend that they have been successful at trial in defending the claim and that accordingly the costs of the proceedings should follow the event under Rule 681(1) UCPR.  They contend that the dismissal of the counterclaim should not lead to any contrary order because the counterclaim was not pressed at trial, the costs of defending the counterclaim were insignificant and those costs “absorbed” by the plaintiffs’ costs of pursuing the claim.
4. [4]
   Second, the defendants contend that costs should be awarded on an indemnity basis from 26 May 2015 because:

   1. (a)
      The defendants made three offers to settle on 26 May 2015 (the first offer), 7 March 2017 (the second offer) and 7 June 2017 (the third offer) each of which was not accepted or rejected by the plaintiffs unreasonably;
   2. (b)
      The pursuit of the proceedings by the plaintiffs was unjustified and undertaken “knowingly and willfully disregarded the facts and the law”;
   3. (c)
      The plaintiffs should have known that they could not succeed in establishing the agreement they alleged in the absence of writing satisfying the requirements of section 59 Properly Law Act 1974 (Qld) (the PLA). 
5. [5]
   The plaintiffs contend that there should be no order as to costs on the following basis.
6. [6]
   First, the event on the counterclaim favoured the plaintiffs. Further, the abandonment of the counterclaim on the morning of the trial does not justify the conclusion that the counterclaim was irrelevant for costs purposes.  While there was a significant overlap between the issues in the claim and counterclaim, this has the consequence that the expense of the proceedings arose just as much from the counterclaim as from the claim right up until the abandonment of the counterclaim on the morning of trial.
7. [7]
   Second, the defendants did not act reasonably in the conduct of aspects of the proceedings, thereby causing unnecessary costs.  In particular, the plaintiffs complain of the failure by the defendants to co-operate in obtaining a Mediation Referral Order and in failing to attend a mediation in accordance with such an order. 
8. [8]
   Third, none of the matters raised by the defendants justify an indemnity costs order:

   1. (a)
      None of the defendants’ offers were unreasonably rejected by the plaintiffs;
   2. (b)
      The plaintiffs’ case, though unsuccessful, was reasonably brought; and
   3. (c)
      Section 59 PLA was not raised by the defendant at trial so had no influence on the result.  

Relevance of the counterclaim

9. [9]
   Rule 681(1) provides:

Costs of a proceeding, including an application in a proceeding, are in the discretion of the court but follow the event, unless the court orders otherwise.

10. [10]
    Also relevant is Rule 684, which provides:

1. (1)
   The court may make an order for costs in relation to a particular question in, or a particular part of, a proceeding.
2. (2)
   For subrule (1), the court may declare what percentage of the costs of the proceeding is attributable to the question or part of the proceeding to which the order relates.

11. [11]
    The “event” referred to in the rule is not the ultimate outcome of the proceeding.  It is to be read distributively and refers to the individual events or issues arising in the proceeding.^[1]In my view, the counterclaim was part of the proceedings for the purposes of Rule 681.  Therefore the plaintiffs can contend that they succeeded on the event in respect of the counterclaim and therefore can benefit from the default position under the Rule.  However, the same consequence flows if the counterclaim was not part of the proceeding for the purposes of Rule 681, as in that case, the plaintiffs would have the benefit of success on the separate proceedings comprised in the counterclaim.^[2]
12. [12]
    In the former case, Peter Lyons J observed in McDermott, the predilection for distributing costs according to individual events has not been universally adopted.^[3]His Honour identified authorities reflecting a reluctance to deprive a successful party, particularly a defendant, of the costs of the proceeding because of failure on one or other ground raised by that party. These authorities tend to support the defendant’s position that the costs of the counterclaim should go with the costs of the claim.  The reasoning in those cases would be apt to apply even if the counterclaim were considered to be a separate proceeding (at least where it was heard together with the claim).
13. [13]
    Ultimately, though, the costs of the counterclaim are a matter for the discretion of the Court to be exercised in the circumstances of the particular case. 
14. [14]
    Here the defendants invited the Court to ignore the dismissal of the counterclaim because it was withdrawn before trial.  As the plaintiff rightly points out, withdrawing the counterclaim the morning of trial avoids only a relatively small part of the costs of the counterclaim. I do not think that a persuasive reason why no allowance for failure on the counterclaim should be made in the costs orders.
15. [15]
    The parties are otherwise agreed that the counterclaim covered similar issues to that covered by the statement of claim and defence. That is true in this sense: the central proposition of the counterclaim was the version of the alleged agreement between the parties pleaded in paragraph 6 of the amended defence.  The counterclaim sought consequential relief flowing from the positive case of the defendants.
16. [16]
    The parties seek to draw opposite conclusions from the overlap between the issues on the claim and the statement of claim. The defendants contend that the consequence is that the counterclaim made no difference to the costs of preparation of the trial, so should be ignored.  The plaintiffs contend that the consequence is that the counterclaim was equally “to blame” for the costs of preparation of the trial, so their success on the counterclaim should be taken into account such that no order as to costs is appropriate. 
17. [17]
    In my view, the answer lies somewhat in the middle of these two positions.  While the counterclaim did cover substantially the similar issues as the claim, it did advance a positive case for relief based on the defendants’ version of the agreement.  In my reasons, I did not make findings in favour of the defendants in respect of their version of the agreement.  The foundation for the defendants’ success was the failure of the plaintiffs to make good their positive case.  Further, the evidence of Mrs Slade was the primary evidence of the defendants’ positive case and that evidence was unsatisfactory in a number of respects, as explained in my reasons for judgment.
18. [18]
    On balance, I do not think it appropriate just to ignore the counterclaim as the defendants contend.  However, I agree that the counterclaim was a secondary matter in the preparation of the trial and the issues between the claim and the counterclaim did substantially overlap.  In the circumstances, I order that the plaintiffs pay 80% of the defendants’ costs of the proceedings.

Conduct of the defendants in relation to the Mediation Referral Order

19. [19]
    The most persuasive of the plaintiffs’ complaints about the defendants’ conduct in relation to the Mediation Referral Order relate to the costs thrown away by the failure of the defendants to attend the mediation and the costs of the subsequent application for judgment.  On 7 February 2017, McGill DCJ reserved the costs of the abandoned mediation and the subsequent application.
20. [20]
    Rule 698 provides:

If the court reserves costs of an application in a proceeding, the costs reserved follow the event, unless the court orders otherwise.

21. [21]
    Bearing in mind the interpretation of the word “event” in Rule 681 discussed in paragraph [11] above, the questions might be posed in respect of this rule: which event? And in respect of which court process: the application or the proceeding in which the application was sought?
22. [22]
    Jackson J observed in Mio Art Pty Ltd v Macequest Pty Ltd & Ors (No 2)  [2013] QSC 271 at [4]:

As I interpret that rule, it is intended to make it unnecessary to make a specific order dealing with reserved costs, unless they are not to follow the order for costs of the application. That interpretation means that the practice followed under previous rules of court that reserved costs must be specifically dealt with does not generally apply in making an order for costs of an application under the UCPR. However, I accept that the scope of the particular order for reserved costs I made on 31 January 2013 relating to each of the applications is not as clear as it could be, so that there is reason to order that the costs on each of the applications should include the costs which were reserved on 31 January 2013.

23. [23]
    His Honour’s observation seems to support the conclusion that the event in question is the ultimate outcome of the application.  Other authorities appear to proceed on the basis that the event is the ultimate outcome of the proceedings in which the application was brought.^[4]There are undoubtedly other authorities.  Important though those questions might be where no order dealing with reserved costs has been made, it does not have to be resolved here as I intend to make specific orders in respect of those reserved costs.
24. [24]
    I order that the costs reserved by Judge McGill’s order be paid by the defendants.  That is the appropriate order because:

    1. (a)
       The defendants could properly resist an order for mediation.  That was their right.  However, the failure of the defendants properly to comply with an order for mediation once made fell well short of the conduct required of parties under rule 5 UCPR and unreasonably exposed the plaintiffs to wasted costs;
    2. (b)
       Given that failure, I can see no basis why it was not appropriate for the plaintiffs to bring an application for orders consequent on the failure to comply with the Court’s mediation order; and
    3. (c)
       True it is that it seems unlikely that the mediation would have been unsuccessful, but in my view the fact that the defendants ultimately won the case does not seem to me properly to excuse the disregard of the orders by the Court for the proper conduct of the litigation at the time they are made.  A fortiori where the defendants agreed to a settlement conference in any event on 12 June 2017, which led to earlier trial dates being vacated.
25. [25]
    The failure to attend the mediation once ordered was a serious disregard of the defendants’ obligations in the conduct of the proceedings.  Those costs should be paid on an indemnity basis.
26. [26]
    To avoid any doubt, the order for indemnity costs in relation to the mediation is limited to the costs wasted in respect of mediation itself, not the costs of the application for the mediation order.  Those costs will be part of the costs of the proceedings.

Indemnity costs issues

27. [27]
    I am not persuaded that any of the offers made by the defendants justifies an order for indemnity costs.
28. [28]
    None of the offers made by the defendants contained a statement that the offer was made under Part 5 of Chapter 9: see rule 353(3).  Accordingly that part does not apply to the offers, and in any event, that part provides no particular advantage to a defendant who has been successful in entirely defeating a plaintiff’s claim.
29. [29]
    Accordingly the offers are relevant, if at all, as Calderbank offers. A brief reminder of the principles is convenient here.  An offer to settle made without prejudice cannot be relied upon at all on questions of costs.^[5]On the other hand, an offer made without prejudice except as to costs, or Calderbank offer, may be relied on in respect of costs.^[6]In assessing what, if any, consequences to attach to a Calderbank offer, the Court has regard primarily to whether it was unreasonable for the offeree to reject the offer when it was made.  Whether it was or not depends on all the circumstances of the case. There is no prima facie presumption that the party making the offer is entitled to costs on an indemnity basis from the making of the offer.^[7]
30. [30]
    In my view, none of the offers were rejected in circumstances justifying an indemnity costs order.  
31. [31]
    In respect of all offers, I make the following two general observations:

    1. (a)
       First, I reject the suggestion that the plaintiffs’ case was self-evidently without merit.  As is evident from my reasons, there was substantial points in favour of the plaintiffs’ case, even ignoring the importance of Exhibit 4.  Nor did I find that either of the plaintiffs were deliberately untruthful in their evidence.
    2. (b)
       Second, I reject the suggestion that the application of section 59 PLA was relevant to the plaintiffs’ merits.  The point was never raised by the defendants. 
32. [32]
    Bearing those matters in mind, I do not think that the plaintiffs acted unreasonably in rejecting either the first or second offer when they were made.  Those offers had very little by way of genuine compromise and treated the plaintiffs’ case as effectively hopeless, which it was not.  Further, I note that Exhibit 4 was disclosed by email at 9.51am on 9 June 2017.  Even if I had thought that the first and second offer should reasonably have been accepted at the time, the fact that Exhibit 4 had not been revealed at the time would have led me to refuse indemnity costs.
33. [33]
    The third offer had a real element of compromise.  However, it was put on the basis that it was open for acceptance for less than 48 hours, which I do not consider to be a proper period to permit reasonable assessment of the offer.  Further, the defendants finally disclosed Exhibit 4 just 3 hours before the expiry of the offer.  The receipt of that document at that time made it reasonable in my view for the plaintiffs not to accept the third offer.

Conclusion

34. [34]
    Accordingly, the orders in respect of costs in the proceedings will be as follows:

    1. (a)
       The defendants pay the plaintiffs’ costs of the abandoned Mediation on 24 October 2016 on an indemnity basis;
    2. (b)
       The defendants pay the plaintiffs’ costs of the application filed 23 December including reserved costs;
    3. (c)
       The plaintiffs pay eighty per cent of the defendants’ costs of the proceeding.