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Federal Court of Australia - Full Court Decisions |
Last Updated: 17 April 2007
FEDERAL COURT OF AUSTRALIA
King v Yurisich (No 2) [2007] FCAFC 51
COSTS -- application for costs of trial and
appeal -- application based on an offer of compromise made pursuant to O 23
of the
Federal Court Rules -- whether an offer made to all respondents is
capable of being accepted by only one -- whether unreasonable conduct of
litigation
should affect costs order
Federal Court of Australia Act 1976
(Cth) s 43
Federal Court Rules O 23, O 23 r 2,
O 23 r 9, O 23 r 10
Aquatec-Maxcom Pty Ltd v Barwon Regional
Water Authority (No 3) [2006] VSC 270 discussed
Calderbank v
Calderbank [1976] Fam 93 referred to
Henderson v Amadio Pty Ltd (No
3) [1996] FCA 184 referred to
King v Yurisich [2005] FCA 1277
referred to
King v Yurisich (No 2) [2005] FCA 1765 referred
to
King v Yurisich [2006] FCAFC 136; (2006) 153 FCR 78 referred to
King v Yurisich
[2006] FCA 1369 referred to
Latoudis v Casey [1990] HCA 59; (1990) 170 CLR 534
cited
Milne v Attorney General (Tas) [1956] HCA 48; (1956) 95 CLR 460 cited
WSA
Online Limited v Arms (No 2) [2006] FCAFC 108 discussed
Young v
King [2007] HCA Trans 54 discussed
JOHN
MILLER CAMPBELL KING AND ORS AS TRUSTEES OF THE TRAVEL COMPENSATION FUND v WAYNE
JAMES YURISICH, CHERYL ANNE YURISICH, LANE MOLLER
PARTNERS PTY LTD T/A LANE
MOLLER PARTNERS (IN LIQUIDATION) AND ROBERT YOUNG
VID 1206 OF
2005
SUNDBERG, WEINBERG AND RARES JJ
16 APRIL
2007
MELBOURNE
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AND:
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THE COURT ORDERS THAT:
1. The third and fourth respondents pay the appellants’ costs of:
(a) the appeal (on a party/party basis); and
(b) the proceedings at first instance:
(i) as to 30%, on an indemnity basis;
(ii) as to 70%, on a party/party basis.
2. The third and fourth respondents pay 25% of the appellants’ costs of their application for costs in this Court.
Note: Settlement and
entry of orders is dealt with in Order 36 of the Federal Court
Rules.
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ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF
AUSTRALIA
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BETWEEN:
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JOHN MILLER CAMPBELL KING AND ORS AS TRUSTEES OF THE TRAVEL COMPENSATION
FUND
Appellant |
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AND:
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WAYNE JAMES YURISICH
First Respondent CHERYL ANNE YURISICH Second Respondent LANE MOLLER PARTNERS PTY LTD T/A LANE MOLLER PARTNERS (IN LIQUIDATION) Third Respondent ROBERT YOUNG Fourth Respondent |
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JUDGES:
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SUNDBERG, WEINBERG AND RARES JJ
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DATE:
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16 APRIL 2007
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PLACE:
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MELBOURNE
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REASONS FOR JUDGMENT
THE COURT
1 The appellant trustees of the Travel Compensation Fund have applied for an order for the fund’s costs both of the trial and the appeal. The application is based on an offer of compromise made by the fund pursuant to O 23 of the Federal Court Rules on 29 August 2003 to Mrs Yurisich (her husband having been made a bankrupt before then), Ms Gottschalk (with whom the fund settled during the trial: see King v Yurisich [2005] FCA 1277 at [31]) Lane Moller Partners Pty Limited and Mr Young. Only the latter two were party to the appeal. Since we published our primary reasons (King v Yurisich [2006] FCAFC 136; (2006) 153 FCR 78), Lane Moller has gone into liquidation. Weinberg J gave leave to proceed against Lane Moller for the purposes of the present application (King v Yurisich [2006] FCA 1369).
2 The offer of compromise was expressed in these terms:
‘1. The Respondents to pay the Applicant the sum of $110,000.00 in full and final settlement of the Applicant’s claim against the Respondents.
2. The Respondents to pay the Applicant’s costs of these proceedings as agreed or assessed.’
None of the respondents accepted the offer.
3 Significantly, the trial judge made a special order for costs in the proceedings below. He ordered that the fund pay 70% of Lane Moller’s and Mr Young’s costs on a party/party basis (King v Yurisich (No 2) [2005] FCA 1765). He noted that the fund had succeeded on the question of liability but failed on the question of damages because he found that it had failed to prove any damages as a result of the conduct of Lane Moller and Mr Young. The trial judge found that they had acted in some respects unreasonably in defending some issues in the proceedings. He said that Lane Moller was wrong to claim that it had a limited retainer and that Mr Young should have accepted that his conduct had fallen short of the standard required of an auditor earlier than he did. His Honour said that if both of those respondents had taken those positions during the trial it would have been shortened ([2005] FCA 1765 at [3], [6], [7]). The trial judge held that the entitlement of Lane Moller and Mr Young to costs of the trial should be reduced to some extent to reflect the way in which they had conducted themselves in the litigation up to and during the trial ([2005] FCA 1765 at [11]).
4 The result of the appeal was to reverse the trial judge’s conclusion that the fund had not established any damages. We held that the fund was entitled to judgment against Lane Moller and Mr Young for $200,135 together with interest as at 29 September 2006 of $121,876.31 (a total of $322,011.31). Leaving aside the interest component, the fund obtained a result far better than the sum in its offer of compromise.
5 There is no evidence that any offer of compromise was made in respect of the appeal proceedings.
COSTS OF THE TRIAL
6 In light of the fund’s success in the appeal Lane Moller and Mr Young should be ordered to pay the fund’s costs of the proceedings below. Their inappropriate conduct of the proceedings, as found by the trial judge, would ordinarily attract a special order for costs of the trial. For the reasons his Honour gave, the fund was put to unnecessary expense in dealing with issues at the trial because of the conduct of each of Lane Moller and Mr Young. However, no application for a special costs order had been sought initially, other than an order pursuant to O 23.
7 Lane Moller and Mr Young argued that because the offer of compromise was given in one notice to all respondents, no respondent alone could have accepted it and concluded the proceedings. Mr Young argued that where one recipient of a joint offer accepted it alone, the party purporting to make it cannot obtain the benefit of an offer under O 23 for indemnity costs.
8 In WSA Online v Arms Limited (No 2) [2006] FCAFC 108 at [16], Nicholson, Mansfield and Bennett JJ said that the regime under O 23, where it applies, gives rise to a presumptive entitlement to indemnity costs. They went on to note, however, that an offer made in the form of a Calderbank offer (Calderbank v Calderbank [1976] Fam 93) to all respondents was not capable of being accepted by one respondent independently of the other two. They said that the offer required the agreement of all respondents. However, they held that was not a matter which operated conclusively against the making of an order, in the exercise of the Court’s discretion, outside the regime of O 23 ([2006] FCAFC 108 at [18]; see also Aquatec-Maxcom Pty Ltd v Barwon Regional Water Authority (No 3) [2006] VSC 270 at [20]–[21] where Byrne J held that if the ultimately unsuccessful party could not accept an offer under r 26.09 of the Supreme Court (General Civil Procedure) Rules 1996 (Vic) in accordance with its terms, an order under that Court’s rules should not be made).
9 The fund says that just as with a Calderbank offer made to all respondents, offers under O 23 can be made conditional upon all respondents accepting them even though the offer is incapable of being accepted by only one respondent. It argued that such a respondent could accept the O 23 offer and then serve a Calderbank letter on the other, non accepting, respondents. The fund referred to what Heerey J had said in Henderson v Amadio Pty Ltd (No 3) [1996] FCA 184. But, once again, Heerey J was not dealing with an offer under O 23 but with a Calderbank letter.
10 The fund argued that O 23 r 10 contemplates a situation where respondents who have accepted an offer are jointly, or jointly and severally, liable. It argued that this supports a construction of the rules to permit the making of an offer to all respondents which can be accepted by one. But O 23 r 10 has no direct application here since there had been no failure under O 23 r 9 to comply with an accepted offer. Moreover, it is of no assistance to refer to O 23 r 10 here because the terms of the present offer were clear – all four respondents had to accept it. The fund chose to make an offer which required each respondent to whom it was addressed to accept it. There was no need for it to do so (see O 23 r 2).
11 There does not appear to be any basis under the terms of O 23 for the proposition that an offer made to all respondents can be accepted only by one. The fund made an offer which required all four respondents to whom it was made to accept its terms. If one respondent failed to accept, the fact that the other three had sought to would not have been a compliance with the terms of the offer. Moreover, in those circumstances there would be nothing which the respondents who wanted to accept the offer could do to comply with its terms. If the fund were correct in its construction of O 23, this would mean that any respondent who had wanted to accept the offer but was unable to persuade the others to do so, would be responsible for the payment of costs on an indemnity basis notwithstanding that respondent’s attempt to satisfy the offer so far as it could. Given that the obliging respondent had no power to compel the others to act reasonably or to accept the offer, the consequence would be unacceptably harsh.
12 In our opinion the proper order for costs, having regard to the failure of the fund to make a Calderbank offer, or an offer in accordance with O 23, either at the trial or later, is that the fund should have its costs of the appeal on a party/party basis.
13 In light of his Honour’s finding that a proportion of the costs were incurred unreasonably at the trial, we invited further written submissions in respect of the exercise of our discretion under s 43 of the Federal Court of Australia Act 1976 (Cth).
14 The fund submitted that the Court should fashion an order to reflect the trial judge’s findings by increasing the amount of party/party costs by 30% or by whatever was equivalent to an indemnity, whichever was the lesser.
15 In response, Lane Moller argued that the fund failed on a number of issues both before the trial judge and on appeal. Lane Moller submitted that it was unrealistic to expect it to make concessions as to matters such as negligence, misleading and deceptive conduct or reliance in the circumstances, particularly having regard to the complexity of the evidence underpinning the allegations in the interpretation of a broadly based accounting standard. These submissions appear to suggest that the trial judge was wrong in his assessment. We are unable to see any error in his Honour’s exercise of his discretionary judgment on this issue. Indeed, we agree with his reasons.
16 More remarkably, Mr Young argued that although Kirby and Heydon JJ refused special leave to appeal (Young v King [2007] HCA Trans 54), our decision was ‘questionable’. He argued that the respondent should only pay 70% of the fund’s costs of the appeal and of the trial.
17 In giving the High Court’s reasons for refusing special leave to appeal, Heydon J said:
‘The applicants seek to demonstrate error in the Full Court’s approach by recourse to various examples. These examples are not analogous or, at least, not closely analogous to the present case. The legislation permits a range of approaches to calculating damages. The applicants have not demonstrated that the Full Court was wrong in the approach it selected in the present circumstances, nor is the outcome unjust in the particular circumstances.
There are insufficient prospects of success to justify the grant of special leave.’
18 Support for the assertion that the High Court regarded the decision of this Court as ‘questionable’ is not apparent from their Honours’ reasons for refusing special leave to appeal. Moreover, that assertion provides no sound basis for the exercise of the Court’s discretion in reviewing the appropriate order to be made for the costs of the trial, where the trial judge held that the successful parties should be deprived of a substantial proportion of their costs because of their inappropriate conduct of the trial.
19 No doubt, the proceedings raised difficult and interesting questions, both factual and legal, for resolution at the trial, and on appeal. But that was no justification for Lane Moller and Mr Young doing what the trial judge found they did, namely unreasonably defending some issues in the proceedings. The trial would have been shortened had they not fought those issues. Unreasonable behaviour of litigants in prosecuting or defending claims exacerbates the costs which their opponents must pay. The purpose of an order for costs is to compensate the successful party, not to punish the unsuccessful party: Latoudis v Casey [1990] HCA 59; (1990) 170 CLR 534 per Mason CJ at 543, per Toohey J at 563, per McHugh J at 567. McHugh J said that the rationale for the order is that it is just and reasonable that the party who has caused the other to incur the costs of litigation should reimburse the successful party for the liability incurred. He observed that an order for costs would follow the event even though the unsuccessful party had nearly succeeded or had acted reasonably in commencing proceedings.
20 It is a general rule that a wholly successful defendant should receive its costs unless good reason is shown to the contrary: Milne v Attorney General (Tas) [1956] HCA 48; (1956) 95 CLR 460 at 477. The trial judge found good reason in the present case. That being so, we are of opinion that it would not be just or equitable for the fund simply to receive a party/party order in its favour when the trial judge found that Lane Moller and Mr Young acted, to some degree, unreasonably in their defences at the trial. No doubt it is proper to have regard to the fact that the fund failed on some issues before his Honour, but when exercising his discretion, he did not see that as weighing against the making of a special order against Lane Moller and Mr Young.
21 In our opinion, Lane Moller and Mr Young should pay 30% of the costs of the trial on an indemnity basis and the balance on a party/party basis. This would reflect his Honour’s view of the unreasonableness of the conduct of the defence adding unjustly and unfairly to the cost burden of the fund in the litigation. The fund should be compensated for its costs in having to deal with issues that should never have been litigated.
CONCLUSION
22 The fund’s application for an order for indemnity costs for the whole of the hearing and the appeal has failed. The fund has had a limited measure of success on the present application, but only after the Court raised with the parties the question of the special order made by the trial judge for the costs of the hearing. In these circumstances the fund should have only 25% of the application for costs.
CONDUCT OF THE APPEAL
23 We do not wish to part from this case without observing that the appeal books occupied something like 5,000 pages in ten volumes. Very little of that material was referred to during the course of submissions or oral argument. Indeed, a number of the volumes were not opened at all during the hearing. Much of this material was completely unnecessary having regard to the trial judge’s findings of fact and the nature of the arguments raised on the appeal.
24 Moreover, although no doubt the issues were important to the parties, the
conduct of this litigation has been extravagant. It
concerned a claim for
$200,000 that occupied 10 days of hearing before the trial judge and two days on
appeal. This expenditure
of time and resources, not only of the parties, but
also of the Court bears no apparent relationship to the value of the interests
at stake. The fact that the Court has been shown only one attempt to compromise
the proceedings on which to base a claim for indemnity
costs, or to resist any
such claim, is indicative of a lack of any appropriate commercial approach to
resolution attempts by the
parties with their professional advisers. The Court
is not able to come to any conclusion as to whether any fault lies on any one
of
the parties to the proceedings. However, given that the fund, Lane Moller and
Mr Young were parties with some sophistication,
it is indeed unfortunate that
they were unable to resolve matters or to find a more economical way of
litigating what in truth was
a very small claim.
Associate:
Dated: 16
April 2007
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Solicitors for the Third and Fourth Respondents:
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Date of Submissions:
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Date of Judgment:
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