Allplastics Engineering Pty Ltd v Dornoch Ltd [2006] NSWCA 33 (21 February 2006)

Last Updated: 25 May 2006

NEW SOUTH WALES COURT OF APPEAL

CITATION: Allplastics Engineering Pty Ltd v Dornoch Ltd [2006] NSWCA 33



FILE NUMBER(S):
40326/05

HEARING DATE(S): 21 February 2006

DECISION DATE: 21/02/2006
EX TEMPORE DATE: 21/02/2006

PARTIES:
Allplastics Engineering Pty Limited
Dornoch Limited

JUDGMENT OF: Santow JA Tobias JA

LOWER COURT JURISDICTION: District Court

LOWER COURT FILE NUMBER(S): DC6630/01

LOWER COURT JUDICIAL OFFICER: Bowden A-DCJ

COUNSEL:
Cl: Mr P Clay
Opp: Mr R Dickson

SOLICITORS:
Cl: Stephen Doyle & Associates
Opp: Shaw McDonald Pty Ltd, Sydney

CATCHWORDS:
COSTS – delay filing affidavit evidence – delay preventing progress of trial – costs order not sought – reasons for costs order not given – order that plaintiff pay all respondent costs until affidavits served – whether costs order punitive – purpose of costs orders – principles

LEGISLATION CITED:
District Court Act 1973, s 148B, s 68A
Suitor’s Fund Act 1951
District Court Practice Note 33

DECISION:
1. Grant the claimant an extension of time within which to seek leave to appeal from the costs orders made by Acting Judge Bowden on 2 December 2002 and 2 December 2003
2. Grant leave to appeal against those orders to the claimant and direct the claimant to file its Notice of Appeal within seven days of the date of these orders
3. Appeal allowed
4. Set aside the orders for costs (other than the costs of the day) made by the primary judge on 2 December 2002 and 2 December 2003 and in lieu thereof order that the claimant pay the costs of the opponent thrown away or incurred solely as a consequence of the non-compliance by the claimant to file and serve its affidavit evidence in chief in accordance with the orders of the District Court made on 21 June 2002, 20 August 2002, 2 December 2002 and 2 June 2003
5. Order that the opponent pay the claimant’s costs of the application for extension of time, the summons for leave to appeal and the appeal but to have with respect to the latter a certificate under the Suitor’s Fund Act 1951, if otherwise qualified


JUDGMENT:

IN THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL

CA 40326/05

SANTOW JA

TOBIAS JA

Tuesday 21 February 2006

ALL PLASTICS ENGINEERING PTY LIMITED v DORNOCH LIMITED

Judgment

1 SANTOW JA: I agree with Tobias JA.

2 TOBIAS JA: On 29 June 2001 the claimant commenced proceedings by way of Statement of Claim in the District Court of New South Wales against the opponent claiming the sum of $448,318 as a result of the destruction on or about 19 February 1999 of its premises by fire against the risk of which it claimed to be insured by the opponent under a document styled as a Commercial Combined Insurance Policy (the policy).

3 In its original grounds of defence, the opponent denied that it was liable under the policy in respect of the amount of loss then claimed. In particular it alleged that the amount of $448,318 claimed by the claimant for loss and damage sustained by it in the fire and in respect of which it sought indemnification by the opponent, was excessive and unreasonable.

4 On 9 March 2005 the claimant notified the opponent of its intention to amend its claim to the sum of $358,993. In a second Further Amended Defence dated March 2005, the opponent pleaded that the claimant had suffered loss and damage within the terms of the policy only to the extent of $274,493. However, it did not deny that it was liable to indemnify the claimant to that extent.

5 The proceedings came on for hearing before his Honour Judge Rolfe on 15 March 2005 when they were compromised and, by consent and without admission of liability, a verdict and judgment was entered in favour of the claimant in the sum of $480,000 and the opponent was ordered to pay the claimant’s costs of the proceedings as agreed or assessed. The difference between the sum of $358,993 ultimately claimed by the claimant in the proceedings and the sum of $480,000 in respect of which judgment was entered related, I assume, to accumulated interest.

6 It appears from the material before this Court that the opponent, at least by March 2003, admitted that it was liable to indemnify the claimant under the policy in respect of the fire and that the only issue between the parties was the quantum of the claimant’s loss against which, under the policy, it was entitled to be indemnified. Accordingly, it was necessary for the claimant to file and serve evidence, including expert evidence, relating to the proper amount of its loss within the terms of the policy.

7 On 18 December 2001 the proceedings were listed for CML Review. On that date the Registrar made orders relating to the question of discovery and the filing, serving and inspection of a verified list of documents and otherwise stood the matter over for a status conference on 18 February 2002. There was a dispute between the parties relating to the categories of documents requiring discovery. As a result the status conference was further stood over by the Registrar to 22 April 2002.

8 The opponent’s initial verified list of documents was filed and served on 10 April 2002 and on 21 June 2002 Acting Judge Bowden (the primary judge) ordered, inter alia, that the opponent file and serve a verified amended list of documents on or before 5 July 2002 and that the claimant file and serve all affidavits upon which it intended to rely on or before 2 August 2002. In this regard it should be noted that the claimant’s solicitors maintained that they were unable to finalise the expert accounting evidence they wished to call on behalf of the claimant until the opponent had given full and proper discovery.

9 The opponent’s supplemental list of documents was filed on or about 5 July 2002 but they were not available for inspection until 23 July 2002, being in fact inspected on 26 July 2002. As a consequence of that inspection, it became necessary for the claimant’s solicitors to issue a subpoena to a third party, Machine Tool Automation Pty Ltd (Machine Tool), to produce documents which needed to be inspected prior to the claimant completing its evidence in chief.

10 Accordingly, the claimant did not, and maintained that it could not, comply with the order of the primary judge of 21 June 2002 to file and serve its affidavits by 2 August 2002.

11 On 20 August 2002 the matter was again listed for directions before the primary judge when he ordered that the opponent file and serve a further verified Amended List of Documents on or before 30 August 2002 and that the claimant file and serve all affidavits upon which it intended to rely on or before 20 September 2002. In the meantime, on 12 August 2002 a subpoena for production was issued by the claimant’s solicitor to Machine Tool but no documents were produced in response thereto. Furthermore an issue arose between the parties as to the discovery of the complete policy document which the claimant alleged had yet to be discovered.

12 On 23 September 2002 Machine Tool produced some documents to the court pursuant to the subpoena but it was alleged by the claimant’s solicitors that they did not fully comply with the terms thereof. However, nothing appears to have been done by those solicitors between 30 September 2002 and 29 November 2002 due to the pressure of other matters in which the relevant solicitors were engaged. Nevertheless, in an affidavit sworn 29 November 2002, the solicitor having the carriage of the matter on behalf of the claimant, Ms Olsen, indicated that she expected the opponent’s evidence to be complete by 28 February 2003.

13 It thus appears that the opponent had fully complied with its discovery obligations by 30 August 2002 but thereafter the claimant was in default with respect to the filing of its affidavit evidence. In the absence of that evidence, the opponent was naturally unable to prepare and file any evidence in response.

14 Accordingly when the matter again came before the primary judge on 2 December 2002 the claimant had failed to comply with his Honour’s order of 17 June 2002 that the claimant’s affidavits be filed on or before 2 August 2002 and with his further order made on 20 August 2002, that those affidavits be filed on or before 20 September 2002. Furthermore, those affidavits had still not been filed when the matter came before his Honour for further directions on 2 December 2002 being the date to which the matter had been stood over on 20 August 2002 for that purpose.

15 At the directions hearing on 2 December 2002, counsel for the claimant accepted that it was in default of the orders made by his Honour to file and serve its evidence by 20 September 2002 and referred to the pressures upon his instructing solicitor and her partner which, between September and November, had prevented them from attending to the matter. It is clear from the transcript of the directions hearing on that day that the primary judge was not impressed by the fact that the solicitors had decided to take on more work than they could handle as a consequence whereof the claimant, according to his Honour, “has got to sit around and wait and suffer”. In any event, counsel for the claimant sought a further extension of time until 28 February 2003 for the filing of the claimant’s affidavits in chief. This was not opposed by the opponent’s solicitor.

16 The opponent’s solicitor informed his Honour that he was not in a position to file any affidavit because he was unaware of the case that he had to answer. He indicated that he had been seeking information with respect to the delay in the claimant filing its evidence which he had only received when Ms Olsen filed her affidavit on 29 November 2002. Notwithstanding that the opponent’s solicitor did not seek any order for costs on that day, his Honour peremptorily made the following order without giving any reasons therefor and without first giving the claimant’s counsel an opportunity to address him on the question of costs:

“The plaintiff [claimant] to serve all affidavits by 28 February, defendant [opponent] to serve affidavits by 30 April. Plaintiff’s affidavits in reply by 30 May. Have it back on 2 June at 12.30. The plaintiff to pay the defendant’s costs of today and incurred by the defendant until the service of the plaintiff’s affidavits.” (emphasis added).

17 A dispute arose between the solicitors for the respective parties as to the meaning of that part of his Honour’s order of 2 December 2002 which I have emphasised. According to the opponent’s solicitor, his Honour’s order required

“that the plaintiff [claimant] pay all costs incurred in the period from 2 December 2002 up to and including the date of service of the plaintiff’s affidavits. There was no restriction on our client in carrying out any work in the period and we accordingly continue to prepare the Defence.”

18 The matter came before Acting Judge Boyd-Boland on 2 June 2003 for further directions. Ms Olsen had filed an affidavit sworn 28 May 2003 explaining why the claimant’s affidavit evidence had still not been filed and served resulting in a breach of the primary judge’s order that that evidence be filed on or before 28 February 2003.

19 Although it was conceded by the opponent’s solicitor that there had been some delay on his client’s behalf in the early stages of the proceedings (and which related to the question of discovery), there had been no such delay since 30 August 2002. The claimant’s counsel did not dispute this.

20 Towards the end of that directions hearing, the opponent’s solicitor noted the existing order of the primary judge that the claimant pay the opponent’s costs until its affidavits had been served to which his Honour responded, “That’s right, that was until today”. The opponent’s solicitor then sought to extend the primary judge’s order of 2 December 2002 which his Honour Judge Boyd Boland refused to do. In fact, when his Honour asked the opponent’s solicitor “Why ought I go beyond that?” (meaning an order that the claimant pay the opponent’s costs of the day), the opponent’s solicitor responded, “No reason Your Honour”.

21 Although the matter was then adjourned to the following day, the Court has not been provided with a transcript of what then occurred but it would appear that the matter was stood over for further directions to 2 December 2003. However, on 3 June 2003 Acting Judge Boyd-Boland directed that the claimant file and serve its affidavits by 26 September 2003. However, this order also was not complied with for the reasons set out by Ms Olsen in her affidavit sworn 1 December 2003.

22 The matter came before the primary judge on 2 December 2003 when it was noted that liability was not in issue and that the only matter in dispute was quantum. His Honour ordered the claimant to pay the opponent’s costs of that day whereupon the solicitor for the opponent sought an order that that costs order extend to the costs of preparation of an affidavit sworn by him on 1 December 2003. His Honour acceded to that request and observed that

“This is the anniversary of an order made on 2 December 2003 which provides for the plaintiff [claimant] to pay the costs incurred by the defendant [opponent] until the service of the plaintiff’s affidavits, so that will continue until the plaintiff has completed service of affidavits.”

It was then pointed out to his Honour by the opponent’s solicitor that on 2 June 2002 Judge Boyd-Boland had indicated that he understood that the order for costs made by the primary judge extended only to that date whereupon his Honour confirmed that it would extend until the service of the claimant’s affidavits.

23 The matter was then adjourned to 13 April 2004 with a view to it then being allocated a hearing date. It would appear that by that date the claimant’s affidavit evidence had been filed and served. As I have already indicated, the matter came on for hearing before his Honour Judge Rolfe on 15 March 2005 when it was settled on the terms to which reference has already been made.

24 It would appear that at that point there was still a dispute between solicitors for the respective parties as to the precise ambit of the primary judge’s costs order of 2 December 2002. His Honour Judge Rolfe was then requested by the parties to rule on that dispute, it being contended on behalf of the claimant that it should be read down so as to relate only to the costs that had been thrown away by the opponent as a consequence of the claimant’s various non-compliances with the court’s orders to file and serve its affidavit evidence.

25 Although his Honour Judge Rolfe considered that the reading down of the primary judge’s order was a common sense approach to adopt, he determined that he was unable to do so as the terms of the orders made by the primary judge were clear in that he had ordered that

“the plaintiff [claimant] to pay not only the defendant’s [opponent’s] costs of that day, but whatever costs the defendant would incur up until the plaintiff served its affidavits. In the result, that means that the costs incurred by the plaintiff in that process are excluded from recovery.”

26 It is on the basis of that interpretation of the primary judge’s order of 2 December 2002 and confirmed by him on 2 December 2003, that the claimant now seeks leave to appeal to this Court upon the following grounds. Firstly, the effect of the order was to deprive the claimant of the right to recover the costs of preparing its evidence during the period 2 December 2002 to late December 2003. Secondly, it required the claimant to pay all of the opponent’s costs incurred in respect of the same period whether as a consequence of the claimant’s delay or not. Thirdly, the order therefore went much further than the normal purpose of an order of costs which was to indemnify or compensate the person in whose favour it was made. On the contrary the order had the effect of punishing the claimant in an unjustified manner.

27 Although the claimant accepted that it was appropriate for his Honour to have ordered it to pay the opponent’s costs incurred as a result of the claimant’s delay in filing its evidence, his order had gone much further for not only did it entitle the opponent to be paid all costs incurred by it during the relevant period in the preparation of its case (whether or not those costs were thrown away by the claimant’s delay in the filing of its evidence) but also it had the effect of depriving the claimant of its costs of preparing its evidence during that period. And this was so, not withstanding that the Terms of Settlement filed on 15 March 2005, was the subject of an agreed order that the opponent pay the claimant’s costs of the proceedings.

28 The opponent opposed the application for leave upon the basis that it was within the primary judge’s discretion in the circumstances to make the order he did given that the claimant did not appear to take any notice of the terms of the Court’s orders. Reliance was placed upon District Court Practice Note 33 and, in particular, clause 3.3.2 which provides as follows:

“The Court will impose strict costs penalties on any party or the party’s legal representatives who do not comply strictly with time standards, timetables and court orders.”

29 Given the wide discretion of his Honour under s148B of the District Court Act 1973 (the Act) pursuant to which the Court has full power to determine by whom, to whom and to what extent costs are to be paid in or in relation to any proceedings, and given the terms of Practice Note 33 which constituted a direction of the Court made pursuant to s68A of the Act, it was submitted by the opponent that not only was it open to his Honour to have made the somewhat draconian order he did but also that it had not been established that his discretion had miscarried in the sense required by House v The King [1936] HCA 40; (1936) 55 CLR 499 at 505.

30 Although the claimant also maintained that the primary judge’s order should be set aside as he had given no reasons therefor notwithstanding that he was clearly penalising the claimant, the opponent submitted that the absence of such reasons was of no consequence when the reasons for the imposition of the order were manifest from the terms of the transcript of the proceedings of 2 December 2002.

31 Finally, the claimant sought an extension of time for the filing and service of its ordinary summons for leave to appeal for the reasons set out in the affidavit of Ms Olsen sworn 26 April 2005. The opponent maintained that any such application for leave should have been sought within 28 days of 2 December 2002 whereas the summons was not filed until April 2005. The claimant seeks an extension of time upon the basis that it was not until the meaning of true extent of the order made by the primary judge on 2 December 2002 was clarified by Judge Rolfe on 15 March 2005 that it first became aware that his Honour’s order went so far as to preclude it from recovering its own costs incurred in the preparation of its evidence during the period December 2002 to December 2003.

32 The claimant further submitted that to have sought leave prior to the matter being finally resolved would have been premature given that had the claimant lost the proceedings, then any appeal against the primary judge’s order of 2 December 2002 would have become academic.

33 The opponent opposes not only the application for leave to appeal but also the claimant’s application for an extension of time. Both those applications have been heard concurrently with the substantive appeal.
34 There is no doubt that as a matter of general principle the purpose of an order for costs is to indemnify or compensate the person in whose favour it is made and not to punish the person against whom it is made: Ohn v Walton (1995) 36 NSWLR 77 at 79D-F. In that passage Gleeson CJ noted that the test of whether an order for costs should be made against an unsuccessful plaintiff or complainant was not whether he or she had done anything to warrant punishment but whether, in the circumstances, the defendant or respondent should be compensated.

35 On the other hand, the opponent submitted that this Court has emphasised that it regards compliance with the rules to be a matter of considerable significance as they constitute an attempt by the Court to ensure that proceedings are conducted efficiently and expeditiously and with an appropriate use of judicial resources: Whyte v Brosch (1998) 45 NSWLR 354 at 355.

36 The opponent further submitted that the purpose of directions hearings was to further the practice and procedure to achieve speedy and efficient justice in the District Court. Accordingly, appellate intervention to set aside orders and directions made at such hearings “would be disastrous to the proper administration of justice”, a proposition said to have its source in the judgment of Chief Justice Jordan in re Will of F P Gilbert (deceased) (1946) 46 SR (NSW) 318 at 323. However, although appellate intervention in the exercise of a discretion of a trial judge especially on a matter of costs is to be the subject of careful scrutiny before it occurs, nonetheless where that discretion has miscarried in the House v The King sense, then this Court should not shrink from setting right what it otherwise finds to be a miscarriage of justice.

37 In my opinion, there has been such a miscarriage in the present case and the orders made by the primary judge on 2 December 2002 and 2 December 2003 should be set aside. Insofar as the opponent relied upon clause 3.3.2 of Practice Note No.33 as justifying the imposition of a costs penalty which is more than merely compensatory, it is to be observed that that practice note, which was issued by the Chief Judge on 4 October 2001 and published in the Government Gazette on 12 October 2001, only applies to actions in the General List commenced on or after 1 January 2002: see clause 1.2. As the subject proceedings were commenced prior to that date (in June 2001), Practice Note No.33 of October 2001 has no application to the present case, a point which counsel for the opponent properly conceded.

38 The previous Practice Note 33 which applied to actions commenced on or after 1 January 1996 and before 1 January 2002, did not contain a provision equivalent to clause 3.3.2 of the current Practice Note 33. Nevertheless, the opponent submitted that the breadth of s148B(1)(b) of the Act, which gives the court full power to determine, inter alia, to what extent costs are to be paid in relation to proceedings, was wide enough to include a costs order which had as its purpose to punish a defaulting party rather than to compensate a non-defaulting party. Furthermore, the opponent sought to rely upon the “spirit” of the current Practice Note 33 as justifying the primary judge’s order notwithstanding that it did not apply in terms.

39 In my opinion, s148B should not be read in such a manner as to depart from the general principle that the purpose of any costs order is to compensate the successful or non-defaulting party rather than to punish the unsuccessful or defaulting party. In the present case, that objective has particular resonance given, firstly, that liability under the policy was not in issue but only quantum and, secondly, that the proceedings were settled upon the basis that the opponent should pay the claimant’s costs of the proceedings without any limitation. Whether or not the primary judge relied on the “spirit” of the current Practice Note 33 is unknown: he certainly did not refer to it and, in any event, I regard it as irrelevant.

40 In my opinion therefore the order made by the primary judge on 2 December 2002 involved a miscarriage of his Honour’s discretion in that the order was in the circumstances which prevailed when it was made, unreasonable or plainly unjust.

41 A further difficulty faced by the opponent is the absence of any reasons of his Honour for the making of such a draconian order. In my opinion, it is quite insufficient for the opponent to point to the transcript of 2 December 2002 and some of his Honour’s comments as constituting an appropriate substitute for proper reasons. In its written submissions on the leave application the opponent did not cavil with the proposition advanced by the claimant that whilst it may not be necessary for a court to give reasons when making routine costs orders at interlocutory stages of proceedings, the order for costs made by his Honour in the present case was so out of the ordinary and so draconian (especially given that it was not an order sought by the opponent), that the essential ground or grounds upon which the order was made was required to be articulated so that the party against whom it was made became aware of the precise basis upon which the judge was exercising his discretion to make it.

42 Although, as I have said, it is submitted by the opponent that his Honour’s reasons were manifest from the transcript of argument, I cannot agree. In fact in my opinion, the opposite is the case. Certainly, the judge criticised the claimant during the course of argument on 2 December 2002 but that criticism was generally confined to the period when the claimant’s solicitors were unable to attend to the matter due to the exigencies caused by the pressure of other work which they had undertaken. Accordingly, for this further reason, in my opinion his Honour’s discretion miscarried justifying the setting aside of his order.

43 Although not relied on by the claimant in its written submissions there is, as it appears to me, a further ground justifying the conclusion that the primary judge’s discretion miscarried. As I have said, this was no ordinary costs order. It was clearly imposed to punish and to penalise the claimant. It was not an order sought by the opponent. It was solely of the judge’s making. Yet, he never foreshadowed to the claimant’s counsel that he was minded to make such an order and never gave counsel the opportunity to be heard in opposition to it or its terms. This was a clear denial of procedural fairness and a further reason why the making of the order constituted a miscarriage of justice. The submission of the opponent that claimant’s counsel could have attempted to have his Honour reverse the order after it had been pronounced has no merit.

44 Finally, there is the question of whether the claimant should be granted an extension of time within which to seek leave to appeal from the orders of the primary judge on 2 December 2002 and 2 December 2003. There is no suggestion that the opponent has been prejudiced by the delay and there is much to be said for the evidence of Ms Olsen in her affidavit sworn 26 April 2005 that it would have been premature to seek leave to appeal against the costs order until the final outcome of the proceedings was known. Had the claimant been unsuccessful then any appeal would have been academic.

45 Furthermore, it is apparent that although Ms Olsen was given to understand at an early point of time by the opponent’s solicitor that his Honour’s costs order extended to all costs incurred by the opponent between 2 December 2002 and December 2003, she did not realise until it was made clear by Judge Rolfe on 15 March 2005 that the effect of the order was that the claimant would not be entitled to the costs incurred by it in preparing its evidence during that period notwithstanding that, in the Terms of Settlement, the opponent had agreed to pay the claimant’s costs of the proceedings without limitation.

46 Accordingly, I would propose the following orders:

1. Grant the claimant an extension of time within which to seek leave to appeal from the costs orders made by Acting Judge Bowden on 2 December 2002 and 2 December 2003;

2. Grant leave to appeal against those orders to the claimant and direct the claimant to file its Notice of Appeal within seven days of the date of these orders;

3. Appeal allowed;

4. Set aside the orders for costs (other than the costs of the day) made by the primary judge on 2 December 2002 and 2 December 2003 and in lieu thereof order that the claimant pay the costs of the opponent thrown away or incurred solely as a consequence of the non-compliance by the claimant to file and serve its affidavit evidence in chief in accordance with the orders of the District Court made on 21 June 2002, 20 August 2002, 2 December 2002 and 2 June 2003;

5. Order that the opponent pay the claimant’s costs of the application for extension of time, the summons for leave to appeal and the appeal but to have with respect to the latter a certificate under the Suitor’s Fund Act 1951, if otherwise qualified.

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LAST UPDATED: 25/05/2006