CATCHWORDS PRACTICE AND PROCEDURE - costs - discretion of the Court - award on 'solicitor and client' or 'indemnity' basis - whether application vexatious - form of order. Trade Practices Act 1974 ss. 52, 53 and 75B FOUNTAIN SELECTED MEATS (SALES) PTY. LTD. v INTERNATIONAL PRODUCE MERCHANTS PTY. LTD., IBRAHIM HUSSEIN DELLAL, JOHN ROBERT DOONAN, HASET SALI and PETER McLINDIN No. VG 152 of 1983 Woodward J. AS ~ 17 June, 1988 3 Melbourne Ay \ is t IN THE FEDERAL COURT OF AUSTRALIA ) ) VICTORIA DISTRICT REGISTRY ) No. VG 152 of 1983 ) ) GENERAL DIVISION BETWEEN: FOUNTAIN SELECTED MEATS (SALES) PTY. LTD. Applicant and INTERNATIONAL PRODUCE MERCHANTS PTY. LTD., IBRAHIM HUSSEIN DELLAL, JOHN ROBERT DONNAN, HASET SALI and ROSS PETER McLINDIN Respondents MINUTES OF ORDER CORAM: Woodward J. DATE: 17 June, 1988 PLACE: Melbourne THE COURT ORDERS THAT: The costs of the second respondent previously ordered to be paid by the applicant be paid as follows - (a) those costs incurred on or before 31 January 1986 be paid on a party v party basis; (b) those costs incurred after that date to include all costs except in so far as they are of an unreasonable 2. amount or have been unreasonably incurred, so that, subject to the above exceptions, the second respondent be completely indemnified by the applicant for his costs. (NOTE: Settlement and entry of orders is dealt with by 0.36 of the Federal Court Rules.) IN THE FEDERAL COURT OF AUSTRALIA ) ) VICTORIA DISTRICT REGISTRY ) No. VG 152 of 1983 ) ) GENERAL DIVISION BETWEEN: FOUNTAIN SELECTED MEATS (SALES) PTY. LTD. Applicant and INTERNATIONAL PRODUCE MERCHANTS PTY. LTD., IBRAHIM HUSSEIN DELLAL, JOHN ROBERT DONNAN, HASET SALI and ROSS PETER McLINDIN Respondents CORAM: Woodward J. DATE: 17 June, 1988 PLACE: Melbourne REASONS FOR JUDGMENT This was an application pursuant to ss. 52 and 53 of the Trade Practices Act 1974 ('the Act'). It was brought by the applicant ('Fountain'), a company which was restructured to deal in horse-meat for export, against the first respondent ('IPM') which was, in effect, a joint venturer in the proposed trade. IPM was also a shareholder in Fountain to the extent of some 173%. There was a separate action by IPM against Fountain, also alleging breaches of s.52 of the Act. 2. The two matters were due to be heard together, but when this present matter was called on, senior counsel for the applicant announced that he would be leading no evidence. Judgment was entered for the respondents with costs. However the second respondent, who has at all times been represented separately from the other respondents, asked for costs as between solicitor and client and I reserved my decision on that question after hearing evidence from Mr. Dellal. To complete the background, the other action between IPM and Fountain (and others) was heard for a day or two and then a settlement was announced. The facts relevant to the question of Mr. Dellal's costs are as follows. He has a full-time job with Telecom; but he has a number of contacts in Algeria, which led him to believe that he could help to arrange shipments of Australian beef and mutton to that country. He sought advise from his solicitor, Mr. Sali, and eventually, in 1979, formed a company - IPM - with Mr. Sali, his law partner Mr. McLindin and another man, Mr. Donnan. Mr. Dellal became a director of the company and held two fifths of its shares. The company began trading with Algeria, using Mr. Dellal's contacts. Because of his Telecom job, he was not as active in the business as the other directors; he did, however, make two trips to Algeria. Later Mr. Doonan introduced Mr. Sali and Mr. McLindin to a Mr. Bowtell, who was interested in selling horse meat to Europe and Japan, using Mr. Donnan's knowledge of the outback to procure 3. suitable animals. In due course an arrangement was entered into between Intanat (Aust.) Pty. Ltd. (a company controlled by Mr. Bowtell), IPM, an overseas selling company named Omnimeat Pty. Ltd. and Tancred Brothers Pty. Ltd. (''Tancred') which owned abattoirs at Bourke, NSW. These companies agreed to a joint venture and, for the purpose, IPM and the other companies took up shares in Fountain - a company controlled by Tancred. The scheme ran well for a short time and then arguments arose over the prices which Donnan was paying for horses. These involved Bowtell - the manager of Fountain - on the one hand, and Sali and Donnan on the other. Eventually, after Bowtell and another officer of Fountain had given a very pessimistic report to Sali and Donnan about the profitability of the scheme, the arrangement was abandoned and IPM sold its shares in Fountain back to Tancred. Later, the two sets of litigation were commenced. Fountain began by suing IPM for misleading and deceptive conduct in that it falsely represented to suppliers of horses that 1t was an agent for Fountain, with the result that Fountain had to pay $186,597 to certain suppliers which 1t should not have had to pay. It was further alleged that IPM was in breach of the Act because it claimed re-imbursement from Fountain for moneys paid to suppliers which had not in fact been paid to them. The three directors of IPM were each added as respondents on the basis that they "aided, abetted counselled and procured IPM to engage in the conduct referred to". This is the substance of the claim so far as I am able to understand it from the 11l-drawn statement of claim which was filed. There is reference in later papers to an amended statement of claim, but it appears that it was never filed. Another document served but not filed, and handed up to the Court, was headed "Further and better particulars of amended statement of claim". This was in response to a request by the second respondent. Para. 5 of that request, dated 4 September 1984 read: "5. Specify (with dates) the acts, facts, Matters, circumstances, conversations and communications by which the second respondent is alleged in paragraph 10 of the Amended Statement of Claim to have - (a) aided; (b) abetted; (c) counselled; (d) procured IPM to engage in the conduct referred to in paragraph 6 of the Amended Statement of Claim; (e) been directly or indirectly knowingly concerned in or a party to the conduct aforesaid of I.P.M." To this the applicant responded, in particulars dated 1 August 1985: "5. Of paragraph 10: Each of the second, third, fourth and fifth Respondents is or was at all Material times a director and/or senior 5. executive 1f IPM. Furthermore, each of the said Respondents was, on various levels, actively involved in the business of IPM and thus a person who aided, abetted, counselled and/or procured the conduct, the subject of the Applicant's complaint in these proceedings. Furthermore, each of the said Respondents was, in some way or other, involved in the agreement alleged in paragraph 4 of the Amended Statement of Claim. Save as aforesaid the secondnamed Respondent is not entitled to any further particulars as the Request is one directed to matters of law or mixed law and fact." During the long and tortuous course of this piece of litigation only two other documents relevant for present purposes appeared on the court file. The second respondent made an affidavit of documents on 4 September 1984 in which he swore that the only discoverable documents he had, or had ever had, in his possession or power were solicitors' correspondence and court documents. An affidavit sworn by the solicitor for the applicant on 10 May 1985 contains the following paragraph: "S, THAT in early March, 1985, I am not aware of the exact date, I had a telephone conversation with Mr. Stogdale [the solicitor for the second respondent] in which I informed him that I had visited Albury for the purpose of inspecting documents at Internat Pty. Ltd. and that I had now seen all documents and was preparing the list of documents. I told him that the real issues in _ the proceedings were between Fountain and IPM and that I was having discussions with the Solicitors for IPM regarding the most appropriate way to either dispose of the action or bring it on for trial. I told him that I was not = anxious for unnecessary costs to be incurred, especially so far as his client was 6. concerned and that the best course of action would be for his client to wait in the wings whilst the other parties attempted to settle their differences. This course of conduct was acceptable to him." Mr. Dellal gave evidence on this issue as to costs. He swore that he had had nothing to do with the horse-meat transactions involving IPM and Fountain. His only interest was in the sale of beef and mutton to the Middle East. He had had no discussions or dealings with Mr. Bowtell, or anyone else from Fountain, concerning trade in horse meat. Doing the best I can with the meagre material before me, I am satisfied that there was in fact nothing to be gained by joining Mr. Dellal as a respondent to this action. The case against him was hopeless from the outset. However it must be noted that Yorke v. Lucas (which makes clear that a person can only be liable under the 'aiding and abetting' provisions in s.75B of the Act if he is knowingly involved in misleading or deceptive conduct) was only decided in the Full Court of the Federal Court in September 1983 (49 ALR 672) and the High Court in October 1985 (158 CLR 661). The present application was filed in August 1983 and it appears that the amended statement of claim was served in February or March 1984 though, as I have said, it was never filed. On the material before me, I am unable to say that it was unreasonable for the applicant and its advisers to issue proceedings against IPM, and to join its directors, in August 1983. The extent of 7. liability of individuals under s.75B of the Act, though predictable, was not then clear. Even after a Full Court had ruled on the matter, the pending appeal to the High Court left the question without a final answer. But by early in 1986, when the High Court's decision, delivered 3 October 1985, had been published, any practitioner in the field should have known of the clear state of the law on the relevant point. And the applicant's solicitor had acknowledged in May 1985 that Mr. Dellal "should wait in the wings while the other parties attempted to settle their differences". The Court file would suggest that little if anything happened in the action between August 1985 and late February 1986. In my view, from February 1986 onwards, the applicant and its advisers must have known that they had no possibility of success against the second respondent, who was separately represented and was continuing to incur costs. I find that the continuation of the action against Mr. Dellal from then onward was completely unwarranted and 1t should have been discontinued as against him. Until that time there was not enough in the history of the action to provide the special circumstances which, in my view, are necessary before any order for costs other than 'party and party' costs should be made. From that point onwards, however, the action against Mr. Dellal was vexatious, in the Shorter Oxford Dictionary sense of a legal action instituted "without sufficient grounds for the purpose of causing trouble or annoyance to the defendant." In the present case there were no sufficient grounds 8. to continue the case after early 1986, and the applicant's purpose in doing so ~ if indeed there was a purpose - can only have been to add to any pressures on the respondents generally to settle the action. The other possibility is that the case against the second respondent was pursued for no good purpose at all — due to inertia and carelessness. As I said in Australian Transport Insurance Pty. Ltd. v. Graeme Phillips Road Transport Insurance Pty. Ltd. (1986) 71 ALR 287 at 288, concerning this Court's discretion in the award of costs: "That discretion is 'absolute and unfettered', but must be exercised judicially (Trade Practices Commission v Nicholas Enterprises (1979) 28 ALR 201 AT 207). Courts in both the United Kingdom and Australia have _ long accepted that solicitor and client costs can properly be awarded in appropriate cases where 'there is some special or unusual feature in the case to justify the court exercising its discretion in that way' (Preston v Preston [1982] 1 All ER 41 at 58). It is sometimes said that such costs can be awarded where charges of fraud have been made and not sustained; but in all the cases I have considered, there has been some further factor which has influenced the exercise of the court's discretion - for example, the allegations of fraud have been made knowing them to be false, or they have been irrelevant to the issues between the parties: see Andrews v_ Barnes (1888) 39 Ch D 6 LR Ch App 133; Forester v Read (1870) 6 LR Ch App 40; Christie v Christie (1873) 8 LR Ch App 499; Degmam Pt Ltd (in Lig) v Wright (No 2) {1983] 2 NSWLR 354. Another case cited in argument was Australian Guarantee Corporation Ltd v De Jager [1984] VR 463 where (at 502) Tadgell J allowed solicitor and client costs because he found the pursuit of the action to have been 'a high-handed presumption'." No doubt the expression "high-handed presumption" was appropriate in the case Tadgell J. had to decide, and he needed to go no further; but in order to establish a convenient principle in such cases it is necessary to be a little more prosaic. I believe that 1t 1S appropriate to consider awarding 'solicitor and client' or 'indemnity' costs, whenever it appears that an action has been commenced or continued in circumstances where the applicant, properly advised, should have known that he had no chance of success. In such cases the action must be presumed to have been commenced or continued for some ulterior motive, or because of some wilful disregard of the known facts or the clearly established law. Such cases are, fortunately, rare. But when they occur, the court will need to consider how it should exercise its unfettered discretion. I regard the present as a borderline case. However, I believe justice will be done if I order the applicant to pay the second respondent's costs incurred up to the end of January 1986 on a party and party basis, and those incurred later on a solicitor and client basis. For the precise form of the order I propose to adopt the words used by Holland J. in Degmam Pty. Ltd. (In Lig.) v. Wright (No. 2) [1983] 2 NSWLR 354 at 359-60. I believe that wording provides greater certainty than any reference to 'solicitor and client'costs. It will therefore be ordered that the costs of the second respondent previously ordered to be paid by the applicant shall be paid as follows - 10. (a) those costs incurred on or before 31 January 1986 shall be paid on a party and party basis; (b) those costs incurred after that date are to include all costs except in so far as they are of an unreasonable amount or have been unreasonably incurred, so that, subject to the above exceptions, the second respondent will be completely indemnified by the applicant for his costs. It is not necessary to make an order for taxation of costs in default of agreement; that is covered by the Federal Court Rules. I certify that this and the 9 preceding pages are a true copy of the Reasons for Judgment herein of the Honourable Mr. Justice Woodward. Associate Dated: 17 June, 1988 11. Mr. J. G. Larkins QC and Mr. E.L. Bryant Counsel for the Applicant oo Solicitors for the Applicant Messrs. Mahoney & Galvin Mr. M.W. Shand Counsel for 2nd Respondent Solicitors for 2nd Respondent: Messrs. J.A. Wilmoth & Son