The Green Team (WA) Pty Ltd v Sachse, P.A. & Ors [1995] FCA 106

CATCHWORDS COSTS - indemnity costs - proceedings discontinued without explanation - whether sufficient circumstance to order that costs be taxed on indemnity basis. Federal Court Rules O 62 r 36A Australian Securities Commission v. Mount Burgess Gold Mining Company NL, Unreported (Federal Court of Australia, Lee J., 8 December 1994) Colgate Palmolive Co. v. Cussons Pty. Limited (1993) 46 F.C.R. 225 David Holdings Pty. Ltd. v. Coles Myer Limited, Unreported (Federal Court of Australia, Drummond J., 31 January 1995) Donnelly v. Edelsten (1994) 49 F.C.R. 384 J-Corp Pty. Ltd. v. Australian Builders Labourers Federation Union of Workers - Western Australian Branch (1993) 46 I.R. 301 Cohen, Richard J., "Mediation Standards", (1995) 6 A.D.R.J. 25 THE GREEN TEAM (W.A.) PTY. LTD. (A.C.N. 050 892 423) V. PAUL ANTHONY SACHSE AND BRULEE PTY. LTD. (A.C.N. 009 066 255) AND SHIRLEY MARGARET WHITE AND GEOFFREY THOMAS WHITE NO. WAG198 OF 1992 LEE J. PERTH 13 MARCH 1995

IN THE FEDERAL COURT) OF AUSTRALIA ) WESTERN AUSTRALIA ) DISTRICT REGISTRY ) GENERAL DIVISION ) NO. WAG198 OF 1992 B E T W E E N: THE GREEN TEAM (W.A.) PTY. LTD. (A.C.N. 050 892 423) Applicant and PAUL ANTHONY SACHSE First Respondent and BRULEE PTY. LTD. (A.C.N. 009 066 255) Second Respondent and SHIRLEY MARGARET WHITE and GEOFFREY THOMAS WHITE Third Respondents MINUTE OF ORDER JUDGE MAKING ORDER: LEE J. DATE OF ORDER: 13 MARCH 1995 WHERE MADE: PERTH THE COURT ORDERS THAT:

The applicant pay the first respondent's costs to be taxed. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT) OF AUSTRALIA ) WESTERN AUSTRALIA ) DISTRICT REGISTRY ) GENERAL DIVISION ) NO. WAG198 OF 1992 B E T W E E N: THE GREEN TEAM (W.A.) PTY. LTD. (A.C.N. 050 892 423) Applicant and PAUL ANTHONY SACHSE First Respondent and BRULEE PTY. LTD. (A.C.N. 009 066 255) Second Respondent and SHIRLEY MARGARET WHITE and GEOFFREY THOMAS WHITE Third Respondents CORAM: LEE J. DATE : 13 MARCH 1995 PLACE: PERTH REASONS FOR JUDGMENT When the trial of this matter commenced on 13 February 1995 the applicant sought, and obtained, leave to discontinue against the first respondent ("Sachse"). Sachse then sought an order that the applicant pay the costs incurred in defending the applicant's claim taxed on an indemnity basis. The applicant and Sachse were given time to present submissions on the point in writing. Those submissions have been received and considered and the reasons for my decision on the question are as follows. In April 1991 the applicant entered a contract to purchase from Sachse a property on which was erected a timber-framed house. Settlement of the transaction was effected on 26 June 1991. It is alleged by the applicant that in mid-July 1991 it was discovered that substantial damage to the building had been inflicted by termites prior to the property being offered for sale. The applicant commenced proceedings against Sachse, and others, in 1992. The cause of action against Sachse was breach of contract. The applicant pleaded in its statement of claim that it was a special condition of the contract made between the applicant and Sachse that the dwelling be free of any damage caused by termites. In July 1993 Sachse applied for an order that the claim against him be struck out on the ground that the applicant's proceeding disclosed no reasonable cause of action. The motion was dismissed and Sachse was ordered to pay the applicant's costs. Pursuant to leave granted on the hearing of that motion Sachse filed a re-amended defence. In December 1993 the parties attended senior counsel in conference who conducted a proceeding described as "early neutral evaluation". Counsel provided the parties with his impressions on the strengths and weaknesses of the proceedings as an aid to settlement or mediation of the proceedings. In that month Sachse, by letter, requested the applicant to discontinue its claim against him and put the applicant on notice that indemnity costs would be applied for if Sachse succeeded in defending the proceeding. In April 1994 the applicant filed an application to transfer the proceeding to the District Court of Western Australia. The motion did not come on for hearing until September 1994. The applicant submitted that costs incurred in the District Court would be less than in this Court and that transfer of the proceeding would remove the risk posed by O.62 r.36A of the Federal Court Rules, namely, that any costs recovered by the applicant would be reduced by one-third if the judgment entered in its favour was for a sum less than $100,000. Sachse opposed the applicant's motion. The second respondent supported it and the third respondents made no submissions. The application to transfer the proceeding was refused having regard to the length of time the matter had remained in this Court and the possibility that an earlier date for trial would be obtained if the matter were set down promptly for trial in this Court. Consideration was also given to the fact that an unsuccessful application to transfer the proceeding to a lower court may constitute sufficient ground for the Court to order that the provisions of O.62 r.36A not apply to the applicant. In October 1994 the matter was set down for hearing on 13-16 February 1995. On 3 February 1995 the applicant "confirmed" oral advice to Sachse that the applicant did not intend to proceed against Sachse at the trial. In moving for indemnity costs Sachse relied upon the principles stated in J-Corp Pty. Ltd. v. Australian Builders Labourers Federation Union of Workers - Western Australian Branch (1993) 46 I.R. 301, namely, that indemnity costs may be ordered if it appears that an action has been commenced in circumstances where the applicant, properly advised, should have known that the claim had no chance of success, or where a party has "persist(ed) in what should on proper consideration be seen to be a hopeless case." A helpful review of relevant authorities is set out by Sheppard J. in Colgate Palmolive Co. v. Cussons Pty. Limited (1993) 46 F.C.R. 225. The ordinary rule is that a court will not order costs to be paid on other than a party-and-party basis unless the circumstances of the case warrant the court departing from that course. Such circumstances may be found in making allegations of fraud knowing them to be false, commencing and continuing proceedings for an ulterior motive, or prolonging litigation in the face of clearly established facts and law. An imprudent refusal to accept a timely offer to compromise litigation may also ground an order for the payment of indemnity costs. (See Donnelly v. Edelsten (1994) 49 F.C.R. 384.) Where a person has committed, or been involved in, breaches of the Corporations Law which cause a corporation to be joined in litigation which seeks remedies in respect of those breaches, it may be appropriate to order that person to pay the costs of the corporation on an indemnity basis. (See: Australian Securities Commission v. Mount Burgess Gold Mining Company NL, Unreported (Federal Court of Australia, Lee J., 8 December 1994).) In the present case the applicant succeeded in resisting the application to strike out the applicant's claim against Sachse, and, therefore, at the time that application was determined it could not be said that the applicant had commenced, or continued, the proceeding in disregard of established facts or law. It is suggested now that at some time after disposal of the application to strike out the statement of claim and amendment of the defence, the applicant should have been aware that its case against Sachse was "hopeless". The factual basis on which that submission is made is not identified. In an affidavit in support of the application for indemnity costs the solicitor instructed by Sachse deposed to advice said to have been proffered by senior counsel to the applicant in the course of the early neutral evaluation proceeding. I did not call upon the applicant to respond to that material and took no account of it. Apart from the questions of breach of privilege and confidentiality that arise, it is not appropriate for evidence to be adduced of matters that occurred during the conduct of a mediation proceeding. Such a course, if permitted, would tend to undermine the confidence of litigants in the mediation process. It is a fundamental requirement of mediation procedures that the parties submitting to them know that mediation is conducted without prejudice to their interests. (See: Cohen, Richard J., "Mediation Standards", (1995) 6 A.D.R.J. 25 at 29.) It appears to be Sachse's submission that his request to the applicant in December 1993 that the applicant discontinue its claim against him, and the application for leave to discontinue made by the applicant in February 1995 supply the inference that at relevant times the applicant knew it had no case against Sachse. Although in appropriate circumstances such an inference may be drawn against a party who discontinues without explanation (see: Davids Holdings Pty. Ltd. v. Coles Myer Limited, Unreported (Federal Court of Australia, Drummond J., 31 January 1995, at p.20)) such appropriate circumstances have not been shown in this case. There are no facts that make it apparent that the applicant knew that it had no case to pursue against Sachse and consciously prolonged the litigation without cause. Indeed, in the absence of any material that suggests otherwise, it may be assumed that until early 1995 the applicant had been advised by solicitors, or counsel, that it had a cause of action to pursue against Sachse. Early notice of an intention to make application for indemnity costs cannot justify that order being made if the foundation for such an order has not been established. I am not satisfied that sufficient cause has been shown to depart from the usual course and it will be ordered that the applicant pay costs to be taxed on a party-and-party basis. I certify that this and the preceding six (6) pages are a true copy of the Reasons for Judgment of his Honour Justice Lee. Associate: Date: