FEDERAL COURT OF AUSTRALIA Perre v Apand Pty Ltd [2004] FCA 881 Sparnon v Apand Pty Ltd [1996] FCA 1139 Perre v Apand Pty Ltd (1997) 80 FCR 19 Perre v Apand Pty Ltd (1999) 198 CLR 180 Oshlack v Richmond River Council (1998) 193 CLR 72 De Alwis v Minister for Immigration and Multicultural and Indigenous Affairs [2004] FCAFC 77 Colgate-Palmolive Company v Cussons (1993) 46 FCR 225 Colgate Palmolive; Re Wilcox Ex parte Venture Industries (1996) 72 FCR 151 Williams v Minister for Environment & Heritage [2004] FCAFC 58 Seven Network Limited v News Limited [2004] FCA 75 Firth v Centrelink & Anor (2002) 55 NSWLR 451 FRANK PERRE & ORS v APAND PTY LTD & ORS SG 28 OF 1994 SELWAY J 8 JULY 2004 ADELAIDE IN THE FEDERAL COURT OF AUSTRALIA SOUTH AUSTRALIA DISTRICT REGISTRY SG 28 OF 1994 BETWEEN: FRANK PERRE, CATERINA PERRE, PASQUALE PERRE MARY PERRE, GUISEPPE DOMENICO PERRE, MARIA PERRE, JIM PERRE, FRANCES PERRE, WARRUGA FARMS PTY LTD, PERRE'S VINEYARDS PTY LTD, GRACE PERRE FIRST TO ELEVENTH APPLICANTS AND: RANGARA PTY LTD, FRANCESCO PERRE, MARIA PERRE TWELFTH TO FOURTEEN APPLICANTS AND: APAND PTY LTD RESPONDENT AND: RISU NOMINEES PTY LTD, RICHARD DUNSTONE TOWNSEND, JOHN ANDREW MORCOMBE, JOHN SHEAHAN AS TRUSTEE IN BANKRUPTCY FOR THE BANKRUPT ESTATE OF LEO JOHN REYNOLDS CROSS RESPONDENTS AND: RISU NOMINEES PTY LTD, RICHARD DUNSTONE TOWNSEND, JOHN ANDREW MORCOMBE, JOHN SHEAHAN AS TRUSTEE IN BANKRUPTCY FOR THE BANKRUPT ESTATE OF LEO JOHN REYNOLDS CROSS CLAIMANTS AND: FRANK PERRE, CATERINA PERRE, PASQUALE PERRE, MARY PERRE, GUISEPPE DOMENICO PERRE, MARIA PERRE, JIM PERRE, FRANCES PERRE, WARRUGA FARMS PTY LTD, PERRE'S VINEYARDS PTY LTD, GRACE PERRE FIRST TO ELEVENTH CROSS-RESPONDENTS JUDGE: SELWAY J DATE OF ORDER: 8 JULY 2004 WHERE MADE: ADELAIDE THE COURT ORDERS THAT: 1. That all costs ordered to be paid in order 7 of the orders made on 18 December, 2003 be on a party/party basis; 2. The first to eleventh applicants to pay the costs of Risu Nominees Pty Ltd of and in relation to the trial set down for 22 April, 2004 such costs to be determined on a party/party basis; 3. That the costs ordered to be paid by the applicants (or any of them) to Risu Nominees Pty Ltd pursuant to this order or the orders of 18 December, 2003 shall be payable forthwith upon the amount of such costs being agreed or taxed; 4. (a) That the costs ordered to be paid by the applicants (or any of them) to Risu Nominees Pty Ltd pursuant to this order or to the orders of 18 December, 2003 shall be paid from the fund in HSBC Bank Australia Ltd account numbered 037-014881-031 ('the fund'); (b) The signatories of the fund are ordered to sign such authorisations and/or take such other steps as may be necessary to effect the payment of such costs to Risu Nominees Pty Ltd from the fund. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA SOUTH AUSTRALIA DISTRICT REGISTRY SG 28 OF 1994 BETWEEN: FRANK PERRE, CATERINA PERRE, PASQUALE PERRE MARY PERRE, GUISEPPE DOMENICO PERRE, MARIA PERRE, JIM PERRE, FRANCES PERRE, WARRUGA FARMS PTY LTD, PERRE'S VINEYARDS PTY LTD, GRACE PERRE FIRST TO ELEVENTH APPLICANTS AND: RANGARA PTY LTD, FRANCESCO PERRE, MARIA PERRE TWELFTH TO FOURTEEN APPLICANTS AND: APAND PTY LTD RESPONDENT AND: RISU NOMINEES PTY LTD, RICHARD DUNSTONE TOWNSEND, JOHN ANDREW MORCOMBE, JOHN SHEAHAN AS TRUSTEE IN BANKRUPTCY FOR THE BANKRUPT ESTATE OF LEO JOHN REYNOLDS CROSS RESPONDENTS AND: RISU NOMINEES PTY LTD, RICHARD DUNSTONE TOWNSEND, JOHN ANDREW MORCOMBE, JOHN SHEAHAN AS TRUSTEE IN BANKRUPTCY FOR THE BANKRUPT ESTATE OF LEO JOHN REYNOLDS CROSS CLAIMANTS AND: FRANK PERRE, CATERINA PERRE, PASQUALE PERRE, MARY PERRE, GUISEPPE DOMENICO PERRE, MARIA PERRE, JIM PERRE, FRANCES PERRE, WARRUGA FARMS PTY LTD, PERRE'S VINEYARDS PTY LTD, GRACE PERRE FIRST TO ELEVENTH CROSS-RESPONDENTS JUDGE: SELWAY J DATE: 8 JULY 2004 PLACE: ADELAIDE REASONS FOR JUDGMENT 1 This is an application by Risu Nominees Pty Ltd (Risu) for various orders in relation to the costs of various applications it has made in these proceedings, including orders for costs on a solicitor/client (or indemnity) basis. 2 Unfortunately it is necessary to set out in some detail the lengthy history of these proceedings in order to understand the issues that now arise before the Court. 3 In 1994 the applicants and others issued proceedings against the respondents and others seeking damages for the losses suffered by the applicants through the introduction of potato wilt onto their property. After a lengthy trial Von Doussa J dismissed that action: see Sparnon v Apand Pty Ltd [1996] FCA 1139. The applicants appealed. They were unsuccessful in the Full Court: see Perre v Apand Pty Ltd (1997) 80 FCR 19, but were ultimately successful in the High Court: see Perre v Apand Pty Ltd (1999) 198 CLR 180. The High Court ordered that the proceedings be remitted to this Court for the determination of whether the applicants had suffered any damage and, if so, how much. 4 After a further very lengthy hearing on the issue of damages the applicants finally reached a settlement with the respondent. A deed of settlement disposing of the litigation between the Perres and Apand Pty Ltd was executed on the morning of 22 January 2003, and the matter was called on before von Doussa J shortly thereafter. 5 At that hearing Risu, being the corporation then providing solicitor services to the applicants, appeared and made an oral application that Apand Pty Ltd pay the settlement sum into Court forthwith. The reason for this independent interest was that the solicitors claimed to have a lien over the relevant moneys. However, there were others, in particular the Westpac Bank who also claimed to have an interest in the moneys. They claimed that their respective interests had a higher priority to the lien claimed by the solicitors. 6 During the course of argument, Counsel for the applicants conveyed his instructions to the Court that the Perres were disposed to agree that the settlement monies be paid into an interest bearing account in the joint names of Risu and the other solicitors who had previously acted for the applicants (hereinafter together called the interveners). During a brief adjournment, an agreement was reached between the interveners and the applicants, which agreement was acknowledged by Apand, and the terms of which were read onto the transcript. Insofar as the terms are here relevant, they were disclosed to the Court as follows: '1…that the whole of the settlement moneys be paid forthwith into a joint account in the name of Townsends and Frank Perre with a bank with which neither Townsends nor the applicants in Federal Court action number SG 28 of 1998 [sic] have an account and not to be disbursed except by mutual agreement of the account holders in writing or by order of the Federal Court of Australia.'; and '2… the parties agree that pending resolution of competing claims upon the settlement moneys a sufficient part of the interest… accruing on such account shall be paid to Westpac Banking Corporation to meet existing interest obligations of the applicants, subject to disclosure of those obligations to… Townsends' 7 The settlement proceeds were duly paid by the insurer of Apand Pty Ltd into a nominated bank account ('the fund'). Orders were made by von Doussa J on 22 January 2003 relating to the discontinuance/dismissal of the principal proceedings, and in relation to discovery of the settlement deed between the Perres and Apand. However, no order was made by von Doussa J specifically relating to the fund or how the fund should be dealt with. 8 Despite no orders having been made, the parties and the Court have proceeded on the basis that the agreement regarding establishment of the Fund had been incorporated into orders of the Court. 9 By notice of motion filed on 17 March 2003 in the principal proceedings, Risu, on behalf of the interveners sought: 'A declaration that it is entitled to and has a right in equity and/or in law in the nature of an assignment by the Perres to it of, and a lien over, the monies held in the HSBC Bank Australia Limited account numbered 037-014881-031 the joint signatories being Mr Frank Perre and Mr Richard Townsend for its unpaid costs and disbursements incurred by the Perres in connection with [the principal proceedings].' 10 Risu was formally joined as an intervener in the principal proceedings on 2 April 2003 on which date the Court set a timetable for the filing of points of claim by Risu, and any cross-claims to be brought by the applicants or others. 11 The nature of the dispute then existing is set out in the points of claim and the cross-claims. The interveners claimed a lien over the fund in relation to their legal costs properly payable in relation to the principal litigation. The applicants disputed that claim on various bases. One was a claimed priority over the fund in favour of Westpac. It was alleged that Westpac had entered into an agreement with both the applicants and Risu to loan certain moneys to the applicants so as to fund the damages trial and that that agreement gave to Westpac a priority interest in the fund. Another basis upon which the applicants disputed the claimed lien asserted by the interveners was the allegation that the interveners were not entitled to recover their costs on various grounds. Another was that some of the interveners (in particular, Risu) had been negligent in the provision of legal services and as a result there was a set off and counterclaim in respect of that negligence. Westpac also sought to intervene in order to claim priority over the fund. The State of South Australia also sought to intervene in respect of its claim for costs awarded in the liability trial, although it subsequently withdrew. 12 On 2 October 2003, Westpac informed the Court that it was not seeking to enforce its alleged rights in the fund. It was given leave to withdraw from the proceedings. The applicants informed the Court that they still wished to pursue the issue of whether Westpac had a priority right in relation to the fund. Consequently the Court made orders referring certain aspects of the dispute in respect of the entitlement to the fund to trial to commence on 15 December 2003. Those aspects, insofar as they are here relevant, were: (a) The entitlement of Risu to a lien in respect of so much of the fund representing Risu's costs and disbursements; and (b) The entitlement of Westpac Banking Corporation and/or the applicants to first priority over the fund. 13 There followed some correspondence between the respective solicitors for the interveners and the applicants as to whether the applicants could still pursue the rights that they claimed were possessed by Westpac. They were unable to reach any agreement in relation to that question. 14 On 10 December, 2003 the matter was brought back before the Court for further directions. During the course of that hearing it was clarified that the applicants could not pursue the Westpac claim as such. They still wished to pursue an argument that Risu was estopped from asserting its lien as against the applicants by reason of the arrangements made between the applicants and Westpac with the advice of Risu. However, even in relation to that issue the applicants made it clear that they would need to explore whether they wished to call evidence from Westpac witnesses - evidence that they had expected Westpac to call. 15 Once the applicant's legal advisers perceived the significance to their case of the withdrawal of Westpac then arguably it should have been obvious to them that they would need to inquire as to what evidence Westpac employees may have been able to provide to assist the applicant's case. However, by the time that this did become obvious to them the applicants were no longer in a position to proceed to trial even on the issues that still remained. The result was that the hearing dates were abandoned. The questions referred to trial were not argued. On 15 December, 2004 there was argument as to what orders should be made in relation to the position that the matter had then reached. This included an argument as to costs. Risu sought indemnity costs at least since the time when, it was argued, it should have been apparent to the applicants that the withdrawal of Westpac meant that the applicants needed to ascertain if they would need to call some Westpac employees as witnesses. It was suggested that this date was 2 October, 2003 being the date that Westpac withdrew from the proceedings. It was acknowledged that the applicants and their legal advisers did not perceive the consequences of that withdrawal to their own case until at least 10 December, 2003. 16 On 18 December 2003 the Court made the following relevant orders: '4. By consent, the Court declares that the Interveners Risu Nominees Pty Ltd ("Risu"), John Andrew Morcombe, John Sheahan and Richard Dunstone Townsend (together with Ian Charles Phillips, Townsends & Reynolds Pty Ltd and Peter Maine Allen) have a lien or liens over the fund at present comprised in HSBC account no. 039-014881-051 in the names of F Perre and R D Townsend ("the fund") to the extent of the amount properly owing to them or each of them by the First to Eleventh Applicants in respect of legal work performed, services provided and disbursements incurred by them in and in connection with the within proceedings and the associated Federal and High Court appeals, plus interest accruing on that amount from 14 March 2003; and 5. That forthwith upon the amount properly owing to them being fixed or taxed, the Interveners apart from Risu have liberty to withdraw from the fund as their sole and absolute property such amount as is sufficient to pay that amount. … 7. As to the costs of the proceedings: 7.1 The First to Eleventh Applicants pay the costs incurred to date of theIintervener Risu on the Notice of Motion dated 14 March 2003 of and incidental to obtaining the judgment comprised in paragraph 4 hereof; … 7.4 That the further question of whether any of the costs referred to in this order should be on a full indemnity basis and whether such costs should be payable forthwith and out of the fund be reserved.' 17 As can be seen the questions of whether the costs should be on an indemnity basis and whether they should be paid forthwith from the fund were reserved. 18 By further consent orders dated 23 December 2003, the applicants were given leave to replead their cross claim. The remaining issues as to Risu's entitlement to the fund were referred to trial to commence on 22 April 2004. Those remaining issues included claims by the applicants that Risu was estopped from claiming its entitlement to the lien. Directions were made as to the preparation of statements for that trial. In particular the applicants were required to file and serve their witness statements by 11 February, 2004. 19 On 23 February, 2004 the applicants applied for an adjournment of the date for trial on the basis that the trial was premature until there had been a taxation of the amount to which Risu was entitled. That application was refused. 20 On 1 March, 2004 the solicitors for the applicants advised Risu that they did not propose to rely upon any witness statements other than those filed prior to the vacated December trial. This meant that they did not propose to call any Westpac employees as witnesses. 21 On 16 March, 2004 the solicitors for Risu made various offers to settle the outstanding issues between Risu and the applicants. On 26 March, 2004 the applicants advised that they had engaged new solicitors to act for them. The new solicitors indicated in a letter to Risu's solicitors that they were proposing to seek an adjournment of the trial date. Wisely they did not pursue that course. Instead by letter dated 16 April, 2004 the applicants offered to settle the issues that had been listed for hearing on 22 April, 2004. This resulted in the making of consent orders on 16 April 2004. The trial set for 22 April 2004 was vacated, and the Court ordered that: '1 By consent and without prejudice to paragraph 5 of the Order made 18 December 2003, the Court declares that the lien or liens referred to in paragraph 4 of the Order made by the Court in this proceeding on 18 December 2003 may be enforced and that the lien or liens are not subject to any interest in the fund asserted by or on behalf of Westpac Banking Corporation by reason of the issues referred to trial on 2 October 2003. … 3 Subject to paragraph 7 of the Order made on 18 December, 2003, costs in relation to the trial be reserved.' 22 The reserved question of costs was argued on 4 May, 2004. The applicants conceded that Risu was entitled to its costs on a party/party basis. Risu sought indemnity costs from 11 February, 2004 (the date that the applicants were required to file any further witness statements) or alternatively from some later date. Risu also sought orders that the legal costs be payable forthwith from the fund. 23 Against this background there are three issues that need to be considered: (a) Should any part of the costs ordered in Risu's favour in Order 7.1 of the orders made on 18 December, 2003 be on an indemnity basis? (b) Should Risu receive an order for costs of or in relation to the trial set down for 22 April, 2004 and, if so, should any part of the costs be on an indemnity basis? (c) Should any of the costs in favour of Risu in Order 7 of the orders made on 18 December, 2003 or in relation to the costs of or in relation to the trial set down for 22 April, 2004 be paid from the fund and/or forthwith? 24 In the usual case cost orders are made on a party/party basis. Such a basis provides only partial compensation for the costs actually incurred for legal services in the relevant litigation. The 'general purpose of an order for costs in favour of a successful party is to provide compensation in the form of a partial indemnity...' (Oshlack v Richmond River Council (1998) 193 CLR 72 ('Oshlack') at 121 per Kirby J). It has been argued that such a basis for cost orders cannot be justified on policy grounds: see, for example R Quick Quick on Costs (looseleaf) at [2.3350]-[2.3400]. However, presumably it reflects a judicial policy that in the ordinary course it is appropriate that all parties to litigation should be at some risk of incurring some costs even if successful so as to provide all parties with some incentive to settle the proceedings, no matter what strength their case may have. There may be other justifications. 25 However the usual rule might be justified, it is now well entrenched. The rule can nevertheless be departed from in particular instances. In limited circumstances costs can be awarded on a solicitor/client basis, or on a full indemnity basis. Such orders, like other costs orders, are not imposed for the purpose of punishment. They can only be justified by the need to indemnify or compensate the person in whose favour they are made: see De Alwis v Minister for Immigration and Multicultural and Indigenous Affairs [2004] FCAFC 77 ('De Alwis') at [6]. Given the general rule that costs should be ordered on a party/party basis, an order for costs of a solicitor client or indemnity basis can usually be justified because, in the circumstances, it would be unfair or unjust to require the relevant party to bear the usual risk of litigation costs. 26 Some legal principles have been identified to assist a court as to the appropriate orders for costs that might be made: (a) Although the usual rule is that costs should be on a party to party basis the Court also has a discretion to award costs on an indemnity basis in particular circumstances: see Colgate-Palmolive Company v Cussons (1993) 46 FCR 225, 231-234 (Colgate Palmolive); (b) It is inappropriate to attempt to fetter the discretion as to whether costs should be ordered on a party/party or on some other basis. Nevertheless, the discretion must be exercised judicially (see Oshlack at 121); (c) A number of cases have identified various circumstances where courts have thought it appropriate to order indemnity costs: see, for example, Colgate Palmolive; Re Wilcox Ex parte Venture Industries (1996) 72 FCR 151 at 156-157; Williams v Minister for Environment & Heritage [2004] FCAFC 58 at [106] ff; Seven Network Limited v News Limited [2004] FCA 75 at [6]. This includes, for example, where the proceedings have been commenced or continued in circumstances where the applicant properly advised should have known that there was no chance of success: see De Alwis at [7]. It is one thing to expect a litigant to bear some of the risk of the costs of litigation where the other party has an arguable case - it is another altogether to expect a litigant to bear that risk where the other party has no arguable case. 27 In this case Risu accepts that all of the legal advisers and the counsel acting for the applicants have behaved ethically and consistent with their duties to the Court. Risu accepts that those advisers and counsel have not misinformed the Court as to the reasons why they were seeking various orders at various times. In particular, Risu accepts that the reason why the applicants sought to vacate the December trial date was because the applicants wished to ascertain if the Westpac witnesses would give evidence to assist their case. Risu also accepts that at the time that the applicants sought an adjournment of the April trial on 23 February, 2004 the applicants had not then formed the view that they had no arguable case if the trial proceeded. 28 In my view Risu is correct to make these concessions. There is no evidence before me to suggest that the actions of the applicants' legal advisers was other than ethical. 29 Given these concessions the issues become relatively narrow ones. Should the applicants' legal advisers have realised earlier than they did that the effect of Westpac's withdrawal from the proceedings was that it was necessary for the applicants to reconsider their pleadings and seek to obtain further evidence? I think that the answer is probably yes. But that is not a sufficient answer. The ordinary risks of litigation include the risk that the opposing party might not immediately perceive the legal consequences of major changes in the litigation. Further, it is not altogether clear that even if the applicant's solicitors had fully and immediately understood the ramifications of Westpac's withdrawal they still may not have needed to vacate the date of the December hearing. The most that can be said is that if the consequences had been realised in (say) October or November, 2003 then Risu may not have been put to the costs of trial preparation. This certainly justifies the order that was made in favour of Risu in respect of those costs. However, I am not satisfied that it justifies an order for costs on other than a party/party basis. 30 There is even less basis for making an order other then on a party/party basis in relation to the trial set down for 22 April, 2004. The submission that those costs should be on an indemnity basis is based upon the assumption that the applicants had an unarguable case unless they could call some Westpac witnesses and that it should have been obvious in February, 2004 that those possible witnesses would not be able to assist the applicant's case. The short answer to this argument is that the Court is not aware of the reasons why the applicants settled the case. The Court is not aware of the strength of the applicants' case with or without those witnesses. The result is that the Court is not able to assess whether the applicants should have sought to settle the litigation earlier than they did. As the applicants conceded Risu is clearly entitled to its costs in relation to the trial, but I am not satisfied that such costs should be on other than a party/party basis. 31 Risu seeks an order that the above costs be paid from the fund. This is opposed by the applicants. In this case: (a) the only parties having an interest in the fund are the applicants and the interveners; and (b) the amount standing to the credit of the fund is plainly greater than the amount of any legal costs that Risu is entitled to recover in relation to the relevant orders which are the subject of these reasons. 32 In these circumstances I am satisfied that it is appropriate to make an order that the costs be paid from the fund: see Firth v Centrelink & Anor (2002) 55 NSWLR 451 at 482[113]. I so order. 33 Risu also seeks an order that the relevant costs be paid forthwith. For obvious reasons orders for costs in interlocutory proceedings are usually not payable until the conclusion of the proceedings. In this case, however, the orders made on 18 December, 2003 and on 16 April, 2004 effectively dispose of the question raised in the Notice of Motion, namely whether the interveners have an enforceable lien over the fund to the extent of their entitlements to legal fees in respect of the principal litigation. The issues of the amount of that entitlement and of the counterclaim by the applicants remain to be determined, but I can see no reason why the interveners should not receive their legal costs under the orders of 18 December, 2003 and 16 April, 2004 in the interim. Consequently I order that the costs be payable forthwith. I certify that the preceding Thirty-Three (33) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Selway . Associate: Dated: 8 July 2004 Counsel for the First to the Eleventh Applicants/First to Eleventh Cross-Respondents: R W Evans Solicitor for the First to the Eleventh Applicants/First to Eleventh Cross-Respondents: Slater & Gordon Counsel for the Twelfth to the Fourteenth Applicants: No Appearance for the Twelfth to the Fourteenth Applicants Counsel for the Respondent: No appearance for the Respondent Counsel for Cross-Respondents and the Cross-Claimants D Whitington QC with M Hoffmann Solicitor for Cross-Respondents and the Cross-Claimants: Thomson Playford Date of Hearing: 4 May 2004 Date of Judgment: 8 July 2004