FEDERAL COURT OF AUSTRALIA Carey-Hazell v Getz Bros & Co (Aust) Pty Ltd [2004] FCA 1140 Federal Court of Australia Act 1976 (Cth) s 43(1) Trade Practices Act 1974 (Cth) Yates Property Corporation Pty Ltd v Boland (No 2) (1997) 147 ALR 685 Cited Knight v FP Special Assets Ltd (1992) 174 CLR 178 Cited Cabassi v Vila (1940) 64 CLR 130 Cited Charlick Trading Pty Ltd v Australian National Railways Commission (2001) FCA 629 Cited KAREN CAREY-HAZELL v GETZ BROS & CO (AUST) PTY LTD, PETER THOMPSON and TREVOR NICHOLLS W75 OF 2001 KIEFEL J BRISBANE (HEARD IN BRISBANE VIA VIDEO LINK TO PERTH) 2 SEPTEMBER 2004 IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY W75 OF 2001 BETWEEN: KAREN CAREY-HAZELL APPLICANT AND: GETZ BROS & CO (AUST) PTY LTD FIRST RESPONDENT PETER THOMPSON SECOND RESPONDENT TREVOR NICHOLLS THIRD RESPONDENT JUDGE: KIEFEL J DATE OF ORDER: 2 SEPTEMBER 2004 WHERE MADE: BRISBANE (HEARD IN BRISBANE VIA VIDEO LINK TO PERTH) THE COURT ORDERS THAT: 1. Each of the respondents' costs of the hearings of 5 November 2001, 17 September 2002 and 15 January 2004 be costs in the cause. 2. The applicant pay the first respondent's costs of the proceedings, including reserved costs, on a party and party basis, those costs to include its reasonable costs and expenses, which are prima facie to be taken as market rates and payable in $US, incurred in retaining lawyers in the United States of America to assist in the conduct of the litigation, including their obtaining documents for use in the trial, preparing affidavits of lay witnesses, and retaining and liaising with expert witnesses on behalf of the first respondent. 3. Any sums paid to the first respondent by way of costs are to be held in its solicitor's trust account pending the determination of the applicant's appeal, or further order. 4. The applicant pay the second and third respondents' costs of the proceedings, including reserved costs, on a party and party basis. 5. The first, second and third respondents pay any legal costs incurred by the applicant and the costs of the non-parties, Mr Norman Phillip Carey and Westpoint Corporation Pty Limited on their applications. 6. The application for a stay of the orders as to costs is dismissed. 7. The applicant pay the respondents' costs of the application for stay. 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 W75 OF 2001 BETWEEN: KAREN CAREY-HAZELL APPLICANT AND: GETZ BROS & CO (AUST) PTY LTD FIRST RESPONDENT PETER THOMPSON SECOND RESPONDENT TREVOR NICHOLLS THIRD RESPONDENT JUDGE: KIEFEL J DATE: 2 SEPTEMBER 2004 PLACE: BRISBANE (HEARD IN BRISBANE VIA VIDEO LINK TO PERTH) JUDGMENT AS TO COSTS 1 When delivering judgment on 6 July 2004 I made an order that the applicant pay the respondents' costs of the proceedings. That order was vacated on the application of the respondents, who foreshadowed that special orders would be sought, not only against the applicant, but against two non-parties: her brother Mr Norman Phillip Carey and a company which he owns and controls, Westpoint Corporation Pty Limited ('Westpoint Corporation'). 2 It is not disputed that, subject to any special orders, there should be orders that the applicant pay each of the respondents' costs of the proceedings including any reserved costs on a party and party basis. And it is not in dispute that the costs of the hearings of 5 November 2001, 17 September 2002 and 15 January 2004, which were not the subject of orders, ought to be costs in the cause. the first respondent's application for costs 3 The principal focus of the special orders sought by the first respondent, and by the second and third respondents, is the issue of the applicant's economic loss and the involvement of her brother in proof of that claim both in his evidence and through his and his company's participation in the process of non-party discovery. 4 It is not necessary to set out the lengthy history of directions hearings or details of the protracted process of non-party discovery. A short summary will suffice for present purposes. 5 In her statement of claim filed on 12 March 2001 the applicant claimed, in general terms, that she had suffered a loss of earning capacity as a result of her injuries. Particulars provided in mid-2002 alleged that she had lost the ability to earn commissions as an 'Investment Development Manager'. The amount claimed was in excess of $7.8m. In July 2002 the applicant provided her statement of evidence with respect to economic loss and a statement by Mr Carey. It seemed clear enough, especially from Mr Carey's statement, that the applicant's claim was based upon what she might have earned from Westpoint Corporation. His statement of evidence dealt with the method Westpoint Corporation used to fund its development projects, the amount of commissions which brokers or agents might expect to receive from Westpoint Corporation, the strength of Westpoint Corporation financially, and his opinion about his sister's business ability. He concluded by saying that he had had regard to her particulars of loss of earning capacity and that if she had been able to take up the opportunity to work for Westpoint Corporation, 'there were real prospects she would have earned the fees referred to in those documents'. 6 The applicant's discovery did not provide documents supportive of her claims. From August 2002 the first respondent sought documents relating to her loss of earning capacity from Mr Carey and Westpoint Corporation. It would be something of an understatement to say that neither of them were forthcoming with all relevant documents. Further orders were necessary to be made, including one on 11 April 2002, which required specifically the discovery of documents relating to commissions paid to Westpoint Corporation staff and financial arrangers. At this point the process appears to have been further impeded by further demands made by the solicitors for the applicant, who appear also to have been acting for the non-parties, by the views they took of the non-parties' obligations with respect to discovery under the orders, and by claims made by them to confidentiality not earlier raised. Further orders were required. Inspection was not completed until towards the end of October 2003 and the second and third respondents obtained further orders for inspection in November 2003. Needless to say, there were disputes about who should bear the costs of the numerous directions hearings. 7 Over 6000 documents were apparently produced by the non-parties. The first respondent took copies of only a few dozen. Towards the end of October 2003 the applicant filed a statement of Mr Richard Beck, an independent financial consultant, as to the amount of commissions he earned and as to the amount earned by an employee of his. The latter was to be used as a point of comparison with the applicant. 8 The respondents had jointly engaged an expert to advise on the applicant's claim for economic loss. Mr Ashton had advised, at some points, about the paucity of material during the process of discovery. His final report, served on 16 December 2003, suggested that the claim was not substantiated. 9 Subsequently the applicant served a supplementary statement, on 6 February 2004 and shortly before the hearing, revealing for the first time that she had been working in Westpoint Corporation Multimedia Unit since January 2003. This became the basis for an alternative claim of loss of earnings. 10 At the commencement of the trial the applicant's senior counsel advised that the applicant's claim for economic loss was being reconsidered. Further attempts to amend her statement of claim on this issue, to accord with a report from an accountant which had just then been obtained, were not allowed. The final pleading reverted to the claim as originally made. No documents were however proved in support of it. The evidence led was that of Mr Beck and Mr Carey, the latter saying in evidence that the applicant could have earned $500 000 per annum as an investment development manager. It was not further explained and the evidence was not accepted. 11 Since the conclusion of the litigation it has become known to the respondents that Mr Carey has effectively been underwriting the applicant's costs since 16 May 2002. The applicant says that up until that time she carried her own costs. She says that she has taken loans from Westpoint Corporation which she is obliged to repay. Three mortgages totalling some $665 000 have been taken by Westpoint Corporation over her interest in various properties. It may be inferred that the applicant will not be able to meet the respondents' costs and that they may be deferred to Westpoint Corporation in the event of her bankruptcy. 12 The first order sought, affecting Mr Carey, is that orders made by French J on 19 September 2002, 31 March 2003 and 24 September 2003, which required each of the respondents to pay his and Westpoint Corporation's costs of third party discovery be set aside. Alternatively, orders are sought that the applicant pay these costs or that there be no order as to these costs. 13 The first respondent relies upon the fact that these orders are interlocutory, which is one of the circumstances provided by O 35 r 7(2) of the Federal Court Rules in which orders, which have been entered, may be varied. It submits that these orders were made against a background of claims for economic loss which were said to be verifiable but where the evidence never did bear them out. The need for third party discovery arose because the applicant's particulars of claim were supported by an affidavit by Mr Carey and the claim was said to have regard to documents within his and Westpoint Corporation's possession. 14 I would not be readily inclined to revisit orders made during the course of interlocutory hearings where the orders have been assumed to be in force by the parties for some time. Moreover I would not consider it appropriate to vacate orders made at an early point in the process of non-party discovery. These orders are not made on the basis that documents to be obtained from a non-party may be found to be useful or indeed would be used to support a claim. They are made to protect non-parties in relation to the costs of producing their documents where a party to proceedings seeks a forensic advantage, in this case of determining, in advance of trial, whether they support the claims made. If, it later transpires, in the discovery process, that the non-parties prove to be the cause of delay and expense, by their lack of cooperation, then appropriate orders can be sought. The only other matter which might affect the maintenance of these orders relates to the prospect of Mr Carey paying indemnity costs on the issue of economic loss, and I turn to the orders the first respondent seeks in that regard. 15 Section 43(1) of the Federal Court of Australia Act 1976 (Cth) authorises the awarding of costs against a non-party: Yates Property Corporation Pty Ltd v Boland (No 2) (1997) 147 ALR 685 at 694. The discretion must be exercised in accordance with general legal principles pertaining to the law of costs: Knight v FP Special Assets Ltd (1992) 174 CLR 178 at 192. 16 The first respondent lists a number of factors which, it submits, leads to the conclusion that an award of costs against Mr Carey and/or Westpoint Corporation would be just and equitable in the circumstances. The orders sought are limited to the costs associated with the applicant's claim for damages for lost earning capacity based upon what she would have earned as an Investment Development Manager with Westpoint Corporation. 17 The first respondent points to the funding provided by Mr Carey's company for the applicant's litigation and it asserts that he and Westpoint Corporation therefore have a direct financial interest in the outcome of the proceedings. It submits that his evidence was critical to her claim. He was the only person who could provide evidence of the availability of the position to which she referred and therefore had a direct connexion with the applicant's claim for damages. Her claim for damages was based upon his assertions which, however, were not accepted and were found to have been put forward to advance the applicant's interests. Her alternative claim for damages was also based upon a position created by her brother close to trial and was not corroborated. There is also a close relationship between the applicant and her brother in relation to the non-party discovery, it is submitted. The first respondent points to the lack of co-operation of Mr Carey and Westpoint Corporation, their opposition to discovery and their various delaying tactics which caused the first respondent to incur considerable costs. Lastly Mr Carey is said to have assisted the applicant, through Westpoint Corporation, in shielding her remaining assets from the consequences of any adverse costs orders. 18 I do not consider the conduct of the non-parties, in the process of discovery against them, to be relevant to an order to indemnify a party for all of the costs it incurred on an entire issue. The first respondent has not limited the order it seeks to those costs which could be said to be referrable to Mr Carey's and Westpoint Corporation's conduct. If such costs were sought it would seem preferable that application be made at the time these problems arose. In any event the first respondent does not seek such an order. 19 The evidence given by Mr Carey cannot be a basis for an order for costs, in my view, even if it was completely rejected. This extends to his initial statements which suggested that the applicant's claims could be verified and which led to non-party discovery being undertaken. To hold otherwise would be to render liable witnesses to claims for damages arising from their testimony and the courts will not countenance that: Cabassi v Vila (1940) 64 CLR 130. 20 There is no doubt that Mr Carey and Westpoint Corporation have an interest in the outcome of the proceedings and continue to have an interest in the appeal. This may have been relevant to the reliability of Mr Carey's evidence but by itself it does not provide a basis for the award of costs. It may be one fact which, added with others, shows that Mr Carey was the guiding hand of the litigation on this issue. That, it seems to me, is the critical question. At an evidentiary level however the first respondent's argument fails. 21 It is true that Mr Carey's evidence was critical to the applicant's case, but there is nothing to suggest that he recommended the litigation or that he determined the path that she would take in relation to proof of economic loss. Undoubtedly he played a part in the process of non-discovery. Whilst it may be inferred that he gave instructions as to claims, for confidentiality and the like, which caused delay and costs, this does not suggest that he was the controlling hand in the litigation on this issue. All that can reasonably be inferred from it is that he was an unwilling provider of documents and sought to maintain his company's commercial information as confidential. 22 In my view there is no basis for a conclusion that Mr Carey ought to pay the costs sought on any basis or that he be jointly and severally liable with the applicant for them. I turn then to the question whether the applicant should be held liable for indemnity costs. 23 It is submitted that the applicant ought to have known, at all times, that her claim for economic loss had no chance of success, at least in the form in which it was presented at trial, which relied only upon her statement, that of her brother and of Mr Beck. If there was material which was able to corroborate her claim it was not produced. It is sought, as part of this order, to render her liable for the numerous interlocutory applications and the protracted process of non-party discovery which, it is said, she had effectively caused. It is also submitted that she was guilty of conduct approaching misconduct in notifying the respondents of the employment she had had since 2003 at a point closer to trial. 24 The last-mentioned matter is not relevant to an order for costs on a whole issue and on an indemnity basis. Nor in my view does the creation of additional costs in the process of discovery provide such a ground. There may be warrant for a specific order relating to those costs, if they have not been the subject of orders made during directions hearings, but the first respondent seeks a much wider order. Nor can it be said that, in the approach which was subsequently taken, there was a prolongation of the trial as a result of the claims pursued. To the contrary there was little evidence and that was the applicant's problem. 25 The fact that a case is found, in particular respects, to be without merit is not sufficient to found an order for indemnity costs. This is a common occurrence in litigation. Orders for indemnity costs require more. There needs be something out of the ordinary in the litigation which suggests that an order for indemnity costs is clearly appropriate. Here it is said that the applicant's case was never going to succeed, but I think this case differs from one which, it could confidently be said, had no chance of success. The case for economic loss as particularised appeared capable of proof. It is true that, for reasons unexplained, no documents or other evidence from Westpoint Corporation as to commissions payable were proved. The first respondent's argument requires an inference to be drawn that, because that course was not taken, and the evidence of Mr Carey and Mr Beck relied upon instead, the case could never have been proved. But I do not think that is the only inference which is available. Much may have depended upon the preparation which was given to the evidence. In my view there is an insufficient basis for an order for indemnity costs against the applicant. 26 The first respondent also seeks an order that it was necessary and proper that it engage lawyers in the United States of America to assist in the conduct of litigation, including their obtaining documents for use in the trial, preparing affidavits of lay witnesses in that country, and retaining and liaising with expert witnesses on behalf of the first respondent. Costs are sought in $US so that the first respondent is not disadvantaged in the event that there have been some fluctuations in currency. Such an order would seem to me entirely appropriate in a case such as this. There were a substantial number of witnesses from the United States, mostly employees of St Jude Medical Inc, the manufacturer of the heart valve. There would have been some difficulty, I apprehend, in preparing the very detailed affidavit material dealing with the process of testing of the heart valve without face-to-face communication. 27 The first respondent engaged Minter Ellison in Sydney as its solicitors and that firm engaged counsel from Sydney to act for the first respondent. The trial was held in Perth, where the proceedings were initiated. Additional expenses have therefore been incurred and the first respondent seeks an order that they were necessary or proper and that it should have them on taxation. It is submitted that these expenses qualify under O 62 r 19 of the Federal Court Rules as 'proper' (although not necessary) because it was not inappropriate to engage a Sydney firm or Sydney barristers. 28 It has been said that the fact that this Court exercises federal jurisdiction, and that litigants may retain counsel from anywhere in Australia, does not mean that, for the purposes of party and party taxation, it is necessary or proper to do so: Charlick Trading Pty Ltd v Australian National Railways Commission (2001) FCA 629 at [39]. The first respondent was entitled to choose whomever it wished to appear for it, but I do not think that choice can simply be visited upon the party who is ordered to pay costs, without it being shown that it was appropriate in all the circumstances. 29 There is a dispute, on the evidence put forward by the first respondent on the one hand and the applicant on the other, as to whether there were solicitors and counsel having the necessary level of expertise in a product liability case of this kind in Perth. The technical and medical evidence was of some complexity, but not such as would cause most competent litigation lawyers difficulty in my view. And, whilst there have not been many product liability cases brought under the Trade Practices Act 1974 (Cth) I do not consider the legal issues which needed to be addressed to be particularly difficult. I do not accept that there were no firms in Perth who could have handled litigation of this magnitude, or who could not have made arrangements for further staff if the volume of material required it. Minter Ellison itself has an office there. In any event the evidence does not establish the lack of competent solicitors or barristers in Perth. I do not propose to make the orders sought. THE SECOND AND THIRD RESPONDENTS' APPLICATION FOR COSTS 30 The second and third respondents sought the same order as that sought by the first respondent with respect to the three orders made by French J concerning the non-parties' costs. For the reasons given, I do not propose to make them. 31 The second and third respondents sought leave to amend their claim for costs to include orders for indemnity costs in the same terms as the first respondent had sought against Mr Carey and Westpoint Corporation, or the applicant and those non-parties jointly and severally, on the issue of economic loss. This was opposed by counsel for the non-parties, but I do not consider there was any relevant prejudice in permitting the second and third respondents to put forward such a claim, which they could have made at a later time. In any event they merely adopted the arguments of the first respondent and raised no additional matter. However, I have determined that these orders are not appropriate. And, for the reasons I have given on the first respondent's application, I do not consider that the applicant should pay indemnity costs on the issue of economic loss. 32 The second and third respondents seek an order that the applicant pay all of their costs on an indemnity basis. Two grounds are given for this: that the applicant had an ulterior motive in bringing the proceedings against the second and third respondents and that, had she been properly advised, she would have appreciated that she had no chance of success. 33 I do not accept that the letter to Dr Hand, to which I have referred in my reasons for judgment, discloses an ulterior motive akin to bad faith. In it she explains that she intends suing the second and third respondents because they would support her action against Getz Bros & Co (Aust) Pty Ltd. It may have suggested that she did not at that point believe she had been ill-advised by them, but it does not prove that she understood that her case, later brought, was entirely without foundation. 34 I do not understand the second and third respondents to suggest that that part of the applicant's case, which alleged she had not received all necessary advices concerning the risks associated with the surgery, was hopeless. They submit that there were two fundamental flaws in her case. 35 There was no evidence, it is pointed out, that the implantation of a tissue valve would have been appropriate in a person of her age. This accords with the evidence of the doctors who said that they would not have advised such a course. Nevertheless their evidence was also that the choice of a tissue valve was given to patients. Her prospects of success hinged upon the court accepting that she would have taken that course. Whilst it may be said that a party in this position may face considerable difficulties in persuading a court they would take a course which involves considerable risks, I do not think it could be said that the applicant should have known that she had no prospects at all in so persuading a court. The views I have here reached also dispose of the alternative order sought by the second and third respondents, namely that the applicant pay costs on an indemnity basis from 11 April 2003, which is fourteen days after she was served with the second and third respondents' expert medical evidence to be relied upon at trial. Those reports contained the evidence that the implantation of a tissue valve in a young person was not good practice and that she would not have been advised to take that course. As I have said, this is not conclusive of the issue. 36 The second aspect of the applicant's case, to which the second and third respondents refer, relates to causation. There was no evidentiary basis connecting many of the symptoms the applicant complained of with the injuries suffered as a result of the implantation of the prosthetic valve and subsequent thromboembolisms. No analysis, of the considerable historical medical evidence, was apparent in the applicant's case and there was little attempt, in submissions, to explain how each symptom could be attributed to the problems arising from the prosthetic valve. This necessarily involved the other parties and the Court in considerable work. No contemporary evidence was provided to explain her current symptoms, in light of what had occurred with the heart valve. On the other hand the applicant did not fail entirely on the issue of causation. There were some injuries she clearly suffered as a result of the heart valve, albeit they were limited. It follows that her case was not entirely hopeless, but that her claims were extravagant and productive of additional costs. There is therefore no doubt that she ought to pay for them. I do not think however that a basis for indemnity costs is shown, even if I were able to frame an order which would compensate the respondents for the costs associated with evidence on part of an issue. 37 The second and the third respondents each seek costs against the applicant, on an indemnity basis, on two issues which were abandoned by the applicant at an early point in the trial. It had been alleged against the second respondent that he should have recommended that the applicant undergo surgery to repair her mitral valve at a point earlier than 1996. There was no medical evidence to support this claim. The applicant also alleged that the third respondent breached his duty of care by chipping the mechanical valve during surgery. The only evidence from the applicant's expert was that this was one theoretical possibility. It was never put any higher and was later discounted. I accept that these claims were speculative in nature. I am not adverse to ordering the payment of costs, on an indemnity basis, on discrete issues, where it can be discerned that they are likely to be substantial. The difficulty in this case is that they do not appear to me to be of that order. the costs of the application 38 In view of the respondents' lack of success, they should pay the costs of the non-parties and any legal expenses incurred by the applicant on their applications. APPLICATION FOR STAY 39 The applicant seeks a stay of the orders for costs pending the determination of her appeal. If obliged to pay the respondents' costs she will almost certainly face bankruptcy and she is concerned that this will deprive her of the ability to conduct her appeal and affect her position on a consumers' council, although this latter problem might be overcome. 40 Assuming for present purposes that the applicant can pay some or all of the costs it could not be said that she would not be in a position to recover them from the respondents were she successful on her appeal. The first respondent did cease trading last year, but any concerns about whether the costs received by it might be dissipated can be overcome by an order requiring that its solicitors retain them in their trust account until the conclusion of the appeal or further order. 41 I do not regard the prospect that steps might be taken towards the sequestration of the applicant's estate to be a sufficient reason to stay the orders for costs. It is most unlikely that the applicant's estate would be sequestrated whilst her appeal remained undetermined. In any event the claim is one for personal injuries, which would not form part of her estate, and she would be able to pursue it. Whether she conducts the appeal herself, or with some legal assistance provided by her brother, is not a matter pertinent to the application for stay. 42 The view I have taken is reinforced in the present case by reference to the position of the respondents. It seems to me that they ought to be permitted to progress matters whilst an appeal is pending. They have foreshadowed the likelihood of disputes with Westpoint Corporation about the agreements it has entered into, and the securities it has taken, and they should not be delayed in the bringing of these applications in the event that the applicant is made bankrupt. I am further informed, with respect to the hearing of an appeal, that the applicant has, or is shortly to make, applications which may have the effect of postponing a hearing. 43 Although the costs involved on this application might not amount to much, there should be an order that the applicant pay the respondents' costs. I certify that the preceding forty-three (43) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Kiefel. Associate: Dated: 2 September 2004 For the Applicant: In Person Counsel for the First Respondent: Mr NC Hutley SC with Mr D Villa Solicitor for the First Respondent: Minter Ellison Counsel for the Second and Third Respondents: Mr WS Martin QC Solicitor for the Second and Third Respondents: Clayton Utz Counsel for the non-parties Norman Phillip Carey and Westpoint Corporation Pty Limited: Mr NDC Dillon Solicitor for the non-parties Norman Phillip Carey and Westpoint Corporation Pty Limited: Dibbs Barker Gosling Date of Hearing: 31 August 2004 Date of Judgment: 2 September 2004