FEDERAL COURT OF AUSTRALIA Walker v Citigroup Global Markets Pty Ltd [2005] FCA 1866 INTEREST – section 51A of the Federal Court of Australia Act 1976 (Cth) – requirement of application for award of interest – delay in making application – whether O 35 r 7 of the Federal Court Rules applied – rate of interest – the Court's usual practice – whether State interest rates were commercial COSTS – indemnity costs – whether the respondents should have known that they had no chance of success on the question of liability – failure to make proper discovery Trade Practices Act 1974 (Cth), s 52 Federal Court of Australia Act 1976 (Cth), s 4, 24, 51A Penalty Interest Rates Act 1983 (Vic) Federal Court Rules 1979 (Cth), O 35 r 7 Walker v Citigroup Global Markets Pty Ltd [2005] FCA 1678 discussed Walker v Salomon Smith Barney Australia Securities Pty Ltd [2003] FCA 1099 discussed Kewside Pty Ltd v Warman International Ltd (1990) ATPR 41-012 referred to Pheeney v Doolan (No. 2) [1977] 1 NSWLR 601 discussed Hanave Pty Ltd v LFOT Pty Ltd (2004) 136 FCR 566 discussed Driclad Pty Ltd v Commissioner of Taxation (1968) 121 CLR 45 referred to Ah Toy v Registrar of Companies (1985) 10 FCR 280 cited Hi-Fert Pty Ltd v Kiukiang Maritime Carriers Inc (No 2) (1998) 155 ALR 328 cited Hannpost Pty Ltd v Mita Copiers Australia Pty Ltd (1996) 137 ALR 701 cited Hanave Pty Ltd v LFOT Pty Ltd [2003] FCA 1154 referred to GEC Marconi Systems Pty Limited v BHP Information Technology Pty Limited (2003) 201 ALR 55 discussed Namol Pty Ltd v AW Baulderstone Pty Ltd (No 2) (1993) 47 FCR 388 referred to EMCL Pty Ltd v ESANDA Finance Corp Ltd [1999] FCA 978 applied Re Wilcox; Ex parte Venture Industries Pty Ltd (No 2) (1996) 72 FCR 151 applied Abbott v Random House Australia Pty Ltd [1999] FCA 1540 referred to Colgate-Palmolive Company v Cussons Pty Ltd (1993) 46 FCR 225 followed Yates v Boland [2000] FCA 1895 applied DAVID WALKER v CITIGROUP GLOBAL MARKETS PTY LTD (FORMERLY SALOMON SMITH BARNEY AUSTRALIA SECURITIES PTY LIMITED) AND CITIGROUP GLOBAL MARKETS AUSTRALIA HOLDINGS PTY LTD (FORMERLY SALOMON SMITH BARNEY AUSTRALIA PTY LIMITED) VID 531 OF 1998 KENNY J 19 DECEMBER 2005 MELBOURNE IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY VID 531 OF 1998 BETWEEN: DAVID WALKER APPLICANT AND: CITIGROUP GLOBAL MARKETS PTY LTD (FORMERLY SALOMON SMITH BARNEY AUSTRALIA SECURITIES PTY LIMITED) FIRST RESPONDENT CITIGROUP GLOBAL MARKETS AUSTRALIA HOLDINGS PTY LTD (FORMERLY SALOMON SMITH BARNEY AUSTRALIA PTY LIMITED) SECOND RESPONDENT JUDGE: KENNY J DATE OF ORDER: 19 DECEMBER 2005 WHERE MADE: MELBOURNE THE COURT ORDERS THAT: 1. There be judgment for the applicant against the first respondent in the sum of $41,566, being the principal sum of $22,917 together with interest pursuant to s 51A of the Federal Court of Australia Act 1976 (Cth) in the sum of $18,649. 2. There be judgment for the applicant against the second respondent in the sum of $1,307,919.35, being the principal sum of $721,113.35 together with interest pursuant to s 51A of the Federal Court of Australia Act 1976 (Cth) in the sum of $586,806.00. 3. The respondents pay the applicant's costs incurred in relation to the respondent's failure to make timely discovery of the due diligence report and the employee lists ("the indemnity costs"), on a full indemnity basis, the indemnity costs to include all costs, including reserved costs, incurred by the applicant except in so far as they are of an unreasonable amount or have been unreasonably incurred, so that subject to these exceptions, the applicant is completely indemnified by the respondent. 4. Save for costs referred to in paragraph 3 above, the respondents pay the costs of the applicant of and incidental to this proceeding on a party and party basis. AND THE COURT DECLARES: 1. The second respondent Citigroup Global Markets Australia Holdings Pty Limited (formerly known as Salomon Smith Barney Australia Pty Limited) (ACN 081 472 684), in representing to the applicant on 13 February 1998 that after the purchase by it of County NatWest Securities Australia Ltd he would be employed by the second respondent on the same terms and conditions as had been agreed in a Contract of Employment entered into by the applicant and County NatWest Securities Australia Ltd on 16 January 1998, engaged in misleading and deceptive conduct contrary to s 52 of the Trade Practices Act 1974. 2. The second respondent Citigroup Global Markets Australia Holdings Pty Limited (formerly known as Salomon Smith Barney Australia Pty Limited) (ACN 081 472 684), in representing to the applicant on 20 February 1998 that there were positions available to him in its Corporate Finance Department and that it would be likely that a position would be offered to him, engaged in misleading and deceptive conduct contrary to s 52 of the Trade Practices Act 1974. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY VID 531 OF 1998 BETWEEN: DAVID WALKER APPLICANT AND: CITIGROUP GLOBAL MARKETS PTY LTD (FORMERLY SALOMON SMITH BARNEY AUSTRALIA SECURITIES PTY LIMITED) FIRST RESPONDENT CITIGROUP GLOBAL MARKETS AUSTRALIA HOLDINGS PTY LTD (FORMERLY SALOMON SMITH BARNEY AUSTRALIA PTY LIMITED) SECOND RESPONDENT JUDGE: KENNY J DATE: 19 DECEMBER 2005 PLACE: MELBOURNE REASONS FOR JUDGMENT INTRODUCTION 1 On 23 November 2005, the Court delivered reasons for judgment regarding the assessment of damages: see Walker v Citigroup Global Markets Pty Ltd [2005] FCA 1678 ("Walker (No 2)"). The applicant, David Walker, had already established the first respondent's liability for damages for breach of contract and the second respondent's liability for two breaches of s 52 of the Trade Practices Act 1974 (Cth) ("TPA"): see Walker v Salomon Smith Barney Australia Securities Pty Ltd [2003] FCA 1099 ("Walker (No 1)"). 2 In Walker (No 2), I held that damages should be assessed in the amount of $22,917 as against the first respondent for breach of contract and in the amount of $721,113.35 as against the second respondent for contravention of s 52 of the TPA: Walker (No 2) at [140], [207]. I also indicated that I would grant declaratory relief in respect of the second respondent's breaches of the TPA. I directed the applicant to submit proposed minutes of orders in accordance with my reasons for judgment. The parties then filed submissions regarding the proposed minutes of orders. 3 The remaining disputes concern interest and costs. Mr Walker submitted that, pursuant to s 51A of the Federal Court of Australia Act 1976 (Cth) ("the Act"), he should be awarded interest in the sum of $20,193 against the first respondent and in the sum of $635,427 against the second respondent. He also contended that the respondents should pay his costs on an indemnity basis up to and including 10 October 2003 (being the date the Court delivered its reasons for judgment on liability). He seeks costs on a party and party basis thereafter. 4 The respondents submitted that Mr Walker is not entitled to interest. They also contended that Mr Walker should not be awarded costs on an indemnity basis. 5 I find that Mr Walker should be awarded interest. However, aside from a limited exception, I do not find that costs should be awarded on an indemnity basis. In the following reasons, I assume familiarity with Walker (No 1) and Walker (No 2). INTEREST 6 Section 51A of the Act empowers the Court to award interest on damages ordered pursuant to the TPA or for breach of contract: see, e.g., Kewside Pty Ltd v Warman International Ltd (1990) ATPR 41-012 ("Kewside") per French J. Section 51A provides, in part, as follows: "51A INTEREST UP TO JUDGMENT (1) In any proceedings for the recovery of any money (including any debt or damages or the value of any goods) in respect of a cause of action that arises after the commencement of this section, the Court or a Judge shall, upon application, unless good cause is shown to the contrary, either: (a) order that there be included in the sum for which judgment is given interest at such rate as the Court or the Judge, as the case may be, thinks fit on the whole or any part of the money for the whole or any part of the period between the date when the cause of action arose and the date as of which judgment is entered; or (b) without proceeding to calculate interest in accordance with paragraph (a), order that there be included in the sum for which judgment is given a lump sum in lieu of any such interest." (Emphasis added) 7 Under s 51A, there is a presumption that interest will be awarded unless good cause is shown to the contrary. Thus, ordinarily, it would be straightforward that Mr Walker is entitled to damages upon the principal sums awarded. However, the Court's power to award interest under s 51A is conditional upon an application being made for that purpose: Kewside at 51,237 per French J. Mr Walker sought interest in his proposed minute of orders filed on 28 November 2005. He applied for interest in his written submissions filed on 5 December 2005 in support of his proposed minutes of order. He also applied orally at the hearing of 12 December 2005. 8 The respondents raised two arguments in opposition to any award of interest. First, they contended that Mr Walker is not entitled to interest because of his delay in applying for interest. They cited Pheeney v Doolan (No. 2) [1977] 1 NSWLR 601 ("Pheeney") and Hanave Pty Ltd v LFOT Pty Ltd (2004) 136 FCR 566 ("Hanave") in support of this argument. Secondly, they argued that there are procedural defects with Mr Walker's application for interest. 9 The respondents' reliance on Hanave was misplaced, because they mistakenly assumed that O 35 r 7 of the Federal Court Rules 1979 (Cth) ("the Rules") applied in the present instance. In effect, the respondents submitted that, by an application for interest, the applicant was seeking to vary a judgment and this could only be done under O 35 r 7 of the Rules. The reasons for judgment that were delivered on 23 November 2005 do not, however, constitute a 'judgment' for the purposes of s 4 or s 24 of the Act or O 35 r 7 of the Rules: see Driclad Pty Ltd v Commissioner of Taxation (1968) 121 CLR 45 ("Driclad") at 64 per Barwick CJ and Kitto J; Ah Toy v Registrar of Companies (1985) 10 FCR 280 at 285 per Toohey, Morling and Wilcox JJ (and the cases there cited); Hi-Fert Pty Ltd v Kiukiang Maritime Carriers Inc (No 2) (1998) 155 ALR 328 at 329 per Beaumont J, at 337 per Branson J and 339 per Emmett J (noting that, although reasons for a judgment are often referred to as a 'judgment' the term means the actual orders made by the Court); and Hannpost Pty Ltd v Mita Copiers Australia Pty Ltd (1996) 137 ALR 701 at 710-711 per Branson J. In Driclad at 64, Barwick CJ and Kitto J said: "The taxpayers lodged notices of appeal to the Full Court which were expressed as if the appeals were against the reasons of Taylor J, relating to the "B" part of the fund rather than against the orders that he made. Needless to say, this was erroneous because it is of the nature of appeals, as s 73 of the Constitution recognizes, that they lie only against "judgments, decrees, orders and sentences", not against reasons. The word "judgments" in this connexion refers only to operative judicial acts, and is not used, as it often is in other contexts, as a convenient abbreviation for reasons for judgment." The word 'judgment' as it appears in ss 4 and 24 of the Act and O 35 r 7 of the Rules has the same meaning. For the purposes of O 35 r 7 of the Rules, a 'judgment' is pronounced when a formal order is made that deals with or disposes of proceedings before the court. The reasons for judgment are not the 'judgment' in this sense. The orders that were made on 23 November 2005 did not dispose of the proceedings before the Court. This step has yet to be taken. 10 Section 51A does not specify when an application for interest must be made. As the respondents concede, a Full Court of the Federal Court held in Hanave that the provision "does not require that prejudgement interest be claimed at a point prior to judgment": Hanave at 575 per Kiefel J, with whom Wilcox and Allsop JJ relevantly agreed at 568. It follows that if a claim for interest is made prior to judgment (as here), the mere effluxion of time between the making of the claim and the institution of proceedings, or between trial and the delivery of reasons, cannot of itself disentitle the claimant to interest. 11 Moreover, the facts of Hanave are very different from the facts of this case. In this case, the applicant applied for interest almost immediately after reasons for judgment were delivered and before judgment was pronounced and final orders entered. In Hanave, the applicant sought to vary orders that had been entered over three years earlier: see Hanave Pty Ltd v LFOT Pty Ltd [2003] FCA 1154 at [30] and [32] per Moore J. The applicant relied on O 35 r 7(3) which allows a court to vary a judgment or order arising "from an accidental slip or omission". The Full Court held that the primary judge should not have applied the 'slip rule' because "the circumstances of the delay, the ignorance of the persons involved and the absence of any real inadvertence (as opposed to ignorance) stretch significantly the notion of 'accidental slip or omission'": Hanave at 568 per Wilcox and Allsop JJ. If there were any relevant delay in this case, it was not comparable to the delay in Hanave. 12 The respondents also relied on a passage from Pheeney at 606, in which Moffit P proposed that changes be made in the State Supreme Court's procedures regarding claims for interest. The proposal was no more than a recommendation concerning a policy that might be given effect. The observations in the passage were obiter dictum. The matter with which the passage was concerned was not the subject of argument before the court and "so no decision [was] called for" (605 per Moffit P). The issue of delay in making application for interest played no part in the decision of the Court: see Pheeney at 610 per Reynolds JA (noting that "the argument on appeal was confined to the submission that it was a wrong exercise of discretion to award interest on the whole amount of the verdict"). Pheeney provides no authoritative support for the respondents' position. 13 Furthermore, contrary to the respondents' submission, the reasons for judgment given on 23 November 2005 contain no holding on interest. They do no more than record the fact that, at that time, the applicant had made no application for interest. The reasons for judgment no more exclude a subsequent award of interest than they proscribe an award of costs. The question of final orders was held over for the parties' submissions. 14 At the hearing of 12 December 2005, the respondents also claimed that, under O 19 r 1 of the Rules, the application for interest should have been made by motion and accompanied by an affidavit. The applicant replied that, as the application for interest was made pursuant to the Act and not the Rules, O 19 r 1 did not apply. In the alternative, the applicant invited the Court, acting pursuant to O 1 r 8, to waive any requirement for a motion and supporting affidavit. 15 If O 19 r 1 of the Rules applies, then, under O 1 r 8, I would in this case dispense with the need for compliance. The respondents have been on notice of the applicant's application for interest at least since 5 December 2005 and indeed attended the hearing on 12 December 2005 to argue this very matter. The respondents were unable to point to any matter that might bear on the outcome of the applicant's entitlement to interest that might usefully be dealt with in an affidavit from the applicant, other than the circumstances of the supposed delay in applying for interest. As counsel for the applicant explained, any affidavit would simply repeat facts of a non-contentious kind that were already known to the parties and the court (such as when the proceeding commenced and what principal amounts were awarded as damages). There would be no utility in requiring an affidavit to be filed. 16 The respondents maintained that an affidavit was needed to explain the applicant's delay in making the application for interest. I reject this submission since there was no delay of any kind that could of itself disentitle the applicant to interest. The respondents conceded that, if I found that O 35 r 7 did not apply, there would not be a good cause to deny interest merely because, through inadvertence, the applicant had not made his application at an earlier stage in the proceeding. This concession was rightly made. The respondents did not point to any other disqualifying circumstance. The respondents have not alleged that they have been prejudiced by any delay. For example, the respondents did not suggest that they needed more time so as to prepare submissions on the calculation of interest or any other matter. 17 Under s 51A the applicant is entitled to interest unless good cause is shown to the contrary. There has been no good cause shown to deprive the applicant in this case of interest. An award of interest is, therefore, appropriate. 18 Although no rate of interest is fixed or prescribed by s 51A and the matter remains for the exercise of judicial discretion, the usual practice has been to adopt the rates of interest applied by the Supreme Court of the State or Territory in which this Court is dealing with the matter, unless there is evidence that those rates are penal or not commercial: see GEC Marconi Systems Pty Limited v BHP Information Technology Pty Limited (2003) 201 ALR 55 ("GEC Marconi") at 58 per Finn J (and the authorities cited). The applicant submitted that the Court should follow the usual practice. As the applicant noted, this practice has the policy advantage of ensuring that damages are awarded on the same basis, regardless of whether a matter is litigated in this Court or in the relevant State or Territory Supreme Court: see Namol Pty Ltd v AW Baulderstone Pty Ltd (No 2) (1993) 47 FCR 388 ("Namol") at 389 per Davies J. 19 The respondents urged that I apply the rate provided by O 35 r 8 of the Rules, for interest on judgment debts under s 52 of the Act. This rate is 10.5% per annum and, as it happens, is lower than the relevant Supreme Court rate. In the respondents' submission, these rates more closely reflect commercial rates. In support of their submission, they relied on an affidavit affirmed by their solicitor, Mr Glenn Fredericks. Annexed to this affidavit were tables of interest rates from the Reserve Bank of Australia ("RBA") website. These tables included statistics relating to retail deposit and investment rates. 20 Mr Walker did not contest the admissibility of the RBA tables or seek to cross-examine Mr Fredericks. He argued, however, that the rates reported in these tables do not reflect the opportunity cost of his not having had the damages to which he is entitled. He noted that the tables only provided average rates and did not show the highest rates available. Also, the tables did not reflect cash investments having less security or returns expected on non-cash investments such as equities. Having regard to these matters, Mr Walker submitted that the tables did not reflect commercial realities or his particular circumstances. In short, according to him, the material was not apt to form a proper basis for determining the extent to which he should be compensated for having been held out of the money to which he is entitled. Further, noting that the RBA tables have been publicly available for many years, he contended that the tables should not displace the court's usual practice of applying State rates. 21 I reject the proposition inherent in Mr Walker's submissions that interest awarded under s 51A of the Act should be tailored to his particular circumstances. Such an approach would require a separate trial on the investment strategy of an applicant. I agree with Finn J's observation in GEC Marconi at [19] that, for the purposes of s 51A, the court should not as a rule engage in an inquiry as to how a given individual may have used the money out of which he or she has been kept. 22 In GEC Marconi at [14], Finn J said: "While the courts characteristically have referred to the rates which are appropriate to be applied as 'commercial' or 'ordinary commercial' rates: see eg Gould v Vaggelas(1985) 157 CLR 215 at 275; EMCL Pty Ltd v ESAND Corp Ltd[see below] at [59]ff; it has justly been said that these terms appear "deliberately to have been left at large by the courts": Serisier Investments Pty Ltd v English[1989] 1 Qd R 678 at 681. There seems to be a variety of reasons for this. First, as noted in Serisierat 681: 'Obviously the courts do not adopt a totally commercial approach, because whatever rate is adopted, it is simple interest, not compound. An assessment on a compound basis, even on yearly rests, would make a considerable difference, but plainly the courts see the merit of keeping the assessment simple.' Secondly, there is no uniformly agreed view as to the basis on which interest is to be awarded. Accepting that a person is to be compensated for the loss suffered by being kept out of his or her money, should that person be compensated on the basis of (a) what he or she could earn if he or she had the money to invest or (b) what that person would have to pay if he or she wished to borrow? As Spigelman CJ noted extracurially in ['Negligence: the Last Outpost of the Welfare State' (2002) 76 Australian Law Journal 432] at 449, that differentiation alone 'would amount to several percentage points'. It is also reflected in the varying sources of interest rates (ie for investment and for borrowing) to which resort is had on occasion by the judges: see eg Cremer v General Carriers SA[1974] 1 WLR 341 at 355ff; Smith v In Shoppe Pty Ltd[1976] 2 NSWLR 175 at 177. Thirdly, it has been said, and the practice has been followed on occasion (when a borrowing rate is used), that something should be added to the rate to be adopted to reflect the cost of borrowing over the relevant period (eg a one per cent addition: see Cremer's case (above) at 355). Fourthly, courts have been conscious in selecting appropriate rates in individual cases of the desirability (a) of there being uniformity in the practice followed within a court; cf R W Miller & Co Pty Ltd v The Ship Patris[1975] 1 NSWLR 704 at 716; and (b) of there being relative continuity in the rates applied … ." 23 I agree with these observations. They serve to answer Mr Walker's criticisms of the respondents' reliance on the RBA tables. Whilst bearing in mind that the term "commercial rates" has been left at large by the courts, nonetheless it seems to me that, from almost any perspective, the RBA tables relied on by the respondents show that the rate found in O 35 r 8 of the Rules is closer to commercial rates than the rate advocated by Mr Walker. 24 I accept that the usual practice in this court has been to apply the rates specified for the Supreme Court in which the case was heard: here, see the Penalty Interest Rates Act 1983 (Vic). This "practice is founded on the State rate reflecting commercial rates": see EMCL Pty Ltd v ESANDA Finance Corp Ltd [1999] FCA 978 ("EMCL") at [62] per Tamberlin, Sundberg and Dowsett JJ; compare Namol at 389. Thus, despite the policy advantages of the usual practice, the court should not adopt it where (as in this case) there is evidence that the State Supreme Court rates are not commercial: EMCL at [62]. Accordingly, the Court will adopt the rate for which the respondents contended (10.5 per cent) as being closer to commercial rates of interest than rates under the Penalty Interest Rates Act 1983 (Vic). 25 Interest in this case should be awarded as follows: the first respondent should pay an amount of $18,649 and the second respondent should pay an amount of $586,806. COSTS 26 Section 43(2) of the Act provides a general discretionary power in the Court to make orders for costs. The discretion of the Court to award costs is unfettered, although it must be exercised judicially: Re Wilcox; Ex parte Venture Industries Pty Ltd (No 2) (1996) 72 FCR 151 ("Re Wilcox") at 152 per Black CJ. Costs in this court are ordinarily awarded on a party and party basis (see O 62), although costs are not infrequently awarded on a solicitor and client (or an 'indemnity') basis. 27 The circumstances in which indemnity costs might be awarded were considered by a Full Court in Re Wilcox at 153-154 per Black CJ and at 156-157per Cooper and Merkel JJ: see also Abbott v Random House Australia Pty Ltd [1999] FCA 1540 at [5] per Beaumont, Miles and Drummond JJ. In Re Wilcox at 156-157, Cooper and Merkel JJ said that, in order to exercise the discretion as to costs judicially: (a) the court ought not to depart from the usual party and party basis for costs unless this was warranted by the circumstances of the case; and (b) these circumstances arise "as and when the justice of the case so requires or where there may be some special or unusual feature in the case to justify the court in departing from the usual course". Their Honours added, at 158, that, while the decided cases offer a guide, "the question must always be whether the particular facts and circumstances of the case in question warrant the making of an order for costs other than on a party and party basis". 28 InColgate-Palmolive Company v Cussons Pty Ltd (1993) 46 FCR 225 at 233, Sheppard J set out some of the circumstances in which courts have ordered that costs be paid on an indemnity basis: see also Yates v Boland [2000] FCA 1895 at [66]-[68] per O'Loughlin, North and Weinberg JJ. His Honour's examples included the fact that the proceeding was commenced or continued in wilful disregard of known facts or clearly established law, the making of allegations which ought never to have been made, the undue prolongation of a case by groundless contentions and an imprudent refusal of an offer of compromise. Of course, the identification of these circumstances, although helpful, is not definitive. Where an application for indemnity costs is made, the question is, in each case, whether the particular facts and circumstances before the Court warrant the making of an order for the payment of costs other than on the usual party and party basis. 29 Mr Walker made his application for indemnity costs on two grounds: (a) properly advised, the respondents should have known that they had no chance of success on the question of liability (especially on the contract claim); and (b) the respondents suppressed documents. Mr Walker referred in particular to the testimony of Mark Fulton at the trial on liability and to the respondents' failure to make timely discovery of due diligence documents. 30 With respect to the first ground advanced by Mr Walker, I do not find that the respondents' case was so weak that they should have known they had no chance of success on the question of liability. First, I rejected the applicant's claim for breach of s 52 of the TPA in respect of three alleged representations. Ultimately, I awarded damages only in respect of the fourth representation and, even in relation to it, I would not conclude that the respondents should have known that they had no chance of success. 31 Further, it cannot properly be said that the respondents should have known that they had no chance of defending the claim made against them in contract. Their case was that there was no binding contract because: (i) there was no acceptance of the offer; (ii) the offer did not contain an essential term; (iii) there was no implied term that the applicant would commence his employment within a reasonable time; and (iv) if there was an implied term that he would commence within a reasonable time, this term was breached. Whilst the respondents failed to make out these defences, the defences were not so hopeless that the respondents should have known that they had no prospects of success. My finding as to the existence of a contract was based on my findings of fact, which were the subject of conflicting evidence; and the respondents did not rely solely on Mr Fulton's testimony. Ultimately, in light of all the evidence, I preferred the evidence adduced by the applicant to that of the respondents, including Mr Fulton, for the reasons I have already given. Notwithstanding the view I formed of Mr Fulton's evidence, taking the case as a whole, I would not conclude that the respondents should have known that they had no prospects of success. 32 Before turning to the applicant's second argument in support of an indemnity costs order, I would say something of Mr Fulton's evidence since the applicant placed some store by it. In Walker (No 1), I found Mr Fulton to be an unreliable witness. For example, I found that he had fabricated some of his evidence to support the respondents' case: see, e.g., Walker (No 1) at [55]. This is a consideration that militates in the applicant's favour. Nevertheless, when the matters referred to above are borne in mind and considered in the context of the entire proceeding, I do not find that the conduct of Mr Fulton takes this case far enough outside the ordinary range of cases to justify indemnity costs. 33 The final factor relates to discovery of certain due diligence documents. I have already made detailed findings on this issue in Walker (No 1) at [225]-[246]. I do not repeat them here. Contrary to Mr Walker's submission, I did not find that the respondents deliberately suppressed the due diligence report or the employee lists. Rather, I found that the respondents were deficient in their discovery and that their solicitors compounded the problem by failing to make adequate inquiries. Moreover, I found that the respondents did not provide an adequate explanation for their failure to search out, review and discover the documents subject to their discovery obligations. 34 In these circumstances, the respondents' failure to provide adequate discovery justifies an award of costs on an indemnity basis. This failure would not, however, warrant an award of indemnity costs for the entire liability phase. It must be borne in mind that, first, although the due diligence report and the employee lists might have appeared unhelpful to the respondents' case, they were not significant to my decision: see Walker (No 1) at [164]. Secondly, I did not find evidence of any deliberate wrongdoing. Accordingly, an award of costs on an indemnity basis should be limited to costs incurred because of the respondents' failure to make timely discovery of the due diligence report and the employee lists as they were obliged to do. I leave the determination of the scope of these indemnity costs to taxation. The respondents have conceded that such costs will include certain correspondence, a subpoena filed on 6 August 2002 directed to NatWest Markets Australia Pty Ltd, and a notice to produce served by the applicant shortly prior to trial. Such costs would also include the time referable in any hearing, whether before a Registrar or before me, to the failure to make timely discovery, including that part of the trial referable to the evidence of Mr Fredericks. 35 Finally, Mr Walker sought indemnity costs in relation to the hearing of 12 December 2005 and his submissions in reply on interest. The hearing on 12 December 2005 was not confined to Mr Walker's entitlement to interest but also extended to the rate of interest and the appropriateness of indemnity costs. As will be seen, whilst I have rejected the respondents' submission that Mr Walker was not entitled to interest, I have accepted their submission on the rate of interest to be applied. I have also accepted the respondents' submission that it would not be proper to award indemnity costs on the basis sought by Mr Walker, although I have awarded indemnity costs on a more limited basis. In these circumstances, I would not make an order for costs against the respondents on an indemnity basis. In all the circumstances, I would order that the costs of the hearing of 12 December 2005, including the costs of the preparation of the parties' written submissions subsequent to the delivery of reasons be costs in the proceeding. I certify that the preceding thirty-five (35) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Kenny. Associate: Dated: 19 December 2005 Counsel for the Applicant: C Gunst Q C with B Lawrence Solicitor for the Applicant: Holding Redlich Counsel for the Respondent: P Jopling Q C with M McDonald Solicitor for the Respondent: Freehills Date of Hearing: 12 December 2005 Date of Judgment: 19 December 2005