FEDERAL COURT OF AUSTRALIA Lowe v Mack Trucks Australia Pty Limited (No 2) [2008] FCA 711 COSTS – principles relevant to an award of costs – whether Court should depart from the ordinary rule Federal Court of Australia Act 1976 (Cth) s 43 Federal Court Rules (Cth) O 62 Ruddock v Vadarlis (No 2) (2001) 115 FCR 229 referred to Colgate-Palmolive Company v Cussons Pty Limited (1993) 46 FCR 225 referred to Re Wilcox: Ex parte Venture Industries Pty Ltd (No 2) (1996) 72 FCR 151 followed Abbott v Random House Australia Pty Ltd [1999] FCA 1540 referred to Hamod v State of New South Wales (2002) 188 ALR 659 followed Ugly Tribe Co Pty Ltd v Sikola [2001] VSC 189 approved Xat Ky v Australvic Property Management Pty Ltd (No 2) [2007] FCA 1785 referred to Rosniak v Government Insurance Office (1997) 41 NSWLR 608 referred to Tetijo Holdings Ltd v Keeprite Australia Pty Ltd [1991] FCA 187 referred to GRAHAM LOWE and ERICA LOWE v MACK TRUCKS AUSTRALIA PTY LIMITED VID 249 OF 1999 KENNY J 21 MAY 2008 MELBOURNE IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY VID 249 OF 1999 BETWEEN: GRAHAM LOWE First Applicant ERICA LOWE Second Applicant AND: MACK TRUCKS AUSTRALIA PTY LIMITED Respondent JUDGE: KENNY J DATE OF ORDER: 21 MAY 2008 WHERE MADE: MELBOURNE THE COURT ORDERS THAT: 1. Save for: (a) costs thrown away by reason of the abandonment of the two expert witness reports of Dr Arnold McLean filed in September 2004 and in February 2006 respectively; and (b) the costs incurred by reason of the late discovery of the CD-ROM containing the FORS raw data referred to in [14] of these reasons the applicants pay the respondent's costs of and incidental to the proceeding, including reserved costs, on a party and party basis, to be taxed in default of agreement. 2. The applicants pay such of the respondent's costs as fall within in (a) and (b) in [1] above on an indemnity basis, to be taxed in default of agreement. 3. Upon the expiration of time in which to appeal from my judgment of 4 April 2008 or the determination of any appeal from that judgment (whichever is later), all documents relating to the schematics and/or construction of any vehicle designed and/or manufactured by the respondent which have been provided by the respondent to the applicants in any form whatsoever (whether paper, electronic or otherwise) and any copies of such documents, whether in the possession of the applicants, their legal representatives or witnesses called by them, be returned to the solicitors for the respondent. 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 249 OF 1999 BETWEEN: GRAHAM LOWE First Applicant ERICA LOWE Second Applicant AND: MACK TRUCKS AUSTRALIA PTY LIMITED Respondent JUDGE: KENNY J DATE: 21 MAY 2008 PLACE: MELBOURNE REASONS FOR JUDGMENT INTRODUCTION 1 On 4 April 2008, I delivered judgment dismissing the application made by Mr and Mrs Lowe for damages in respect of the loss which they had allegedly suffered as a result of their acquisition of a Mack prime mover. The parties subsequently filed written submissions on costs, the disposition of which now falls for determination. 2 The central issue in this proceeding was whether the Lowes had established that, on account of defects in construction and design, the truck was unfit for the purpose of interstate long-haul transport. If so, they claimed damages for breach of implied contractual conditions as to fitness for purpose and merchantability, relying on s 71 of the Trade Practices Act 1974 (Cth) ("the TPA"): see Lowe v Mack Trucks Australia Pty Ltd [2008] FCA 439 ("Lowe v Mack Trucks"). The Lowes also pursued a claim under s 52 of the TPA, to the effect that two of the respondent's sales representations were misleading and deceptive, or likely to mislead or deceive. At trial, however, the Lowes failed to make out their case. In Lowe v Mack Trucks at [264], I concluded that the applicants had not shown that, on the balance of probabilities, the truck was not of merchantable quality and was unfit for the purpose of interstate, long-haul goods transport. Nor had they shown that the truck was other than as represented to them by the respondent's sales representative in March 1998. PARTIES' SUBMISSIONS ON COSTS 3 The applicants did not dispute that, in the circumstances just outlined, the respondent was entitled to its costs, taxed on a party and party basis. The respondent argued, however, that, in respect of two matters, it was entitled to an award of costs on a solicitor-client basis. The respondent identified these matters as: (a) abandonment and replacement of the first two expert reports prepared by Dr Arnold McLean on the fourth day of the trial; and (b) failure to disclose the critical FORS raw data until the fifth day of the trial. The respondent submitted that the applicants' conduct with respect to these matters was sufficiently exceptional to warrant an award of indemnity costs. 4 As to this latter submission, the applicants replied, first, that: The preference of the evidence of one witness to another, i.e. Morrison to MacLean [sic] is not such an unusual event as to warrant departure from the usual rule. Whilst acknowledging that portions of MacLean's [sic] reports and evidence were not proceeded with, that merely achieves a truncated outcome which has saved costs. The alternative may have seen more time utilised in dealing with the evidence of MacLean [sic] with the result that the extended evidence of MacLean [sic] would ultimately have been rejected (given the findings made in respect of his evidence). In those circumstances, a solicitor client costs order would not have been warranted. It follows that by reason of the decision taken at trial to save time, a solicitor/client costs order is not warranted. Further, the applicants "conceded that the FORS data was discoverable", but said: The production at a late stage however, meant nothing more than the fact that the examination of that data was undertaken at a point in time which interrupted the trial. Costs would have necessarily been incurred in examining the data and conferring with experts and with counsel, regardless of the time when the data was produced. The trial saw many delays occasioned by the availability of witnesses, the production of documents by both sides, the availability of the Court, and the like. Such delays are to be expected in the course of a lengthy trial and do not warrant a departure from the usual rule as to costs. CONSIDERATION 5 By virtue of s 43 of the Federal Court of Australia Act 1976 (Cth), the Court may make orders as to costs. The power, which is discretionary, must be exercised judicially: see Ruddock v Vadarlis (No 2) (2001) 115 FCR 229 at 234 per Black CJ and French J. Within this general discretion, it is accepted that costs ordinarily follow the event, with the result that a successful litigant receives costs in the absence of special circumstances justifying some other order: see Ruddock v Vadarlis (No 2) (2001) 115 FCR 229 at 234 per Black CJ and French J. 6 The usual rule is that costs are payable on a party and party basis, unless the circumstances of the case warrant a departure from the normal course: see Colgate-Palmolive Company v Cussons Pty Limited (1993) 46 FCR 225 ("Colgate-Palmolive") at 233 per Sheppard J and the Federal Court Rules (Cth), O 62. In that case, Sheppard J considered the circumstances in which indemnity costs might be awarded, referring, amongst other things, to "misconduct that causes loss of time to the Court and to other parties" although, as his Honour concluded, "[t]he question must always be whether the particular facts and circumstances of the case in question warrant the making of an order for payment of costs other than on a party and party basis": see Colgate-Palmolive at 233-234. The Full Court reconsidered the appropriateness of an indemnity costs award in Re Wilcox: Ex parte Venture Industries Pty Ltd (No 2) (1996) 72 FCR 151 ("Re Wilcox") at 152-153 per Black CJ and 156-158per Cooper and Merkel JJ. In Re Wilcox, at 156-157, Cooper and Merkel JJ reiterated Sheppard J's approach, saying: In order to exercise the discretion [regarding costs] judicially the following principles have been accepted by the Court as applicable: (a) the Court ought not to depart from the rule that costs be ordered on a party and party basis unless the circumstances of the case warrant the Court in departing from the usual course; (b) the circumstances which may warrant departure from the usual course 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; (c) whilst the circumstances in cases in which indemnity costs have been ordered 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. See also Abbott v Random House Australia Pty Ltd [1999] FCA 1540 at [5] per Beaumont, Miles and Drummond JJ, quoting the above passage with approval. Even more recently, the Full Court in Hamod v New South Wales (2002) 188 ALR 659 at 665 (per Gray J, with whom Carr and Goldberg JJ agreed) explained the basal principle for an award of indemnity costs in the following terms: Indemnity costs are not designed to punish a party for persisting with a case that turns out to fail. They are not awarded as a means of deterring litigants from putting forward arguments that might be attended by uncertainty. Rather, they serve the purpose of compensating a party fully for costs incurred, as a normal costs order could not be expected to do, when the Court takes the view that it was unreasonable for the party against whom the order is made to have subjected the innocent party to the expenditure of costs. 7 A perusal of other cases decided in this Court, including in recent times, shows that these principles are regularly applied. In particular, the Court may award indemnity costs in respect of misconduct that causes loss of time to the Court and to other parties: see Tetijo Holdings Ltd v Keeprite Australia Pty Ltd [1991] FCA 187 per French J, referred to with approval in Colgate-Palmolive at 233 and Ugly Tribe Co Pty Ltd v Sikola [2001] VSC 189 ("Ugly Tribe") at [7] per Harper J. In Xat Ky v Australvic Property Management Pty Ltd (No 2) [2007] FCA 1785, Middleton J awarded indemnity costs to prevent the plaintiffs being out of pocket where "there was a considerable loss of time, inconvenience to the parties and the Court, and a wilful disregard to established law in the attempts to re-open the case … and in the application for a restraining order": see [12]-[13], [29]. 8 The same principles with regard to indemnity costs are applied in other Australian courts. In Ugly Tribe, Harper J referred (at [7]) to the need for special circumstances to justify departure from the usual rule, instancing "[c]onduct which causes loss of time to the Court and to other parties" and "[t]he failure until after the commencement of the trial, and without explanation, to discover documents the timely discovery of which would have considerably shortened, and very possibly avoided, the trial". As his Honour said, however, "[t]he categories of special circumstances are not closed". As Mason P, with whom Meagher JA and Clarke A-JA agreed, said in Rosniak v Government Insurance Office (1997) 41 NSWLR 608 at 616, "the court requires some evidence of unreasonable conduct, albeit that it need not rise as high as vexation" before departing from the usual party and party costs order. 9 The respondent argued that the applicants' abandonment and replacement of the first two reports prepared by Dr McLean should attract indemnity costs. Dr McLean ultimately prepared three reports for the applicants. At trial, he gave substantial viva voce evidence and was cross-examined. Dr McLean's first report was dated 1 September 2004 and filed around 9 September 2004, pursuant to orders made on 21 April 2004. These orders also fixed a trial for December that year. As it happened, the trial did not proceed at that time, but the applicants later included Dr McLean's report in the Court Book prepared for the trial last year. In February 2006, Dr McLean prepared a supplementary report, which was filed on 24 February 2006, pursuant to an order dated 10 February 2006 also providing for the meeting of experts, which was held shortly after this. Lastly, Dr McLean prepared a "Final Summary Report" dated 23 April 2007, which was apparently served on the respondent on 26 April 2007. 10 The applicants commenced to present Dr McLean's evidence on 3 May 2007, on the fourth day of the trial, when they determined only to rely on the third of his reports (of 42 pages) and to abandon the first two reports (save for his curriculum vitae). Counsel for the applicants stated that "the third report represent[ed] a summary of the salient features of" the two earlier reports. Before advising the Court and the respondent of their abandonment of the first two reports, counsel for the applicants stated that the first two reports contained some material that did not relate to the current litigation. Counsel also agreed (as was plain to see) that the first report (over 129 pages in length) was difficult to comprehend and suffered from other defects. 11 In its written submissions, the respondent submitted that the applicants' "conduct in abandoning the lengthy and highly complex reports at such a late stage in the proceeding caused significant unnecessary expense … including (a) [c]osts incurred in obtaining expert opinion in respect of the reports; [and] [c]osts incurred as a result of solicitor and counsel time spent reviewing the reports". 12 I accept that the circumstances attending Dr McLean's first two reports justify an award of indemnity costs. In preparing for trial, it was to be expected that the respondent would retain its own expert to review and respond to them; and that its lawyers would also spend time in reading and attempting to come to grips with them in some appropriate way. The difficulties attending Dr McLean's first report were plain for all to see. The report was lengthy, detailed and, in places, incomprehensible. This alone might justify an award of indemnity costs. The preparation and service of a third report in the month before trial suggests that the difficulties with the first report were understood on the applicants' side. The applicants did not, however, advise the respondent at any time prior to trial that they did not intend to rely on either the first or supplementary reports. Indeed, they did not state that this was their position until shortly before Dr McLean was called to give evidence, by which time it may safely be assumed that the respondent's counsel and the respondent's experts had spent considerable time and effort in seeking to deal with the contents of the first two reports. A good deal of this time and effort turned out to be wasted when the applicants stated their final position. 13 The applicants pointed out that courts regularly express a preference for the evidence of one witness over another, without awarding indemnity costs. This is so, but witness preference is not the basis upon which I would award indemnity costs here. It is also possibly correct to say, as they do, that had they not abandoned their reliance on these reports, the trial may have been unjustifiably extended. The applicants' decision not to continue to rely on these reports is not in contest. What justifies the award of indemnity costs is their late abandonment of the reports, the first and longest of which suffered from the defects to which I have referred. 14 The respondent also submitted that the applicants' failure to disclose the FORS raw data until the fifth day of the trial should attract an award of indemnity costs. In examination in chief, Dr McLean gave evidence that the applicants had given him a CD-ROM containing FORS raw data, which he had analysed and used in compiling his third report. At the time Dr McLean gave this evidence, the applicants had not given discovery of this data. It was plain enough that they ought to have done so and hearing time was subsequently lost to give Mr Morrison an opportunity to examine the relevant material. 15 Plainly enough, the applicants ought to have made discovery of this material at a much earlier date. Its importance was clear enough. I accept that some hearing time was lost and expenditure incurred by the respondent in consequence of the applicants' default. In view of the obvious importance of the data, the clear need to allow the respondent an opportunity to examine it, and the inevitability of additional cost and delay in the event discovery was not given at the proper time, it seems to me that the respondent's application for indemnity costs in respect of this matter is justified. 16 The applicants are no doubt correct in their observation that the respondent would have incurred costs in examining the data had it been given to its advisers at the proper time. The point is, however, that this was significant material, which was not discovered when it should have been, with adverse consequences for the respondent's preparation and for the conduct of the hearing. 17 For the reasons stated, I would order that save for: (a) costs thrown away by reason of the abandonment of the two expert witness reports of Dr McLean filed in September 2004 and in February 2006 respectively; and (b) the costs incurred by reason of the late discovery of the CD-ROM containing the FORS raw data referred to in [14] of these reasons the applicants pay the respondent's costs of and incidental to the proceeding, including reserved costs, on a party and party basis, to be taxed in default of agreement. I would further order that the applicants pay such of the respondent's costs as fall within in (a) and (b) above on an indemnity basis, to be taxed in default of agreement. 18 In its written submissions, the respondent also drew attention to the fact that it had made discovery of a large number of documents that it regarded as of a commercially sensitive nature, including schematics and engineering drawing for every component in the vehicle the subject of the proceedings. The respondent stated that it was concerned to ensure that there were no copies of these documents in circulation "as they remain of significant value in a highly competitive business". It sought an order for return of such documents. The applicants acknowledged that "such documents were provided with an implied undertaking as to confidentiality which continues to bind [them]", but did not otherwise oppose the making of the order sought. Accordingly, I would make an order in the terms the respondent sought. That is, I would order that, upon the expiration of time in which to appeal from my judgment of 4 April 2008 or the determination of any appeal from that judgment (whichever is later), all documents relating to the schematics and/or construction of any vehicle designed and/or manufactured by the respondent which have been provided by the respondent to the applicants in any form whatsoever (whether paper, electronic or otherwise) and any copies of such documents, whether in the possession of the applicants, their legal representatives or witnesses called by them, be returned to the solicitors for the respondent. I certify that the preceding eighteen (18) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Kenny. Associate: Dated: 21 May 2008 Counsel for the First Applicant: Mr P Lithgow and Mr J Ribbands Solicitor for the First Applicant: Maitland Lawyers Counsel for the First Respondent: Mr A T Schlicht and Ms M Schilling Solicitor for the First Respondent: Clayton Utz Date of Final Submissions: 22 April 2008 Date of Judgment: 21 May 2008