New South Wales Supreme Court CITATION : Vickers v Taccone [2005] NSWSC 646 HEARING DATE(S) : 22 and 24 June 2005 JUDGMENT DATE : 30 June 2005 JURISDICTION : Equity JUDGMENT OF : Hamilton J DECISION : No order for costs on an indemnity basis. Sanderson order made in respect of successful defendant's costs. CATCHWORDS : PROCEDURE [558] - Costs - General rule - Costs follow the event - Co-defendants - General principles - Bullock orders and Sanderson orders - Relevant principles - PROCEDURE [574] - Costs - Departing from the general rule - Orders for costs on indemnity basis - Relevant considerations - Calderbank letter and other offers of compromise - Hopelessness of plaintiffs' case - Whether plaintiff's conduct reasonable. Supreme Court Rules 1970 Part 20 r 10 LEGISLATION CITED : Trade Practices Act 1974 (Cth) s 82 Aghajanian v Stanley Thompson Valuers Pty Ltd [1997] NSWSC 1154 Birch v Glissen Pty Ltd [2005] NSWSC 337 Bullock v London General Omnibus Co [1907] 1 KB 264 Drummond v Drummond [1999] NSWSC 923 Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 Gould v Vaggelas (1985) 157 CLR 215 Grynberg v Muller [2002] NSWSC 350 Huntsman Chemical Company Australia Pty Ltd v International Pools Australia Ltd (1995) 36 NSWLR 242 CASES CITED : MGICA (1992) Pty Ltd v Kenny & Good Pty Ltd (1996) 70 FCR 236 Re Commonwealth of Australia; Ex parte Marks (2000) 75 ALJR 470 Rickard Constructions v Rickard Hails Moretti [2005] NSWSC 481 Roads and Traffic Authority (NSW) v Snape (1999) 28 MVR 423 Sanderson v Blyth Theatre Company [1903] 2 KB 533 Steppke v National Capital Development Commission (1978) 21 ACTR 23 Van Doore v Mendez NSWSC 30 June 1997 unreported Vickers v Taccone [2005] NSWSC 514 Vickers v Taccone [2005] NSWSC 578 Graeme Arthur Vickers (P & XD) Augusta Taccone (1D & 1XC) PARTIES : Anthony Taccone (2D & 1XC) Geraway Pty Limited (3D & 2XC) FILE NUMBER(S) : SC 5866/02 D Murray, Solicitor (P & XD) G Barry Hall QC (1 & 2Ds & 1XCs) COUNSEL : M Andrews, Solicitor (3D & 2XC) Lane & Lane (P & XD) J P Lawyers (1 & 2Ds & 1XCs) SOLICITORS : Minter Ellison (3D & 2XC) LOWER COURT JURISDICTION : IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION HAMILTON J THURSDAY, 30 JUNE 2005 5866/02 GRAEME ARTHUR VICKERS v AUGUSTA TACCONE & ORS JUDGMENT 1 HIS HONOUR: In this matter I have already delivered a substantive judgment: Vickers v Taccone [2005] NSWSC 514 ("my judgment"). I have also delivered a judgment on the form of the orders made: [2005] NSWSC 578 ("my second judgment"). This judgment deals with the question of costs, in respect of which two issues have been argued before me as follows. 2 The first and second defendants were generally unsuccessful and clearly must pay the plaintiff's costs. The first issue is as to whether the whole or part of those costs should be awarded on the indemnity basis. There is also a claim for indemnity costs by the third defendant. 3 The second issue is as to the appropriate order for the costs of the third defendant, which was also successful 4 Indemnity costs are claimed by the plaintiff on three bases: first, that the defence was hopeless and should not have been embarked on; secondly and thirdly, by reason of two Calderbank letters, one of which was sent before the proceedings commenced and the other later during the proceedings. 5 Indemnity costs may be awarded where the prosecution or defence of proceedings is hopeless: Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397; Huntsman Chemical Company Australia Pty Ltd v International Pools Australia Ltd (1995) 36 NSWLR 242. See also Drummond v Drummond [1999] NSWSC 923 and Birch v Glissen Pty Ltd [2005] NSWSC 337. There has been considerable discussion in recent authority as to the basis on which indemnity costs may be awarded when, after a Calderbank letter, the opposing party achieves a worse result than is offered. There is no need to traverse that authority in detail. I need here refer only to Rickard Constructions v Rickard Hails Moretti [2005] NSWSC 481, in which McDougall J compendiously sets out the present state of the law, so far as relevant. 6 The Calderbank letters relied upon by the plaintiff were dated 8 November 2002 and 8 September 2004 respectively. The terms of the first Calderbank letter contained a sufficient element of compromise in all the circumstances for that offer to be regarded as having been reasonable: it offered a discount of about $50,000 from a potential liability of about $200,000. It would seem, however, that the second offer was not reasonable and that it sought more than was recovered: it included all that was recovered, plus $20,000 for capital gains tax liability, which was not established: see my second judgment. 7 I pass to the question, whether it was reasonable for the first and second defendants to refuse the offers. 8 The underlying argument in respect of the case of hopelessness and of the reasonableness of the refusal of the two Calderbank offers is much the same. Essentially, it is that my judgment demonstrates that the case against the defence raised by the first and second defendants was so clear, that either they ought not have maintained it at all, or it was unreasonable for them to reject the respective Calderbank offers. 9 It is true that in my judgment I came to firm conclusions both that the representation relied on was not made out and that the first and second defendants were not induced by that representation: see my judgment [12] and [13]. 10 However, whilst the matter seems very clear in retrospect, I am not convinced that is was always so clear. First, there appeared to be in early times contest as to the terms of the conversations that took place between the first and second defendants and representatives of the plaintiff's agent, the third defendant. This resolved itself at the trial so that, in the end, there was no real contest on that subject matter. However, there continued to the end vigorous contest on the form of the representation which should be inferred from those conversations. Equally, there was vigorous contest to the end on the issue of inducement. Although in [13] of my judgment I drew attention to a passage of an affidavit of Augusto Taccone as significant in my decision, that did not of itself eliminate reliance, at least in part, on the representation made by the plaintiff's agent. Reliance on a representation as part (even a minor part) of the inducement to enter into a contract may, of course, be sufficient: Gould v Vaggelas (1985) 157 CLR 215 per Wilson J at 236. 11 Furthermore, the first and second defendants have proved during the hearing on costs that at no stage did their legal advice indicate that they had a weak case. The high point of that advice was a written opinion of Mr Adrian McInnes QC, who appeared for them at the trial until the onset of his fatal illness. The opinion was dated 8 March 2004 and was to the effect that they had a strong case. That opinion was submitted to operate in two ways. It was submitted that the first and second defendants relied on it in rejecting the second Calderbank letter (the opinion post dated the first Calderbank letter). Secondly, it was submitted that the opinion supported the submission that, before my judgment, the result was not self evident, as claimed by the plaintiff. 12 As to reliance on the advice, it was said that the first and second defendants (and Domenic Taccone, their father, on whose advice they relied) had not condescended to give any evidence of reliance. However, reliance on the advice of senior counsel, if one obtains such advice and continues to retain that senior counsel in the proceedings, seems to me easily inferred. In my view, there is an analogy here with what was said by Wilson J in Gould v Vaggelas supra at 238 concerning reliance on representations intended to induce entry into a contract. 13 Issue was taken as to whether the terms of such advice were relevant so as to be admissible at all. The plaintiff drew attention to what was said by Dunford J in Van Doore v Mendez NSWSC 30 June 1997 unreported concerning the risk, if such advice were admissible, of advices being cynically obtained to prevent indemnity costs orders. It must be remembered that Dunford J's remarks were made in the context of a Part 22 offer of compromise (where the result is more automatic than in the case of a Calderbank letter) and that the advice related to the quantum of damages in a personal injuries action. On the other hand, in Re Commonwealth of Australia; Ex parte Marks (2000) 75 ALJR 470 McHugh J was dealing with a situation where costs could not be ordered against a party unless he had instituted proceedings without reasonable cause. His Honour appears to have regarded as admissible and significant evidence of the party that, before instituting the proceedings, he had obtained legal advice that he had an arguable case: see [27]. I have come to the view that the evidence of the advice obtained by the first and second defendants was relevant and could be taken into account. Insofar as Dunford J's decision is applicable in the circumstances, I decline to follow it. I find that the advice was relied on by the first and second defendants. 14 Despite this, I should come to the same conclusion whether or not the evidence of the advice was admitted into evidence. Casting my mind back to the course of this litigation, it is my view that the conclusion was not during the course of the litigation as clear as it is now suggested appears from my judgment. Cases such as MGICA (1992) Pty Ltd v Kenny & Good Pty Ltd (1996) 70 FCR 236 remind us that matters that are clear afterwards are often far from clear during the course of litigation. Furthermore, one must always be careful of being overly influenced by hindsight. I have spoken of the dangers of hindsight in Aghajanian v Stanley Thompson Valuers Pty Ltd [1997] NSWSC 1154 at [77] - [79] and in Grynberg v Muller [2002] NSWSC 350 at [48]. In those places I have quoted and referred to statements of other judges concerning the dangers of hindsight. In fact, Lindgren J in MGICA supra at 241 gives a warning against those dangers. 15 For the foregoing reasons, I have come to the conclusion that it was not appropriate to regard the first and second defendants' defence as hopeless from the start, nor to judge their conduct in failing to accept the Calderbank offers as unreasonable. Whilst I propose to order that the first and second defendants pay the plaintiff's costs of the proceedings, I do not propose to order any part of them on the indemnity basis. 16 The claim by the third defendant that part of its costs should be ordered on the indemnity basis by reason of a Calderbank letter that it wrote to the first and second defendants on 17 December 2003 will fail for similar reasons. 17 The other question to be determined is what order should be made in respect of the costs of the third defendant. 18 As a preliminary, I should make a necessary correction, both to my judgment and to the orders made on 8 June 2005. Paragraph [19] of my judgment proceeded on the basis that the first cross claim was by the first and second defendants against the plaintiff only, whereas it was also against the third defendant. This omission was by inadvertence. It will be corrected accordingly. It was quite clear from my judgment that the first cross claim should fail against the third defendant, as well as against the plaintiff. The error extended to order 7 of the orders. It was not pointed out to me when those orders were made, but was subsequently. It clearly falls within the "slip rule", at present embodied in Part 20 r 10 of the Supreme Court Rules 1970. I shall now order that order 7 be amended to give judgment for the third defendant as well as the plaintiff on the first cross claim. I shall initial a minute of the amended orders as of 8 June 2005, from which date those orders as amended shall continue to operate. 19 The plaintiff and the third defendant join in asking for an order that the first and second defendants pay the third defendant's costs of the proceedings. The first and second defendants contend that "it would not be just" that they be ordered to pay the third defendant's costs of the proceedings or of the first cross claim, or that it would not be "fair to impose some liability on them for the costs of the second cross claim". 20 Where the plaintiff is successful against one defendant but unsuccessful against another, the regime as to the incidence of the costs of the successful defendant is as follows. 21 Normally, costs follow the event, so that the plaintiff would be ordered to pay the costs of the successful defendant. However, orders are often made with the effect that the successful defendant's costs are ultimately borne by the unsuccessful defendant. These orders generally take the form either of what are known as Bullock orders (after Bullock v London General Omnibus Co [1907] 1 KB 264) or what are known as Sanderson orders (after Sanderson v Blyth Theatre Company [1903] 2 KB 533). A Bullock order is an order whereby the plaintiff is ordered to pay the successful defendant's costs, but the unsuccessful defendant is ordered to pay the plaintiff's costs including the costs paid by the plaintiff to the unsuccessful defendant. A Sanderson order is an order whereby the unsuccessful defendant is ordered to pay the successful defendant's costs direct. 22 The legal principle on which the unsuccessful defendant will be ordered to pay the successful defendant's costs is clear. It is not sufficient that the one defendant was successful and the other unsuccessful. Blackburn CJ in Steppke v National Capital Development Commission (1978) 21 ACTR 23 said at 30 - 31: "In my opinion there is a condition for the making of a Bullock order, in addition to the question whether the suing of the successful defendant was reasonable, namely that the conduct of the unsuccessful defendant has been such as to make it fair to impose some liability on it for the costs of the successful defendant." His Honour also made it plain at 31 that the same principle applied to the making of Bullock orders and of Sanderson orders. 23 The correctness of this principle was subsequently made patent in the High Court. The High Court dealt with this matter in Gould v Vaggelas, which was cited above in relation to reliance on representations. Gibbs CJ said at 229 - 230: "The ground on which a Bullock order may be made is, in my opinion, more accurately stated in a passage in Sanderson v Blyth Theatre Co [1903] 2 KB 533, at p 539, which was cited with approval in Bullock v London General Omnibus Co [1907] 1 KB 264, at p 272 and Hong v A & R Brown [1948] 1 KB 515, at p 522, viz, that the costs which the plaintiff has been ordered to pay to the defendant who succeeded, and which the plaintiff recovers from the defendant who has failed 'are ordered to be paid by the unsuccessful defendant, on the ground that ... those costs have been reasonably and properly incurred by the plaintiff as between him and the [unsuccessful] defendant'. In Johnsons Tyne Foundry Pty Ltd v Maffra Corporation (1948) 77 CLR 544 Williams J at pp 572 - 573 stated the principle in a similar way and Starke and Dixon JJ, in giving their reasons for making a Bullock order, both relied on the circumstance that the attitude adopted by the successful defendant had induced the plaintiff to join the other defendant (1948) 77 CLR at pp 559 - 560, 566. In my respectful opinion the true position was clearly stated by Blackburn CJ in Steppke v National Capital Development Commission (1978) 39 LGRA 94, at p 100; 21 ACTR 23, at pp 30 – 31." The Court of Appeal recently affirmed the continuing application in this State of the dictum of Gibbs CJ in Roads and Traffic Authority (NSW) v Snape (1999) 28 MVR 423 at [32]. 24 The relevant facts in this case are as follows. Initially the plaintiff joined the third defendant only because it was the stakeholder of the deposit and did not seek any substantive relief against it. The first and second defendants then filed their defence, alleging misrepresentations by the third defendant on behalf of the plaintiff. They made a cross claim against the plaintiff and the third defendant ("the first cross claim"). The first cross claim was not in very clear form, but seemed to claim damages for misleading or deceptive conduct against both the plaintiff and the third defendant. The second amended first cross claim makes it plainer that damages were sought against the third defendant under s 82 of the Trade Practices Act 1974 (Cth), and also an indemnity for any sum the first and second defendants might be ordered to pay to the plaintiff. Upon the filing of the defence and the first cross claim the plaintiff amended its statement of claim to claim damages against the third defendant if the plaintiff came under any liability to the first and second defendants in respect of the representations. By the second cross claim the third defendant claimed indemnity from the plaintiff in respect of any sum ordered to be paid by it to the first and second defendants. All of the plaintiff's claim against the third defendant, the first cross claim against the third defendant and the third defendant's second cross claim failed or were dismissed as otiose. 25 It should be made plain, from this account of the slightly complicated facts, that a case is made out for the making of an order for the first and second defendants to bear the third defendant's costs. The first cross claim was made by the first and second defendants against the third defendant as well as against the plaintiff. The plaintiff's claim for damages against the third defendant was made by amendment after and because of the allegations of misrepresentation against the plaintiff and third defendant made in the defence and first cross claim. In all cases, it was reasonable for the plaintiff and third defendant to act as they did. Thus, the litigation in respect of which the third defendant seeks costs was directly brought about by the first and second defendants' mode of conduct of the proceedings. This makes it fair to impose liability on the first and second defendants for the third defendant's costs. 26 The first and second defendants argued alternatively that, even if they had to bear the third defendant's costs of the plaintiff's claim against the third defendant and of the cross claims, they should not bear the costs of the whole of the proceedings from their inception, since it was necessary for the plaintiff to join the third defendant in the first instance as stakeholder and the deposit was then paid into court. However, the proceedings were necessitated from the start by the stance taken by the first and second defendants and the third defendant's joinder in the proceedings at all was necessitated by this stance. In any event, in the context, those costs are miniscule. In my view, the first and second defendants should pay the whole of the third defendant's costs of the proceedings. 27 As to whether this order should take the form of a Bullock order or a Sanderson order, there appears to be no controversy. This is not a case in which there is, on the material before me, any question that any party is indigent and may not be able to meets its obligations as a result of the litigation. The parties appear all to favour a Sanderson order for the sake of simplicity, if an order is to be made. 28 My conclusion is that the orders for costs of the proceedings, up to but not including the costs argument, should be: (1) Order that the first and second defendants pay the plaintiff's costs of the proceedings. (2) Order that the first and second defendants pay the third defendant's costs of the proceedings. 29 There have now been debated before me the costs of the costs argument and the question of a stay of proceedings. 30 As to the costs of the costs argument, it seems to me that there should be no order as to the costs of the argument as to costs (including preparation for that argument). 31 As between the plaintiff and the first and second defendants, the plaintiff argued for indemnity costs and lost. The first and second defendants argued that they should not bear the whole burden of the third defendant's costs and lost. The third defendant joined the plaintiff in arguing for indemnity costs on its own behalf. 32 I am not going to make a minute examination of the time taken up by the countervailing arguments, but the fact of the matter is that the parties all won one and lost another of the substantial arguments in relation to costs. In those circumstances, it appears to me that the appropriate order is that there be no order as to the costs of the costs argument. 33 Two arguments were put by Mr Clarke, of counsel for the plaintiff, in support of a better regime in his favour. They were that the reasons agitated in the judgment I have delivered today showed that the issue as to whether or not there should be indemnity costs was a close one and the plaintiff should obtain some advantage from that. Secondly, he tendered letters which he said constituted Calderbank letters in relation to the costs argument, but I have not come to the view that the offer made in those letters was reasonable or ought to have been accepted by the first and second defendants. 34 That leaves the situation, as I have already announced it, namely, there should be no order as to the costs of the costs argument (including preparation for that argument). 35 There was also debate before me concerning a stay of proceedings. The first and second defendants' proposal is that there should be a stay in the first instance to permit them to decide whether to appeal and to lodge an appeal if so advised. If they lodge that appeal, the stay should be continued until the determination of the appeal, provided that within 90 days of today they pay the amount payable under order 4 of the orders of 8 June 2005 into court to abide the further order of the Court. The appeal should be prosecuted diligently. There will be liberty to apply, so that the Court may supervise the progress of the payment into court and impose sanctions if conditions are not met. 36 Mr Clarke indicated that the plaintiff was prepared to regard this as a reasonable course and not to insist on his prima facie right to payment despite an appeal, provided that the payment into court was made within 28 days. As I am told that the first and second defendants desire to raise money on the security of property rather than to sell property to permit the payment in to be made, it is my view that they should be given an opportunity to follow that course and 28 days seems to me to be too short a time for that to be encompassed. 37 In all the circumstances, the decision that I have come to, in the exercise of my discretion, is that the regime propounded by Mr Hall, of Queen's Counsel for the first and second defendants, should be put in place by the Court, with the 90 day period for payment into court. 38 Mr Clarke also asked that a condition be imposed on the stay, that an undertaking to the Court be required of the first and second defendants not to dispose of assets, except in the ordinary course of business. That really is relief a Mareva nature and there is no application for nor, on the material before me, justification for Mareva relief. The request for the imposition of that condition is refused. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.