New South Wales Supreme Court CITATION : Dr Angus MacKinnon v Bluescope Steel Limited (Formerly known as BHP Steel (AIS) Pty Ltd and Dalmau & Associates Pty Ltd - Second Defendant - Draft One Communications Pty Ltd - Cross Defendant; McKenzie & Associates Pty Ltd Cross Defendant [2007] NSWSC 1250 5/09/07 HEARING DATE(S) : 6/09/07 18/10/07 JUDGMENT DATE : 7 November 2007 JUDGMENT OF : Patten AJ at 1 DECISION : See Paragraph 26 LEGISLATION CITED : Uniform Civil Procedure Rules Sanderson v Blyth Theatre Company [1903] 2KB 533; Bullock v The London General Omnibus Company [1907] 1KB 264; Coombes v RTA (No 2) [2007] NSWCA 70; Ainger v Coffs Harbour Council (No 2) [2007] NSWCA 212); Calderbank v Calderbank (1975) 3 All ER 333; CASES CITED : Jones v Bradley (No 2) (2003) NSWCA 258; SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] 323 NSWCA; Gladstone Park Shopping Centre Pty Ltd v Willis (1984) 59 ALR; Ex Parte McCay re Consolidated Press Ltd (1936) 36 SR; Statham v Shephard [1974] 23 FLR 244; Hexiva Pty Ltd v Lederer [2006] NSWSC 1259. Dr Angus MacKinnon - Plaintiff Bluescope Steel Limited - First Defendant PARTIES : Dalmau & Associates Pty Ltd - Second Defendant Draft One Communications Pty Ltd - Cross Defendant McKenzie & Associates Pty Ltd - Cross Defendant FILE NUMBER(S) : SC 20429 of 1999 Mr H Marshall SC - Plaintiff Mr M Joseph SC with Ms V Heath - First Defendant COUNSEL : Mr M Brabazon - Second Defendant Mr P Blacket SC - Cross Defendant Mr A Colefax SC with Mr P Gow - Cross Defendant Drexler & Partners - Plaintiff Sparke Helmore - First Defendant SOLICITORS : Turner Whelan - Second Defendant Cross Defendant (Draft One Communications Pty Ltd)- Henry Davis York Cross Defendant (McKenzie & Associates Pty Ltd) - Hunt & Hunt IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION Patten AJ 7 November 2007 No: 20429 of 1999 Dr Angus MacKinnon - Plaintiff v Bluescope Steel Limited (Formerly known as BHP Steel (AIS) Pty Ltd - Defendant and Dalmau & Associates Pty Ltd - Defendant Draft One Communications Pty Ltd – Cross Defendant and McKenzie & Associates Pty Ltd – Cross Defendant JUDGMENT 1 When judgment was given in this matter on July 20 last, costs were reserved. This judgment concerns those costs which mostly, although not exclusively, concern the Cross Defendants, Draft One Communications Pty Ltd (Draft One) and McKenzie and Associates Pty Ltd (McKenzie). It is unnecessary to refer to the previous judgment in any detail, suffice to say that there were verdicts in favour of both Defendants (respectively Bluescope and Dalmau) and all outstanding cross claims were dismissed. 2 In a case where a plaintiff has successfully sued a defendant who has joined cross defendants, in the ordinary course, the cross claims will be disposed of on their merits and either costs will follow the event or, according to the circumstances, some other order will be made. In appropriate cases there will be a, so called, "Sanderson" or "Bullock" order (Sanderson V Blyth Theatre Company [1903] 2KB 533 and Bullock v The London General Omnibus Company [1907] 1KB 264). 3 On the face of it, the situation is not as straightforward where, as here, the Plaintiff has failed against the Defendants and the cross claims have been dismissed, not following a hearing on the merits, but simply because it became unnecessary to deal with them in the absence of a finding against the Defendants. 4 Moreover, in this case matters which did not emerge during the trial are asserted to be relevant to costs issues. The first of such matters relates to the financial position of the Plaintiff. Mr Colefax SC, senior counsel for McKenzie, read an affidavit sworn by the Plaintiff's wife and tutor on 24 August 2007 upon which she was cross-examined. The affidavit was to the effect that the Plaintiff and his wife are presently unable to meet, out of their own resources, an order for costs, in any significant amount. I accept this evidence. 5 The other matter of relevance is that various offers of compromise were made which may be summarised as follows: Date Made From / To Amount Open To 1. 5.6.02 Bluescope to Plaintiff $100,000 plus costs 3.7.02 2. 23.5.05 Plaintiff to Bluescope $3,100,000 plus costs 20.6.05 3. 23.5.05 Plaintiff to Bluescope $600,000 plus GST (costs only) 20.6.05 4. 15.6.05 Draft One to $140,000 plus costs (to 29.7.05 Bluescope / Dalmau Bluescope & Dalmau) 5. 1.5.06 Draft One to Bluescope Verdict for Draft One with no order as to costs Not stated 6. 19.5.06 Bluescope to Plaintiff $500,000 plus $500,000 costs 24.5.06 7. 19.5.06 Bluescope to Dalmau 25% of damages or costs 19/24.5.06 8. 19.5.06 Bluescope to Draft One 25% of damages or costs 19/24.5.06 9. 19.5.06 Bluescope to McKenzie 25% of damages or costs 19/24.5.06 10. 24.5.06 Draft One to Bluescope Each party pay own costs 9.6.06 11. 9.6.06 Plaintiff to Bluescope $1,600,000 plus costs 16.6.06 12. 9.6.06 Plaintiff to Draft One $1,600,000 plus costs 16.6.06 13. 14.6.06 McKenzie/Draft One to Bluescope $200,000 inclusive of costs 20.6.06 14. 22.6.06 Bluescope to McKenzie/Draft One $700,000 inclusive of costs 23.6.06 15. 22.6.06 McKenzie/Draft One to Bluescope $300,000 inclusive of costs 26.6.06 16. 23.6.06 Bluescope to McKenzie/Draft One $650,000 inclusive of costs 26.6.06 17. 26.6.06 McKenzie/Draft One to Bluescope $350,000 inclusive of costs 27.6.06 18. 27.6.06 Bluescope to McKenzie/Draft One $600,000 inclusive of costs 28.6.06 19. 28.6.06 Bluescope to McKenzie $300,000 inclusive of costs 29.6.06 20. 28.6.06 Bluescope to Draft One $300,000 inclusive of costs 29.6.06 21. 30.6.06 Draft One to Bluescope $200,000 plus costs 4.7.06 22. 5.7.06 McKenzie to Bluescope $125,000 plus costs 6.7.06 23. 10.7.06 Plaintiff to Bluescope $1,300,000 plus costs 14.7.06 24. 14.9.06 McKenzie/Draft One to Bluescope $0.00 – Bluescope pay 90% of costs 21.9.06 25. 20.9.06 Bluescope to McKenzie/Draft One Each party pay own costs 27.9.06 26. 9.10.06 McKenzie/Draft One to Bluescope $0.00 – Bluescope pay 70% of costs 16.10.06 27. 19.10.06 Bluescope to McKenzie/Draft One $100,000 to each (for costs) 26.10.06 6 Of the above offers, only the first purported to be a formal offer of compromise, pursuant to the rules. However, the consequence of failure to accept the offer at the time, according to the relevant rule, was simply that if the Plaintiff did not improve his position at trial he became liable to pay Bluescope's costs on a party and party basis from the making of the offer. That rule was, however, displaced by the introduction on 8 December 2006 of Uniform Civil Procedure Rule 42.15A which did provide for an indemnity costs sanction. It may be that the new rule operated retrospectively (see Coombes v RTA (No 2) [2007] NSWCA 70 and Ainger v Coffs Harbour Council (No 2) [2007] NSWCA 212). However, if that be the case, I would "order otherwise" as it seems to me manifestly unjust to impose upon the Plaintiff a significant disadvantage flowing from his failure to accept an offer made some four and a half years previously, particularly when the change of rule occurred after the close of evidence in a very lengthy trial. 7 All the other offers were "Calderbank" offers (Calderbank v Calderbank (1975) 3 All ER 333). It seems to be settled that an unaccepted Calderbank offer will not warrant an order for indemnity costs unless rejection of the offer was unreasonable. See e.g. Jones v Bradley (No 2) (2003) NSWCA 258. In that case the Court of Appeal endorsed what was said by Giles JA in SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] 323 NSWCA at paragraph 37: ""The making of an offer of compromise in the form of a Calderbank Letter … where the offeree does not accept the offer but ends up worse off than if the offer had been accepted, is a matter to which the court may have regard when deciding whether to otherwise order, but it does not automatically bring a different order as to costs. All the circumstances must be considered, and while the policy informing the regard had to a Calderbank letter is promotion of settlement of disputes an offeree can reasonably fail to accept an offer without suffering in costs. In the end the question is whether the offeree's failure to accept the offer, in all the circumstances, warrants departure from the ordinary rule as to costs, and that the offeree ends up worse off than if the offer had been accepted does not of itself warrant departure." 8 Offer number 4 was conditional upon Draft One being able to satisfactorily resolve the Cross Claims between it and McKenzie and there is no evidence that this occurred. Most of the other offers were made during the trial, offer number 6 being made on day 3 and offer 27 on day 80. 9 So far as Bluescope's offers to the Plaintiff were concerned, his case, as opened by Mr Miller QC, had, on the face of it, considerable strength. It was not apparently a case bound to fail and, potentially, damages were very high. The Plaintiff, 10 years after the events giving rise to his cause of action, was continuing to receive very considerable and, no doubt, very expensive psychiatric and psychological treatment. Moreover, he was, at least arguably, permanently incapacitated from participating in the work force. Certainly he had been unable to resume the practice of medicine. 10 It was true of course, as counsel observed, that the Plaintiff's case commenced to unravel soon after it began, in that the Plaintiff himself was demonstrated to be an unreliable witness, a circumstance not necessarily however, fatal, given the nature of his claim. Considerably later in the trial, the reports of Dr Coyle on issues concerning the leadership course, which he termed an "Encounter Group", were withdrawn during legal argument as to their admissibility; and, in his final submissions his senior counsel, Mr Marshall SC, for the most part abandoned, as evidence of breach of duty, events in the Plaintiff's employment at Bluescope, previously relied upon. Even so, an arguable case remained upon which Mr Marshall was able to make forceful concluding submissions which, if accepted could have led to a very substantial verdict in the Plaintiff's favour. 11 For the above reasons, I do not think it was unreasonable for the Plaintiff to reject the offers made to him by Bluescope. Nor for those reasons do I think that an order for indemnity costs is justified by the alleged "delinquency in the bringing and maintaining of the proceedings in all the circumstances", as submitted by Mr Joseph SC, senior counsel for Bluescope. In fact, the Plaintiff was successful on some of the issues that occupied time at the trial. 12 Indemnity costs consequences should not, in my opinion, flow from the failure of Bluescope, Draft One and McKenzie to accept any of the several offers flowing between them. All three were potentially liable under the Plaintiff's claim as pleaded and opened, and this liability, theoretically at least, continued until judgment, although, in the result it might, I think, be said that the evidence against both Draft One and McKenzie was weak and I found accordingly in my judgment. 13 Moreover, it was true, I think, as Mr Joseph submitted, that an assessment of the value of the Plaintiff's claim remained very difficult throughout the trial. Medical reports which had been served were not relied on; the Plaintiff impugned his own evidence; the reports of Dr Coyle were withdrawn; and at a very late stage a substantial part of the Plaintiff's case was abandoned. I have no doubt that Bluescope, Draft One and McKenzie acted reasonably in seeking to reach an acceptable compromise. I do not, in the circumstances of the case, regard the failure by any of them to accept a Calderbank offer as indicating unreasonableness or as justifying an order for indemnity costs. 14 The Plaintiff, by joining Dalmau and pleading as part of his cause of action that the events of the leadership course caused or contributed to his mental illness, made it reasonable, if not inevitable, that Draft One and McKenzie would be joined as Cross Defendants and, in my opinion, the Plaintiff must accept the consequences in an order for costs against him. I do not accept Mr Marshall's submission that there was nothing in the Plaintiff's case which encouraged the joinder of Draft One and McKenzie. The served reports of Dr Coyle alone (albeit they never became part of the evidence), in my opinion, provided an answer to Mr Marshall's submission. 15 The more difficult question is whether Bluescope should be ordered to pay the costs of Draft One and McKenzie. In the ordinary course it should, by virtue of Uniform Civil Procedure Rule 42.1, "costs follow the event unless it appears to the court that some other order should be made as to the whole or any part of the costs". 16 Mr Joseph submitted that there are aspects of this case which take it outside the normal rule and would justify no order for costs against Bluescope in favour of Draft One and McKenzie. His contentions included: · That virtually until the last day of hearing allegations were made by the Plaintiff which potentially implicated Draft One and McKenzie for whose acts Bluescope would be vicariously liable. · That the Cross Claims against Draft One and McKenzie were no more than a reflexive forensic reaction by Bluescope to the claim against it. · That Dalmau, the employer of, or contractor with, Draft One and McKenzie remained a party until day 93 of the hearing. · That a number of medical reports were served which were not ultimately tendered into evidence but the availability of which rendered uncertain the precise case which Bluescope had to meet until the conclusion of the trial. · That in a situation such as the present one "the event" encompasses more than the dismissal of the cross claims but requires a consideration of the issues involved in the litigation. In effect, Bluescope, Draft One and McKenzie were all successful. · That Draft One and McKenzie operated throughout the trial with Bluescope largely as a team devoted to the defeat of the Plaintiff's claim and, in those circumstances, it would be unjust to burden Bluescope with the costs of its forensic partners. · That, in any case, Draft One and McKenzie should have reached agreement amongst themselves as to the conduct of the case and should have had only one set of representation. · That Draft One and McKenzie took an active rather than a passive part in the litigation, each tendering a significant number of exhibits. · That the impecuniosity of the Plaintiff operates in Bluescope's favour because if ordered to pay the costs of Draft One and McKenzie, it would be unable to enforce any order against the Plaintiff which incorporated those obligations. · That Bluescope should not be prejudiced because it did not actively mount a case against Draft One and McKenzie. Because of its vicarious liability, it was not in its interests to do so. They were joined in the proceedings, not because of what Bluescope alleged but because of what the Plaintiff alleged. 17 In response to Mr Joseph's submission that there be no order as to costs in favour of Draft One and McKenzie against Bluescope, Mr Colefax and Mr Blacket argued that there should be indemnity costs arising from the offers of compromise. I have already indicated why I do not accept this proposition. 18 Mr Colefax also relied on the impecuniosity of the Plaintiff. He submitted that the leading case on the subject is Gladstone Park Shopping Centre Pty Ltd v Willis (1984) 59 ALR 109, a case before the Full Court of the Federal Court. In the course of his judgment Davies J, with whom Northrop J and Beaumont J (in a separate judgment) agreed, said: "In the present case, an application had been brought in the Federal Court of Australia based upon ss 52 and 53 a of the Trade Practices Act 1974 (Cth) alleging that the first-named respondent in the appeal, Ross Wills, and his company, the second named respondent, Ross Wills & Associates Pty Ltd, had engaged in conduct that was misleading and deceptive and had done so as agents for the appellants, Gladstone Park Shopping Centre Pty Ltd and Hersfield Developments Corp Pty Ltd. In addition to defending themselves, the appellants joined Ross Wills and Ross Wills & Associates Pty Ltd in the action and sought indemnity from them should the applicant's claims succeed. In the result, the applicant failed and, consequentially, the proceedings for indemnity between the appellants and the respondents, Ross Wills and Ross Wills & Associates Pty Ltd, also failed. In this circumstance, the court may award costs in favour of the successful respondent and in favour of the successful party joined in such manner that the applicant bears the burden of those costs. In a case where the applicant is a person of substance, that award may be made by ordering that the costs of the respondent and of the party joined should be paid directly by the applicant: see, eg Thomas v Times Book Co Ltd [1966] 2 All ER 241 . Alternatively, an order may be made that the costs of the party joined be paid by the respondent and that the applicant pay to the respondent both the respondent's costs and the costs payable by the respondent to the party joined: see, eg Edginton v Clark [1964] 1 QB 367 In most cases, it will be of no concern which order is made. But, if the applicant be impecunious and the respondent be a person of substance, an order that the costs of the party joined be paid directly by the applicant will deprive the party joined of effective recovery of costs. In such event, the party joined, having been brought into the litigation at the instigation of the respondent, and being successful in the litigation, is ordinarily given an award of costs against the respondent, with the respondent being given a right of recovery against the impecunious applicant: see Johnson v Ribbins [1977] 1 WLR 1458. That was the award made by the learned trial judge in this case. The learned trial judge made a careful examination of the principles to be applied and of the facts to be taken into account. I see no error in his Honour's statement of principle. His Honour recognized that there was an "unfettered judicial discretion" but nevertheless there was a "way in which the unfettered judicial discretion as to costs is exercised when no circumstance appears to justify any other order". His Honour took into account the impecuniosity of the applicant and the fact that this impecuniosity gave "practical importance" to the manner in which costs were awarded. In my view, his Honour was correct in doing so. I do not find in his Honour's judgment any misstatement of fact. There was no relevant fact which his Honour failed to take into account and no irrelevant matter to which his Honour gave weight. " 19 There is no doubt that the discretion to award costs in this case is unfettered but it must be exercised judicially. Although there is force in Mr Joseph's submissions, particularly those which dwelt upon the conduct of the case by Draft One and McKenzie in effect acting in combination with Bluescope to defeat the Plaintiff, I have decided, particularly in light of Gladstone Park, that the circumstances do not warrant a decision which would leave Draft One and McKenzie looking only to the impecunious Plaintiff for payment of their costs. Bluescope cannot escape from the fact that it joined Draft One and McKenzie and maintained its Cross Claims against them until judgment. That was undoubtedly a perfectly proper course to take in the circumstances but, in my view, it must accept the consequences. Moreover, there is another factor to which I think some weight should be given. Although, for understandable reasons, Bluescope did not mount a significant positive case against Draft One and McKenzie, the Plaintiff himself did not seek to implicate them to any real extent. Furthermore, Bluescope's own employee, Ms Fiona Shand, attended the course as part of the leadership team with Mr Boas of Draft One and Ms McKenzie of McKenzie. Although she did not give evidence at the trial Ms Shand was no doubt available to give instructions to Bluescope as to the role and conduct of the members of the leadership team or facilitators during the course, thus largely obviating the possibility that Bluescope would be taken by surprise by evidence in the Plaintiff's case 20 There is, I think greater force in Mr Joseph's submission that, in effect, no more than one set of costs should be ordered against it. In my view, there was never a realistic prospect of a conflict of interest arising between Draft One and McKenzie. The fact that the evidence against them might have differed would not of itself constitute a conflict. While, of course, Draft One and McKenzie were entitled to separate representation, I think that it would be unreasonable to expect Bluescope to pay for that separate representation. The Plaintiff also should have the benefit of that conclusion. 21 In Ex Parte McCay re Consolidated Press Ltd (1936) 36 SR at page 595, Jordan CJ delivering the judgment of the Court said: "In the present case, it must have been manifest by the time that the rules nisi were granted that there was no possible cleavage between the two applicants, and no reason why they should not thenceforth join forces in presenting their applications to the Court, apart, of course, from a natural desire to be represented each by counsel of his own choice. But this is a desire that they are not entitled to indulge at another person's expense, in the absence of some good reason." 22 To like effect were the observations of Woodward J in Statham v Shephard [1974] 23 FLR 244 at page 246 (omitting references): "The principle which I deduce from these authorities, and which I believe I should follow in spite of the two cases earlier cited, is that the court will not normally allow two sets of costs to defendants where there is no possible conflict of interest between them in the presentation of their cases. I would add to this basic proposition three provisoes. In the first place, if a conflict of interest appears possible but unlikely, the defendants should make any necessary inquiries from the plaintiff as to the way in which his case is to be put if this would resolve the possibility of conflict between defendants. Secondly, there could be circumstances in which, although the defendants were united in their opposition to the plaintiff, their relationship to each other might be such that they would be acting reasonably in remaining at arm's length during the general course of litigation. Thirdly, even if defendants are acting reasonably in maintaining separate representation for some time or for some purposes, they may still be deprived of part of their costs if they act unreasonably by duplicating costs on any particular matter or at any particular time." 23 In the result, I propose to order that Bluescope pay one half of the costs of each of Draft One and McKenzie. I think such an order would be preferable to one which might create practical difficulties that Bluescope pay one set of costs for Draft One and McKenzie. 24 Mr Brabazon for Dalmau submitted that his client too should receive the benefit of a costs order in respect of the cross claim against it by Bluescope. As Dalmau took no part in the trial and in effect was content for Bluescope to conduct its defence, an order that Bluescope be responsible for any part of Dalmau's costs strikes me as extremely unjust. I decline to make it. 25 It was submitted that interest should be ordered under s101 (4) of the Civil Procedure Act and I think that such an order is appropriate in this case. I respectfully adopt what was said by Brereton J in Hexiva Pty Ltd v Lederer [2006] NSWSC 1259 at para 21. 26 I make these orders: 1. That Bluescope pay one half of the costs of Draft One on a party and party basis as agreed or assessed. 2. That Bluescope pay one half of the costs of McKenzie on a party and party basis as agreed or assessed. 3. That the Plaintiff pay the costs of Bluescope on a party and party basis as agreed or assessed, such costs to include the costs payable by Bluescope pursuant to orders 1 and 6. 4. That there be no order as to the costs of Dalmau. 5. That interest be payable by the Plaintiff, pursuant to s101 (4) of the Civil Procedure Act, on that proportion of costs and disbursements allowed on assessment to Bluescope which was actually paid by Bluescope prior to assessment from the date of payment at rates set forth in Schedule 5 to the Uniform Civil Procedure Rules. 6. That interest be payable by Bluescope, pursuant to s101 (4) of the Civil Procedure Act, on one half of that proportion of costs and disbursements allowed on assessment respectively to Draft One and McKenzie which was actually paid by Draft One or McKenzie as the case may be from the date of payment at rates set forth in Schedule 5 to the Uniform Civil Procedure Rules. 7. Exhibits may be returned. 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.