Supreme Court New South Wales Medium Neutral Citation: Simonson Properties Pty Ltd v Patricia Zoe Hardy [2014] NSWSC 363 Hearing dates: 28 March - on papers Decision date: 28 March 2014 Jurisdiction: Equity Division Before: Sackar J Decision: See paragraph 30 Catchwords: COSTS - indemnity costs - where late formulation of pleadings - where withdrawal of Barnes v Addy claim - no question of principle Legislation Cited: Civil Procedure Act 2005 Cases Cited: Harrison v Schipp [2001] NSWCA 13 Lahoud v Lahoud [2006] NSWSC 126 Leichhardt Municipal Council v Green [2004] NSWCA 341 Mainteck Services Pty Limited v Stein Heurtey SA and Stein Heurtey Australia Pty Ltd [2013] NSWSC 1165 NIML Ltd v MAN Financial Australia Limited (No. 2) [2004] VSC 510 Simonson Properties Pty Limited v Bruce Lachlan Hardy and Anor [2014] NSWSC 229 Thaler v Amzalak (No 3) [2013] NSWSC 1315 Category: Costs Parties: Simonson Properties Pty Limited - plaintiff Patricia Zoe Hardy - defendant Representation: Counsel: G Drew - plaintiff M Condon SC - defendant Solicitors: Meridian Lawyers - plaintiff Vaughan Zarb & Co - defendant File Number(s): 2013/30209 Judgment 1I gave judgment in these proceedings on 14 March 2014: see Simonson Properties Pty Limited v Bruce Lachlan Hardy and Anor [2014] NSWSC 229. Terms used below reflect the definitions provided in my earlier judgment. 2In light of my finding that the plaintiff's case was not made out, I invited the parties to re-list the matter so that the question of costs could be determined. I received submissions from counsel on that question, and it was indicated that counsel were content for me to decide the issue of costs on the papers. 3No submissions were made on behalf of the first defendant, judgment having been entered by consent against the plaintiff on the second day of the hearing, with costs. 4The second defendant sought an order that the plaintiff pay her costs on the indemnity basis, or alternatively, on the ordinary basis. The plaintiff submitted that there is no reason to depart from the usual order for costs, payable on the ordinary basis. 5Therefore, it is necessary for me to determine whether the second defendant is entitled to costs on an indemnity basis, as opposed to the ordinary basis. Legal principles 6In Harrison v Schipp [2001] NSWCA 13 at [139], Giles JA observed in relation to indemnity costs that "departure from the settled practice of costs on a party and party basis is discretionary, and beyond the need for a sufficient special or unusual feature in the case no fixed rule can be laid down". Caution must be exercised when departing from making costs orders on the usual basis: Leichhardt Municipal Council v Green [2004] NSWCA 341. 7I made the following observations in Mainteck Services Pty Limited v Stein Heurtey SA and Stein Heurtey Australia Pty Ltd [2013] NSWSC 1165 at [25]: As noted in Ritchie's (at [42.5.5]), costs may be ordered on an indemnity basis under s 98 of the Civil Procedure Act 2005 and, perhaps, under the court's incidental power to control its proceedings (Walton v McBride (1995) 36 NSWLR 440 at 461). There are a variety of cases where indemnity costs have been awarded pursuant to the court's general discretion. Although the discretion is absolute and unfettered, it must be exercised judicially in the sense that there is some special or unusual feature in the case justifying such an award (Mead v Watson (2005) 23 ACLC 718 at [8] per Sheller, Ipp and Tobias JJA). Situations in which indemnity costs have been ordered include where a party has misled the court or conducted the proceedings in a way to cause unreasonable delay and expense (Wentworth v Rogers [1999] NSWCA 403 per Handley and Stein JJA and Sheppard AJA), or maintained proceedings which had no chance of success such as a case involving fraud allegations known to be either untrue or irrelevant (Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 per Woodward J), or maintained proceedings for an ulterior purpose (Cultus Petroleum v OMV Australia [1999] NSWSC 435 per Santow J), or unreasonably delayed an admission of liability for the purpose of obtaining a tactical advantage (Rouse v Shepherd (No 2) (1994) 35 NSWLR 277 per Badgery-Parker J). 8An order for indemnity costs is based on the conduct of a party against whom it is made that relates to the proceedings themselves. While the categories of conduct giving rise to a claim for indemnity costs are not closed, cases brought without chances of success, cases that are an abuse of process and unreasonable conduct in the proceedings such as fraud or misleading the court may all constitute grounds for the granting of such an order. Attempts to settle the proceedings through offers of compromise and Calderbank letters, along with the giving of notice that a party intends to claim indemnity costs, are also relevant factors. 9In this case, no submissions are made regarding any offers of compromise nor Calderbank letters. Submissions for the second defendant 10Counsel for the second defendant submits that an order for indemnity costs is warranted for the following reasons. 11First, the case that the plaintiff ultimately pursued was not formulated until the final amendments to the pleadings, which occurred only towards the end of the trial. 12Second, before that point the plaintiff alleged misconduct on Mrs Hardy's part. Those allegations were dependent upon my finding a breach of duty by Mr Hardy, and the hopelessness of that particular case was recognised by the plaintiff's consent to the dismissal of the claim against Mr Hardy. I noted in my judgment that no cross-examination on the alleged misconduct, or indeed any point, was taken against Mrs Hardy: see [28]. 13Third, and most importantly in my view, the findings regarding the purported assignment of the right to display at the meeting on 13 May 2004 plainly demonstrate that no assignment could ever have occurred: see [148]-[150]. 14Fourth, counsel submitted that the case was conducted in a way that was not always consistent with section 56 of the Civil Procedure Act 2005. The rejection of some evidence and the abandonment of certain parts of the plaintiff's case are said to have wasted the resources of the defendants in drafting submissions (for example, in relation to the Barnes v Addy claim). 15Counsel submitted that an order for indemnity costs was therefore appropriate in circumstances where the plaintiff abandoned claims which were untenable and should never have been made to begin with, the plaintiff maintained proceedings which it ought to have known had no real prospects of success and their conduct of the proceedings had caused unreasonable delay and expense. 16My attention was directed to a recent consideration of relevant principles by Schmidt J in Thaler v Amzalak (No 3) [2013] NSWSC 1315: [108] It is well settled that an indemnity costs order may be made when a party has maintained proceedings that they should have known had no real prospects of success (see for example the decision in Chaina v Alvaro Homes Pty Ltd [2008] NSWCA 353). In Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 at 400-401, Woodward J, referred to the case where an action had been commenced or continued in circumstances where "the applicant, properly advised, should have known that he had no chance of success". He said at 401: In such cases the action must be presumed to have been commenced or continued for some ulterior motive, or because of some wilful disregard of the known facts or the clearly established law. [109] Other circumstances in which an indemnity costs order may be made were discussed by Sheppard J in Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225, at pp 233-234: ... it is useful to note some of the circumstances which have been thought to warrant the exercise of the discretion. I instance the making of allegations of fraud knowing them to be false and the making of irrelevant allegations of fraud (both referred to by Woodward J in Fountain and also by Gummow J in Thors v Weekes (1989) 92 ALR 131 at 152; evidence of particular misconduct that causes loss of time to the Court and to other parties (French J in Tetijo); the fact that the proceedings were commenced or continued for some ulterior motive (Davies J in Ragata) or in wilful disregard of known facts or clearly established law (Woodward J in Fountain and French J in J-Corp (above)); the making of allegations which ought never to have been made or the undue prolongation of a case by groundless contentions (Davies J in Ragata); an imprudent refusal of an offer to compromise (eg Messiter v Hutchinson (1987) 10 NSWLR 525; Maitland Hospital v Fisher (No 2) (1992) 27 NSWLR 721 at 724 (Court of Appeal); Crisp v Keng (unreported, Court of Appeal, NSW, Kirby P, Priestley JA, Cripps JA, No 40744/1992, 27 September 1993) and an award of costs on an indemnity basis against a contemnor (egMegarry V-C in EMI Records (above)). Other categories of cases are to be found in the reports. Yet others to arise in the future will have different features about them which may justify an order for costs on the indemnity basis. The 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. 17In relation to the withdrawn Barnes v Addy claim, the observations of Harper J in NIML Ltd v MAN Financial Australia Limited (No. 2) [2004] VSC 510 at [5]-[6] are also applicable: [5] The plaintiff invoked three causes of action. One of these was a "Barnes v Addy" breach of trust. If the plaintiff were to succeed on this, it was necessary to prove on the balance of probabilities that the defendant knew that a third party (Mr Shane Burke, a fraudulent employee of the plaintiff) was misusing the plaintiff's funds. But no evidence of actual knowledge was either presented, or emerged, at trial. So, the defendant now submits, this is a case in which allegations of fraud were made even though the plaintiff knew them to be false or irrelevant. [6] The courts rightly take the view that fraud should never be pleaded in those circumstances. Allegations of fraud should only be made on the basis of evidence, worthy of serious consideration, which points to dishonesty in the subject of the allegation. Loose allegations of fraud are a blot on the adversarial system, and may - where, for example, they are made in terrorem - amount to an abuse of process. It is therefore important that those inclined to make such a serious allegation on an inadequate, or no, foundation be discouraged in their purpose by the prospect of having to pay costs as between solicitor and client. 18Counsel submitted that the allegation that Mrs Hardy took the Right to Display with "actual or constructive knowledge" of her husband's alleged misapplication (see paragraph [10] of the Amended Statement of Claim) was improper and referred to Campbell J's observation in Lahoud v Lahoud [2006] NSWSC 126: [14] Though Mr Gyles, for the defendants, submitted that such an allegation is not necessarily one of fraud, I do not accept that submission. The allegation of "fraud" which can trigger an order for indemnity costs is not necessarily an allegation that the tort of deceit has been committed. To allege that A represented to B that A would behave in a particular way in the future, and that at the time of so representing A had no intention of acting in the way he represented he would act, and where the subject matter of the representation is (as was the case here) one of importance to B, seems to me to involve an allegation of dishonest conduct which merits the unattractive name of "fraud". Submissions of the plaintiff 19The plaintiff submitted that there is not a sufficient basis to warrant an order for indemnity costs. 20First, it was submitted that the final amendments merely clarified the plaintiff's case, which was a necessary task in light of the judgment entered by consent in favour of the first defendant. 21Second, what is characterised by the second defendant as allegations of misconduct (namely paragraphs 10 and 16A of the Amended Statement of Claim) are characterised by the plaintiff as allegations of her knowledge of material facts. 22Finally, counsel for the plaintiff submitted that the evidence was not ambivalent, as described by the second defendant, but rather open to alternative inferences. This applied not only to the existence of the custom, but also to the conversation between Mr Simonson and his daughter in 1994 and the purported resolution of directors on 13 May 2004. The rejection of the factual findings put forward by the plaintiff should not, in their submission, warrant an order for indemnity costs. Consideration 23In my view, having regard to the submissions made by counsel summarised above, the second defendant is entitled to an order for indemnity costs in light of the following. 24Whilst each of the arguments raised by the second defendant carry much force those which focus upon the ownership and/or assignment of an interest in the Right to Display are in my view more than sufficient to found such an order. 25First, the custom pleaded in the Amended Statement of Claim (and set out in paragraph [23] of my judgment) had been as I found discontinued between 1986 and 1994 when Mr John Arthur Simonson had retired as managing director: see [107]. 26Second, no claim of ownership or acknowledgment of the pleaded custom was ever made until the current proceedings. No evidence was adduced that anyone from MSA or the plaintiff, or other interested parties, made any effort to claim ownership or assert the existence of the custom throughout the period 1986 to 1994 (in relation to Mr John Simonson and his wife Mrs Marjorey Simonson) or 1994 to 2012 (in relation to Mr Hardy or the second defendant). There was no attempt to challenge the fact that the second defendant was given the right to display as a result of a conversation with her parents but simply an attempt to argue it should be construed as meaning something other than an intended gift. That flew in the face of Mr Simonson taking the plate with him and using it as his own and the circumstances in which the conversation took place. It must have been obvious that it was hopeless to maintain the existence of the so called custom when on the unchallenged evidence it simply ceased to exist in 1986 even if it had existed previously. 27As to the resolution purporting to assign the right to display. This was the sole mechanism by which the plaintiff was allegedly entitled to assert an interest in the Right to Display. However, even if I had found that MSA was the owner of the Right to Display and further that a trust, either express or resulting, had existed in MSA's favour following the transfer of legal title to Mrs Hardy, the resolution itself could never be sufficient to allow the plaintiff to assert an equitable interest. Not only was the Right to Display never regarded as an asset of MSA, it was never intended to be sold to AAA Trading and so could not be regarded as a 'remaining asset'. The resolution could not on its very terms have been construed to deal with the plate or the Right to Display. That argument was likewise hopeless. 28I also agree that in making and for a time seeking to maintain allegations of the sort pleaded against the second defendant although abandoned on the second day of the trial was unreasonable. 29I consider that these circumstances constitute special or unusual features sufficient to warrant the imposition of an award of indemnity costs. In the relevant respects I have mentioned I am of the view that the plaintiff has acted unreasonably in bringing and persisting in this litigation on the available evidence it had to deploy. 30I invite the parties to prepare and send to my Associate short minutes of order giving effect to my reasons. ********** 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. Decision last updated: 02 April 2014