This was a decision in relation to costs made after a protracted case with judgment handed down on 20 April 2004, where orders were made that the Plaintiffs’ claims was dismissed and that there be judgment for the Defendant. The Defendant subsequently sought an order that the Plaintiffs pay its costs of the proceedings on an indemnity basis, alternatively that they pay its costs (a) on a party/party basis up until 6 November 2003; and (b) on an indemnity basis from 7 November 2003.
The defendant in October 2003 had made an offer of compromise. It is also common ground that, as a matter of principle, where a wholly successful Defendant has served an offer of compromise, indemnity costs may be ordered as from the date of expiry of such offer if, in the circumstances of the case, not accepting the offer was unreasonable.
When deciding whether a departure from the ordinary rule that costs follow the event is justified the manner of exercise of the discretion depends on all relevant circumstances of the case.
The power of the court to order costs on an indemnity basis is under s 76(c) Supreme Court Act 1970 (NSW). The relevant principles for the exercise of the discretion were explained in Colgate Palmolive Company v Cussons Pty Limited (1993) 46 FCR 225 by Sheppard, J. He provided examples of some of the circumstances which had been thought to warrant an award of indemnity costs (p 233). Relevantly they include:
- the fact that the proceedings were 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;
- an imprudent refusal of an offer to compromise.
He pointed out that 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.
The plaintiff had claimed in the original action that they were induced to provide the securities by false and misleading representations made to them by an officer of the Bank, in breach of s 52 Trade Practices Act 1974 (Cth) thereby entitling them to relief under that Act and that the circumstances in which the Plaintiffs agreed to provide the securities were such as to render the transactions unconscionable and/or unjust so as to entitle the Plaintiffs to equitable relief in accordance with the principles in Commonwealth Bank of Australia v Amadio (1983) 151 CLR 447 and/or to relief under the Contracts Review Act 1980 (NSW). The Defendant had asserted that the Plaintiffs had no real prospects of success on those claims.
The court found that a reasonable evaluation of the strengths and weaknesses of the case proposed to support them would have inevitably led to the conclusion that they were doomed to fail and should not have been maintained. Further, the findings well established that the proceedings for relief based on allegations of false and misleading representations, and on allegations that the transactions were unconscionable and unjust were commenced and/or continued in wilful disregard of known facts, were allegations which ought never to have been made, and unduly prolonged the case.
The Court was of the opinion that, having regard to all the circumstances, the pursuit of the claims by the Plaintiffs justified the exercise of the discretion to depart from the usual rule and to order that they pay the Defendant’s costs of the proceedings on an indemnity basis.
Comment was also made of the failure to accept offer of compromise, in case the Judge had erred in the exercise of discretion in making that order.
The Court found that the offer was of such a nature which warranted serious consideration, and the period for which it was open for such consideration was entirely reasonable.
In accordance with the policy reflected in the provisions of Supreme Court Rules Pt 1 r 3 and, more recently, of ss 198J and 198L Legal Profession Act 1987 (NSW), prior to, and during, litigation parties and their legal representatives have a continuing duty to evaluate prospects of success of a claim or defence so as to decide whether or not it is reasonable to pursue it.
With regard to principle it could only have been unreasonable for the Plaintiffs to refuse the offer if they ought reasonably to have considered that there was no real prospect of success in the proceedings. For the reasons already given the Court found there was in fact no real prospect of success on the claims which fell for evaluation whilst the offer was open.
Accordingly, the Plaintiffs acted unreasonably in not accepting the offer. The Plaintiffs were ordered to pay the Defendant’s costs of the proceedings on an indemnity basis.