Limitation applications: standard or indemnity costs?

Buchanan-Davies v Broadbent & Anor [No 2] [2011] QSC 148

See also:

I refer to my earlier post regarding the extension of the limitation period for these matters. They returned on the issue of whether standard or indemnity costs should apply. I refer to my posts regarding costs for the general principles.

Atkinson J

[5] The general rule as to costs in the Uniform Civil Procedure Rules 1999 (Qld) (“UCPR”) is found in r 681(1) which provides:

“Costs of a proceeding, including an application in a proceeding, are in the discretion of the court but follow the event, unless the court orders otherwise.”

[6] Whilst the discretion to grant costs is unlimited except to the extent set out in the UCPR, it must be exercised judicially: see Donald Campbell & Co v Pollak [1927] AC 732 at 811-812; Australian Securities Commission v Aust-Home Investments Ltd & Ors (1993) 116 ALR 523 at 528; Baillieu Knight Frank (NSW) Pty Ltd v Ted Manny Real Estate Pty Ltd (1992) 30 NSWLR 359 at 362.

[7] The usual principle is that costs are ordered on the standard basis:

“Costs are of course a matter which lies in the discretion of the court. However, that discretion, being a judicial, rather than an unfettered one, must be exercised in accordance with established principle. The usual principle to be applied in inter parties litigation is that costs follow the event, those costs being taxed on a party and party basis.”[1]

Indemnity costs

[8] In Smits v Tabone; Blue Coast Yeppoon Pty Ltd v Tabone [2007] QCA 337, Cullinane J, with whom Muir JA and Ann Lyons J agreed, reviewed the authorities with regard to indemnity costs. His Honour held at [42] – [47]:

“The normal order for costs is on the standard basis and some special reason is required for any departure from that.

Sheppard J in Colgate-Palmolive Co v Cussons Pty Ltd [1993] FCA 536; (1993) 46 FCR 225 discussed the subject generally and identified categories of cases in which it would be appropriate to make such an order. These categories were not meant to be exhaustive:

‘Notwithstanding the fact that that is so, 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 (supra)); the making of allegations which ought never to have been made or the undue prolongation of a case by groundless contentions (Davis 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 Kent (unreported, Court of Appeal, NSW, Kirby P, Priestley JA, Cripps JA, No 40744/1992, 27 September 1993) and an award of costs of an indemnity basis against a contemnor (eg Megarry V-C in EMI Records (supra)). Other categories of cases are to be found in the reports.’

In Rosniak v Government Insurance Office (1997) 41 NSWLR 608, the New South Wales Court of Appeal sounded a cautious note at 616:

‘… the Court requires some evidence of unreasonable conduct, albeit that it need not rise as high or vexation. This is because party and party costs remain the norm, although it is common knowledge that they provide an inadequate indemnity. Any shift to a general or common rule that indemnity costs should be the order of the day is a matter for the legislature or the rule-maker.’

In Baillieu Knight Frank (NSW) Pty Ltd v Ted Manny Real Estate Pty Ltd (1992) 30 NSWLR 359, Powell J expressed the view that an order for indemnity costs was warranted where in effect the proceedings had no reasonable prospect of success.

Rolfe A/JA (as he then was) in Huntsman Chemical Company Australia Ltd v International Pools Australia Pty Ltd (1995) 36 NSWLR 242 at 273 after reviewing the authorities said:

‘In my opinion the authorities support the proposition that where a party persists in a hopeless case, that justifies, for all the reasons given, the making of an order for costs on an indemnity basis.’

See also cases such as Di Carlo v Dubois & Ors [2002] QCA 225.”

Indemnity costs – applicant’s submissions

[9] The successful applicant applied for indemnity costs on the basis of an offer made by her and on the basis of what is alleged to have been unreasonable continuation of the defence and unreasonable conduct.

[15] I agree with the respondents’ submissions that the question as to whether or not an award of indemnity costs ought be made cannot not simply be answered by whether there was an offer made which was more advantageous to the respondents but which was rejected by them. The question is whether, in the circumstances of the offer having been made, the respondents’ continued opposition to the application was so unreasonable as to warrant an order for indemnity costs being made against them. In Blundstone v Johnson & Anor [2010] QCA 258, it was held that the applicant’s pursuit of an application for leave to appeal in the face of a Calderbank offer was, even though ultimately fruitless, not so unreasonable as to warrant an order for indemnity costs. Holmes JA held at [5] and [7]:

“The applicants are right in contending that the refusal of a Calderbank-type offer of compromise would not inevitably result in an order for indemnity costs. Such orders require some unusual feature to justify them; for example, that the ‘conduct of the party against whom the order is sought is plainly unreasonable’ or falls within one of the particular categories of misconduct identified by Sheppard J in Colgate-Palmolive Co v Cussons Pty Ltd.

… it cannot be said that the applicants’ arguments were entirely without merit, although they were not, in the event, accepted. The case does not possess the unusual feature or features which would justify the court from departing from the usual order for costs.” [footnotes omitted]

[16] There is not in my view sufficient in this case to warrant an order for indemnity costs against the respondents. Although they were unsuccessful, their arguments were not entirely lacking in merit or unreasonably made.

Standard costs

[17] The next question then is whether there ought be an order for standard costs in favour of the applicant. Whilst it is arguable that the applicant needed to make the application to be given leave, the defence is not one which applies unless the point is taken by the defendants.

[18] The defence under s 11 of the Limitation of Actions Act 1974 (Qld) entitles a defendant to plead, as a defence, that the plaintiff’s action is statute barred. If the defendant elects not to plead that defence, the plaintiff is not required to make an application to extend the limitation period.

[19] As Mason CJ held of the Victorian equivalent to s 31(2) in The Commonwealth v Verwayen at 405:[4]

“Although the terms of s. 5(6) [of the Limitation of Actions Act 1958 (Vic)] are such that it is susceptible of being read as going to the existence of the jurisdiction of a court to hear and determine an action of the kind described, limitation provisions similarly expressed have not been held to limit the jurisdiction of courts. Instead, they have been held to bar the remedy but not the right and thus create a defence to the action which must be pleaded: Dawkins v Lord Penrhyn (1878) 4 App Cas 51 at 58-59; The Llandovery Castle [1920] P 119 at 124; Dismore v Milton [1938] 3 All ER 762; Ronex Properties Ltd v John Laing Construction Ltd [1983] QB 398; Ketteman Ltd v Hansel Properties Ltd [1987] AC 189 at 219.”

[20] McHugh J held at 497-498:

Section 5 is not a condition precedent to the obtaining or maintaining of a statutory right by the plaintiff. Nor is the common law right of the plaintiff to sue the Commonwealth subject to the statutory condition that he commence his action within the period set by s. 5 of the Limitation Act. There is, of course, a fundamental difference between a true statute of limitation, such as s. 5, which bars stale claims and a limitation period annexed by a statute to a right which it creates. In the latter class of case, the limitation period will generally be of the essence of the right: see Australian Iron & Steel Ltd v Hoogland [1962] HCA 13; (1962) 108 CLR 471 at 488-489. It is not a condition precedent to the right but part of it. However, neither is a true statute of limitation a condition precedent to the right which it bars. It is a plea in confession and avoidance of that right and not a condition precedent to its exercise. Accordingly, the plaintiff’s common law right to bring the present action was not subject to any condition precedent that it be exercised within the period specified by s. 5 of the Limitation Act.”

[21] The distinction was described in the judgment of Lord Griffiths, referring to an analogous provision, in Ketteman v Hansel Properties Limited at 219:[5]

“I have never in my experience at the Bar or on the Bench heard of an application to amend to plead a limitation defence during the course of the final speeches. Such an application would, in my view, inevitably have been rejected as far too late. A defence of limitation permits a defendant to raise a procedural bar which prevents the plaintiff from pursuing the action against him. It has nothing to do with the merits of the claim which may all lie with the plaintiff; but as a matter of public policy Parliament has provided that a defendant should have the opportunity to avoid meeting a stale claim. The choice lies with the defendant and if he wishes to avail himself of the statutory defence it must be pleaded. A defendant does not invariably wish to rely on a defence of limitation and may prefer to contest the issue on the merits. If, therefore, no plea of limitation is raised in the defence the plaintiff is entitled to assume that the defendant does not wish to rely upon a time bar but prefers the court to adjudicate on the issues raised in the dispute between the parties. If both parties on this assumption prepare their cases to contest the factual and legal issues arising in the dispute and they are litigated to the point of judgment, the issues will by this time have been fully investigated and a plea of limitation no longer serves its purpose as a procedural bar.”

[22] Both respondents in this case elected to rely upon the limitations defence. To overcome that defence, the applicant was obliged to bring an application to extend the limitation period. The applicant has been successful in that application and is entitled in those circumstances to have its costs.

Brisbane Barrister – David Cormack

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