Offers: indemnity costs & double whammy for 3rd party costs

The Portland Downs Pastoral Company Pty Ltd v Great Northern Developments Pty Ltd & Ors (No 2) [2011] QSC 161

Issues: standard or indemnity costs

Chief Justice:

[2] Having failed in its claims against them, the plaintiff obviously must bear the first and second defendants’ costs. The issue is the basis upon which they should be assessed.

[3] On 19 April 2011, the first and second defendants offered to settle the plaintiff’s claim by paying the plaintiff $200,000. While Rule 361 of the Uniform Civil Procedure Rules does not apply because the plaintiff obtained no judgment in its favour, the circumstance that the offer was made and not accepted influences the exercise of discretion. I have had regard to Foster v Galea (No 2) [2008] VSC 331, para 9. The defendants made their offer three weeks prior to the trial, allowing the plaintiff adequate time to consider it. When the offer was made, the plaintiff should have appreciated that it faced considerable difficulties at the forthcoming trial, particularly because the construction cost plainly exceeded $26 million and there was no clear extension of time.

[4] The appropriate order, therefore, is that the plaintiff pay the first and second defendants’ costs of and incidental to the proceeding, to be assessed on the standard basis up to and including 19 April 2011, and on the indemnity basis thereafter.

Plaintiff’s liability to first and second defendants in relation to the costs of the third party proceeding

[5] Counsel for the plaintiff appear to accept that the plaintiff’s claims “may have led the defendants to institute the third party proceeding”. While the claim made against the third parties extends beyond indemnity in relation to the plaintiff’s claim against the defendants, the appropriate order, as to which the parties appear to agree, is that the plaintiff pay to the first and second defendants their costs of and incidental to the third party proceeding, insofar as that proceeding relates to the claim, for indemnity against the plaintiff’s claim, made by the first and second defendants against the third parties. Those costs are to be assessed on the standard basis.

[6] There should be a complementary order that the plaintiff indemnify the first and second defendants in respect of any liability of the first and second defendants to the third parties for costs claimed against the first and second defendants by the third parties, insofar as those costs relate to the claim of the first and second defendants for indemnity against the plaintiff’s claim.

Third defendant’s costs

[7] On 4 May 2011 I ordered that the plaintiff pay the third defendant’s costs, to be assessed on the standard basis, while reserving the right of any party to apply for a direction that they be assessed on the indemnity basis.

[8] The first and second defendants seek such a direction, and the third defendant adopts the submission they make in that regard. (The first defendant is a 50 per cent shareholder in the third defendant, and Mr Robson, one of the second defendants, is a director of the third defendant.)

[9] It is doubtful the third defendant was ever a necessary party in the proceeding, but if it was appropriately joined initially, the sale of the units rendered its involvement completely unnecessary. Correspondence shows requests that it be dropped from the proceeding spanning a considerable time.

[10] In these circumstances, the claim against the third defendant being devoid of prospects, indemnity costs are warranted (cf. Colgate Palmolive Co v Cussons Pty Ltd [1993] FCA 536; (1993) 46 FCR 225, 232-4).

[11] There will therefore be an order that the costs referred to in the order made on 4 May 2011 be assessed, not on the standard basis as then ordered, but on the indemnity basis.

Brisbane Barrister – David Cormack

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