Australia: Indemnity Costs Update

Last Updated: 12 May 2009
Article by Rebecca Welsh and Craig Hyde

Two recent Australian cases deal with circumstances where indemnity costs can be awarded as well as who pays in multi-party litigation.

Ahmed v Motor Accident Commission [2009] SADC 3

The District Court of South Australia departed from the general rule and awarded costs on an indemnity basis where the plaintiff knew his claim had no reasonable prospects of success.

Facts

The plaintiff made a claim for damages for personal injury sustained in a motor vehicle accident. The defendant alleged that the collision occurred as a result of a pre-arrangement between the plaintiff and the driver of the other vehicle, Mr Sarzali, for the purpose of obtaining compensation and/or defrauding the defendant. The defence was supported by phone records demonstrating that the plaintiff and Mr Sarzali had been in contact before and after the time of the accident.

Phone records were also produced to demonstrate that the plaintiff had been involved in five other motor vehicle accidents in which, similarly, the parties involved claimed not to have known each other (but in fact did) and compensation was claimed.

The plaintiff's solicitors ceased to act for him. The plaintiff maintained the action, self-represented, until the first day of trial when he discontinued his claim.

The defendant sought an order for indemnity costs against the plaintiff.

Decision

Judge Simpson found in favour of the defendant and ordered the plaintiff pay its costs on an indemnity basis.

In making this finding, her Honour noted that an order for costs on a basis other than party-party costs may be made in circumstances such as improper or fraudulent litigant conduct. However, even in proved cases of fraud the presumption remains that costs will be awarded on a party-party basis.

Judge Simpson did not find that the plaintiff had been deliberately dishonest or fraudulent in maintaining his claim. However, her Honour concluded that indemnity costs were appropriate in these circumstances because the defendant had given the plaintiff an opportunity to consider, at an early stage, his position based on the evidence and allegations against him. Despite this, the plaintiff had maintained his claim to the first day of trial without ever contradicting the evidence against him, at which point his discontinuance had acknowledged the strength of the defence and the weakness of his own case. In short, the conclusion was drawn that the plaintiff knew he had no reasonable prospects of success and maintained the claim nonetheless.

Implications

This case demonstrates a court may be willing to award indemnity costs despite not finding fraud, dishonesty or other severely improper litigant conduct. Rather, indemnity costs may be awarded when a litigant knows their claim has no reasonable prospects of success, demonstrated in this case by a lack of evidence and a last-minute discontinuance.

Edwards v Stocks [2009] TASSC 11

This matter involved a departure from the general rule concerning costs in a multi-party matter, where the 'real fight' was between the plaintiff and the third parties, and the litigation was brought about by the tortious conduct of the third parties.

Facts

The tenants, Mr and Mrs Stocks, leased a shop from the Retirement Benefits Fund Board. They were induced into leasing the shop by a number of misrepresentations made by the landlord's agents, Andrew Edwards and David Ellwood. The tenants suffered financial losses as a result of leasing the shop.

The tenants sued the landlord for damages. The landlord subsequently joined the agents and another party as third parties to the proceedings.

At first instance the tenants were successful in their claim. The agents appealed on the basis that the tenants had brought their action out of time. The agents did not challenge the District Court finding that they had made misrepresentations to the tenants. The landlord did not take an active part in the appeal.

The appeal was successful on the limitation issue.

Decision on costs

The Full Court of the Tasmanian Supreme Court considered the dispute between the landlord and agents in relation to how costs should be awarded.

The landlord and agents believed the tenants to be lacking funds. Based on this, the landlord and agents each sought to have their costs paid by the other at first instance. The agents sought orders that:

  • The tenants pay the landlord's costs.
  • The landlord pay the agents' costs.
  • The tenants indemnify the landlord for the agents' costs.

The landlord sought similar orders – that the agents pay its costs and be indemnified by the tenants.

As the landlord had joined the agents, the general rule of costs would have the landlord pay the agents' costs. Justice Blow, with whom the rest of the Court agreed, departed from this general rule and held that the agents should pay the landlord's costs, with the tenants to pay the agents' costs and indemnify the agents for the landlord's costs.

His Honour's decision turned on the fact that the agents had made false representations to the tenants and had therefore breached their duty to the landlord. Accordingly, the agents, although successful, had engaged in tortious conduct giving rise to the litigation.

With regard to the costs of appeal, the Court found that the 'real fight' was between the agents and the tenants, and that the landlord's interests were generally aligned with the successful agents. The Court ordered that the agents pay the landlord's costs of the trial and the appeal, and that the tenants pay the agents' costs and indemnify them for the landlord's costs.

Implications

This case demonstrates that a court may depart from the general rule relating to costs depending on which party engaged in the conduct leading to the litigation, and who the 'real fight' is between. Although the plaintiff's lack of funds was explicitly not a consideration in Edwards, it was the underlying factor behind the costs dispute. When the impecuniosity of another party is a barrier to costs recovery, it may be worthwhile to seek alternative costs orders enabling recovery from another party.

Phillips Fox has changed its name to DLA Phillips Fox because the firm entered into an exclusive alliance with DLA Piper, one of the largest legal services organisations in the world. We will retain our offices in every major commercial centre in Australia and New Zealand, with no operational change to your relationship with the firm. DLA Phillips Fox can now take your business one step further − by connecting you to a global network of legal experience, talent and knowledge.

This publication is intended as a first point of reference and should not be relied on as a substitute for professional advice. Specialist legal advice should always be sought in relation to any particular circumstances and no liability will be accepted for any losses incurred by those relying solely on this publication.

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