Development Ventures Pty Ltd v Bayside Health [2003] VSC 111 (10 April 2003)

Last Updated: 14 April 2003

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMON LAW DIVISION

No. 6276 of 2001

DEVELOPMENT VENTURES PTY LTD	Plaintiff

v

BAYSIDE HEALTH	Defendant

and

FREEHILL, HOLLINGDALE & PAGE (A FIRM)	Third Party

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JUDGE:	OSBORN J
WHERE HELD:	MELBOURNE
DATE OF HEARING:	1-2 APRIL 2003
DATE OF JUDGMENT:	10 APRIL 2003
CASE MAY BE CITED AS:	DEVELOPMENT VENTURES PTY LTD v BAYSIDE HEALTH
MEDIUM NEUTRAL CITATION:	[2003] VSC 111

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DAMAGES - Third party defence to plaintiff's statement of claim amended on first day of hearing - Consequently plaintiff's case not pursued - Defendant had made offer of compromise - Whether plaintiff should pay defendant costs - Whether plaintiff should pay defendant costs on indemnity basis after date of offer of compromise - Whether plaintiff should pay third party costs - Whether third party should pay plaintiff's costs - Whether third party should indemnify plaintiff for plaintiff's costs and/or defendant's costs

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr Middleton QC with Mr S.M. Anderson	Rigby Cooke

For the Defendant	Mr M. Dreyfus QC with Mr D. Masel	Mills Oakley

Third Party	Mr G. McEwan	Minter Ellison

HIS HONOUR:

The plaintiff in this matter is a property developer. In May 1997 it entered into a contract with the defendant's predecessor for the purchase of the Chevron Hotel site adjacent to the Alfred Hospital on the corner of Commercial and St. Kilda Roads, Melbourne. The contract was completed on 30 June 1998.

On 14 June 2001 the plaintiff issued proceedings seeking declarations and damages. The central complaints made by it were:

(a) that statements contained in a brochure provided to it in or about February 1997 by the vendor's agents were false and/or misleading ("the brochure representations");
(b) that statements contained in a property report provided to it in March 1997 by the vendor's agents were false and/or misleading ("the report representations"); and
(c) that the statement provided to it pursuant to s.32 of the Sale of Land Act 1962 in April 1997 was false and/or misleading ("the s.32 statement").

The plaintiff's claim is formulated by reference to:

(a) breaches of warranty;
(b) negligent misrepresentation; and
(c) breaches of the Fair Trading Acts 1985 and 1999 and the Trade Practices Act 1974.

The plaintiff's statement of claim alleges that prior to the sale the vendor had sought and received advice from two independent valuers as to the value of the Chevron Hotel site. The instructions to the valuers included the following statement:

"The Alfred Hospital operates a 'trauma unit' and utilises a helipad over Commercial Road on adjoining land. The Civil Aviation Authority has recommended that any future development of the site be restricted to three or four storeys. It is acknowledged that this is purely a recommendation only and is not enforceable through the Civil Aviation Act or any other legislation."

It is alleged both valuers in turn referred to this consideration in providing valuation advice and identified its potential impact as a material consideration (albeit in different terms). One of the valuers expressed the opinion that the market value of the land would be affected to the extent that if aviation height restrictions were imposed, the market value was $7.3 million; and if no aviation height restrictions were imposed, the market value of the land was $9.3 million.

The brochure representations pleaded at paragraph 13 of the statement of claim contained no express reference to the recommendations of the Civil Aviation Authority ("the CAA"). The report representations are, however, alleged to have included the following:

"The Civil Aviation Authority had previously recommended that, as a result of the flight path and the location of the existing helipad above Commercial Road, in front of the Alfred Hospital, there should be limitations as to any future development of the Chevron Hotel site but this was a recommendation and was not enforceable under the Civil Aviation Act or any other legislation."

It is to be observed the report representations do not refer to the recommendation of a restricted height of three to four storeys which it is alleged was referred to by the vendor when it sought advice from its own valuers.

The s.32 statement is alleged to have stated that there were no recommendations of a government department affecting the land.

By its defence the defendant stated at paragraph 11:

"11. It admits that at all material times it knew: (a) there were one or more flight paths to the Alfred Hospital trauma centre; (b) the Civil Aviation Authority had recommended that any future development of the land be restricted to three or four storeys, which was a recommendation only and not enforceable through the Civil Aviation Act or other legislation; (c) an officer from the Civil Aviation Authority had advised A.T. Cocks that the proximity of a high tower to the helipad would possibly cause problems; ..."

In turn, the third party delivered a defence to the plaintiff's statement of claim pursuant to r.11.09(2). This rule provides:

"(2) The third party may serve a defence to the statement of claim of the plaintiff by which he disputes the liability to the plaintiff of the defendant by whom the third party was joined on any ground not raised by that defendant in his defence."

The third party pleaded, inter alia, that:

(a) the plaintiff well knew prior to 1 May 1997 relevant contents of the property report;
(b) the plaintiff well knew prior to 1 May 1997 relevant contents of the brochure;
(c) the plaintiff well knew prior to 1 May 1997 that the flight path to the Alfred Hospital may impact on the height or use of the Chevron Hotel site; and
(d) at all material times the plaintiff knew that "one or more of the alleged prejudicial flight path factors may exist in prospect or at least to some material extent."

The phrase "prejudicial flight path factors" was defined in paragraph 11 of the plaintiff's statement of claim and included but was not limited to the allegation that the CAA had recommended that any future development of the land should be limited to three or four storeys in height.

When this matter came on for hearing before me Mr McEwan sought and obtained leave to amend the third party defence to the plaintiff's statement of claim. This amended defence stated by way of first additional allegation:

"At all material times there was in fact and at law no CAA recommendation as alleged or otherwise affecting the land; ..."

Upon leave being granted to amend in these terms Mr Middleton QC, who appeared as senior counsel for the plaintiff, indicated that consequent upon such amendment and having regard to a witness statement delivered in support of the allegations contained in it, the plaintiff accepted it could not succeed in the proceeding and it was not proposed to call any evidence on the plaintiff's behalf.

Thereafter, Mr Dreyfus QC, senior counsel for the defendant, sought judgment for the defendant and the plaintiff's claim was dismissed (as was the third party proceeding).

Mr Dreyfus also sought an order that the plaintiff pay the defendant's costs including costs on an indemnity basis from 8 October 2002. The latter aspect of the application was based upon an offer of compromise made upon that date by which the defendant offered the plaintiff the sum of $50,000, which offer the plaintiff refused.

Mr McEwan also sought an order that the plaintiff pay the third party's costs.

Mr Middleton contended for the plaintiff that having regard to the substance and late notice of the amendment to the third party's defence to the plaintiff's statement of claim:

(a) the third party should not recover costs incurred after the delivery of its initial defence to the plaintiff's statement of claim ("the date of the initial third party defence");
(b) either the defendant should not recover costs against the plaintiff having regard to its mutual interest with the third party or the third party should be ordered to indemnify the plaintiff against any costs the plaintiff was ordered to pay the defendant in respect of the action after the date of the initial third party defence (including any costs awarded on a solicitor client or indemnity basis);
(d) the third party should indemnify the plaintiff with respect to its costs since the date of the initial third party defence.
The Defendant's Costs

In my opinion the defendant is entitled to recover its costs in this case. The usual rule is that in the absence of special circumstances a successful litigant should recover its costs. Although it must be recognised this rule is subject to a broad discretion with respect to the circumstances of each particular case.[1]

In Verna Trading v New Indian Assurance[2] Kaye J (with whom McGarvie J agreed) held that circumstances which might justify a refusal to award costs to a wholly successful defendant include, but cannot be regarded as necessarily limited to, those stated by Atkin LJ in Ritter v Godfrey[3]:

"In the case of a wholly successful defendant, in my opinion the judge must give the defendant his costs unless there is evidence that the defendant (1) bought about the litigation, or (2) had done something connected with the institution or conduct of the suit calculated to occasion unnecessary litigation and expense, or (3) has done some wrongful act in the course of the transaction of which the plaintiff complains."

None of these circumstances are established in the present case. Moreover, there are no other special circumstances which would justify the refusal and award of costs. To the contrary, the following matters support the award of costs:

(a) it cannot be said the plaintiff would have succeeded against the defendant if in fact a CAA recommendation were proved to have existed at the time of the alleged misstatements. Such a conclusion would require the full hearing of the matter and is not open upon the pleadings and those documents referred to in the pleadings tendered to me; and
(b) it is not the defendant which has altered its position before the Court by amending its defence. The defendant cannot be penalised for a change by the third party as to the basis on which it puts its case.

The defendant contends the plaintiff would have failed in any event having regard inter alia to:

(a) the proper construction of s.32(e) of the Sale of Land Act;
(b) limitation of action defences with respect to the claims under the Fair Trading Act and Trade Practices Act;
(c) lack of reliance by the plaintiff upon the alleged representations and warranties;
(d) the proper characterisation of the documents relied on by the plaintiff as constituting warranties or negligent representations; and
(e) the express representation and warranty by the plaintiff in the contract documents that no representations or warranties by the defendant were relied on by the plaintiff other than those contained in the contract and the documents attached to it.
Indemnity Costs

Rule 63.16 provides:

"Where an offer of compromise is served and the offer has not been accepted at the time of verdict or judgment, liability for costs shall be determined in accordance with rule 26.08."

Rule 26.08(3) provides:

"(3) Where an offer of compromise is made by a defendant and not accepted by the plaintiff, and the plaintiff obtains a judgment on the claim to which the offer relates not more favourable to him than the terms of the offer, then, unless the court otherwise orders, the plaintiff shall be entitled to an order against the defendant for his costs in respect of the claim up to and including the day the offer was served taxed on a party and party basis and the defendant shall be entitled to an order against the plaintiff for his costs in respect of the claim thereafter taxed on a party and party basis."

The rule does not in terms apply to the situation where the plaintiff fails altogether and judgement is given for the defendant. However, the policy underlying the rule is clear and it has been held that in such circumstances the Court may in the exercise of its discretion award costs to the defendant on a more generous basis than party and party costs from the time the offer was so served.[4]

In the present case the offer of compromise was, with hindsight, a generous one. In my view the fact of that offer justifies an award of costs on an indemnity basis. The policy underlying r.26.08 might be said to apply a fortiori in the present circumstances.

The Third Party's Costs

Mr Middleton conceded that but for the history of the pleadings in this matter, he could not resist an order that the plaintiff pay the third party's costs of the proceeding.

The amendment of the third party's defence to the statement of claim put in issue a threshold issue of fact namely whether the CAA had at any material time made a recommendation as alleged or otherwise affecting the land.

Rule 13.07 provides:

"(1) A party shall in any pleading subsequent to a statement of claim plead specifically any fact or matter which - (a) he alleges makes any claim or defence of the opposite party not maintainable; or (b) if not pleaded specifically, might take the opposite party by surprise; or (c) raises questions of fact not arising out of the proceeding pleading."

In my opinion, the threshold issue of fact raised by the third party was:

(a) an allegation which if were true would render the claim of the plaintiff not maintainable; and
(b) if not pleaded specifically by the third party might have taken the plaintiff by surprise having regard to the course of the previous pleadings.

It follows that the amendment materially changed the case which the plaintiff faced. It is not to the point that the plaintiff may have in any event failed or that aspects of the plaintiff's claim are asserted by the third party to be manifestly misconceived.[5] Nor is it to the point that correspondence from the third party's solicitor to the plaintiff's solicitor concerning discovery questioned the existence of a CAA recommendation in writing.

The amended pleading materially changed the complexion of the case the plaintiff was required to meet. Indeed it was presumably for precisely this reason that the third party sought leave to amend.

In these circumstances, it is proper to deny the third party its costs from the date of the initial third party defence. This is so because it is apparent that the amended pleading of threshold fact may well and probably would have led to the resolution of the matter if it had occurred at the time of the initial third party defence.

The Plaintiff's Application for Indemnity by the Third Party

The plaintiff claimed indemnity with respect to its own costs and with respect to any of the defendant's costs payable by it with respect to the period subsequent to the third party's first defence.

In Verna Trading Ormiston J, who dissented, stated at 174-5:

"This is a case which the defendant won on the merits, albeit merits flowing from the construction of an insurance policy, and yet it suffered three penalties flowing from a decision which would normally result in the costs following the event, that is, the defendant would obtain its taxed costs. The three penalties were that (1) it was deprived of any costs of defending the action successfully, (2) it was ordered to pay the unsuccessful plaintiff's costs of the proceedings, up to the end of the first of a two day trial, and (3) it was ordered to pay those costs to the plaintiff on a solicitor/own client basis. To exercise the Court's discretion in that way requires, in respect of each of those orders, the Court to be satisfied that circumstances out of the ordinary had occurred which would justify each of the three elements of the order made ... I would see it as undesirable that a successful litigant who was, on the merits, wrongful vexed with litigation, should be required to pay the three penalties I have referred to, without receiving a cent by way of costs in respect of its successful defence."

In the present case the plaintiff in effect seeks that the third party pay four penalties:

(a) the third party not receive its own costs;
(b) the third party pay the plaintiff's costs after the date of the third party's first defence; and
(c) the third party indemnify the plaintiff with respect to the defendant's costs after the date of the third party's first defence (including costs awarded on a higher than party/party basis).

While I am satisfied that the third party should suffer the first of these penalties, I am not satisfied it should suffer the further penalties contended for.

First, the third party has succeeded in the proceeding and the plaintiff who initiated the proceeding has failed. Second, the threshold issue of fact pleaded was not something peculiarly in the knowledge of the third party. It was as Mr Middleton conceded in argument a matter open to investigation by the plaintiff. Third, the threshold issue of fact is in substance a denial of a matter of fact either assumed in or expressly pleaded by the plaintiff in its statement of claim (it is unnecessary for me to resolve which for the purposes of my conclusion). The fact in issue forms a necessary element of the plaintiff's cause of action.

Fourth, the failure to plead the threshold issue of fact was not occasioned by any conscious tactic on the part of the third party. Fifth, the third party might reasonably be expected in the first instance to have concerned itself primarily with the third party proceeding. The third party was not obliged to plead to the plaintiff's statement of claim but has elected to do so. Sixth, this is not a case of the withdrawal of an admission by a defendant, but of a failure to plead in accordance with the rules an allegation which a third party now seeks to raise by way of a shield to the defendant pursuant to r.11. As such, it is to be distinguished from the circumstances adverted to by Santow J in K.A. and C. Smith Pty Ltd v Ward & Ors[6].

Accordingly, I propose to order:

(1) That the plaintiff pay the defendant's costs on a party party basis up until the date of the offer of compromise being 8 October 2001 and thereafter on an indemnity basis.
(2) That the plaintiff pay the third party's costs up until the date of the third party's initial defence being 31 August 2001.

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[1] Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72; Transport Accident Commission v O'Reilly [1998] VSCA 106; (1999) 2 VR 436

[2] [1991] VicRp 12; (1991) 1 VR 129

[3] [1920] 2 KB 47 at 60

[4] Mutual Community Ltd v Lorden Holdings Pty Ltd (unreported decision of Byrne J, 10561 of 1990, 28 April 1993).

[5] In respect of which Mr McEwan placed particular reliance on the judgment of Ormiston JA in Overton v Baker (1997) 2 VR 297 at 310 and 315.

[6] Unreported decision of the Supreme Court of New South Wales (Equity Division 4464 of 1995)

Authorities Cited3

Referred to (3)