Quadrant Constructions Pty Ltd (in liq) v Morgan Smith Barney Pty Ltd [2009] VSC 535 (27 November 2009)

Last Updated: 27 November 2009

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION

No. 7750 of 2007

QUADRANT CONSTRUCTIONS PTY LTD (IN LIQUIDATION) (ACN 005 417 658)	Plaintiff
v
MORGAN SMITH BARNEY PTY LIMITED (ACN 009 145 555) (formerly Citi Smith Barney Pty Ltd)	Defendant

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JUDGE:	J. FORREST J
WHERE HELD:	Melbourne
DATE OF HEARING:	Application determined “on the papers” (Submissions filed electronically)
DATE OF JUDGMENT:	27 November 2009
CASE MAY BE CITED AS:	Quadrant Constructions Pty Ltd v Morgan Smith Barney Pty Ltd (No. 2 - Appeal Costs Certificate)
MEDIUM NEUTRAL CITATION:	[2009] VSC 535

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Costs – Successful appeal – Application for indemnity certificate under s 4 Appeal Costs Act 1998 – Principles – Certificate granted.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff/Respondent	Mr J. Dixon SC Mr C. Young	Slater & Gordon
For the Defendant/Appellant	Mr P. Crutchfield	Mallesons Stephen Jaques

HIS HONOUR:

1 On 9 October 2009, I allowed an appeal by Morgan Smith Barney Pty Limited (formerly Citi Smith Barney Pty Ltd) (“CSM”), the defendant in the proceeding against an order of an Associate Justice in relation to its application for security for costs.

2 In substance, I varied the amount that the plaintiff, Quadrant Constructions Pty Ltd (“Quadrant”) was required to provide as security from $21,000 to $60,000. I ordered that CSM pay Quadrant’s costs of the hearing (partially on a party/party basis and partially on a solicitor/client basis) before the Associate Justice and ordered that Quadrant pay 50% of CSM’s costs of the appeal.

3 Quadrant now makes application pursuant to s 4(1) of the Appeal Costs Act (“the Act”) for an indemnity certificate. The relevant parts of that section read as follows:

“If an appeal against a decision of a Court in a civil proceeding -

(a) to the Trial Division of the Supreme Court;

...

succeeds, a respondent to that appeal may apply to the Supreme Court for, and the Court may grant, an indemnity certificate in respect of costs.”

4 As the terms of the Act make clear, the right to make an application for a certificate is enlivened by the success of the appeal.

5 The principles relevant to the determination of applications such as this were set out by the Court of Appeal in Eureka Funds Management v Freehill Services (No. 2).[1] In particular, Cavanough AJA, speaking for the Court, said:

“The grant of a certificate will usually lead to the expenditure of public money. In my view it is not enough that a case merely falls within one of the descriptions in s 4. The Court needs to be satisfied that it is appropriate in all the circumstances that a certificate should be granted. It is a discretion to grant, not a discretion to refuse, a certificate. On the other hand, a relatively generous approach to the exercise of the discretion is supported by the remarks of the then Attorney-General in her second reading speech for the 1998 bill for the Act”.

His Honour then set out the 2nd Reading Speech.[2] It is worth repeating:

“The bill repeals the current Appeal Costs Act 1964 and replaces it with a new, simpler and clearer act. In so doing, the bill implements the government’s justice policy objective of reforming the justice system so that it is accessible and efficient.

The Appeal Costs Act originated as a form of compulsory insurance.

It was based on the premise that, although the majority of legal disputes can be resolved in one substantive hearing, in a small proportion of cases it is necessary for an appeal or a re-hearing. For example, a party may have to appeal to the Court of Appeal or the High Court because there are conflicting authorities or the area of law in question is new. Equally, in a small number of cases it is necessary to have a re-hearing because the original hearing was aborted or discontinued: for example, because the jury had to be discharged. The act was designed to apply only to those cases where the appeal or re-hearing was necessary. It does not apply if an appeal is brought simply because the party who lost at the first hearing was dissatisfied with the decision.

Since its enactment in 1964, the current act has undergone a succession of substantial amendments. However, it has never been comprehensively reviewed. As a consequence, the coherence of the act has been undermined and anomalies have arisen.

The principal objective of this bill is to address these inconsistencies and anachronisms to ensure that the underlying policies of the appeal costs scheme are properly reflected in the legislation.

The basis for granting an indemnity certificate has been made simpler and more consistent under the bill. The bill provides that the decision to grant or refuse a certificate following a successful appeal is in the discretion of the court.

For example, a party may have succeeded in a trial by deliberately misleading the trial judge. The losing party may then have to appeal against the judgment. The appellate court may allow the appeal and order the respondent to pay the appellant’s costs.

In these circumstances the court may refuse to grant an indemnity certificate to the respondent, on the ground that if the respondent had not misled the judge in the court below, it would not have been necessary to have the appeal.”

6 Contrary to the submissions made on behalf of CSM, it is not necessary for an applicant for an indemnity certificate to have obtained a favourable result at first instance and then be a respondent to a successful appeal against that decision. Rather, the section focuses on the outcome of the appeal and whether the appellant “succeeds”.

7 One other observation may be made here. It is not a question of an application being made by consent of the parties as was, at one stage, suggested by Quadrant’s solicitors. Rather, the issue is whether the Court is satisfied on the application of the respondent that the circumstances warrant the granting of an indemnity certificate pursuant to s 4 of the Act.

8 In my view, Quadrant should be granted a certificate for the following reasons:

(a) The appellant, CSM, was successful in its appeal against the order of the Associate Justice.

(b) Whilst the ultimate outcome of the appeal did not raise any serious matters of law, there was a real contest as to whether the amount ordered for security for costs by the Associate Justice was adequate.

(c) In the course of argument, there was considerable focus on the role of the litigation funder and the relevance of the funding agreement in fixing the appropriate amount for security. Although I was not persuaded as to its relevance on this appeal, a number of authorities were cited and relied upon by the parties.

(d) Determining the amount to be fixed required the parties to address a number of criteria, and authorities, relevant to such an application.

(e) There was a considerable degree of analysis and hypothesis involved in determining how the case would unfold prior to the hearing.

(f) There is nothing in its conduct that should disqualify it from such a certificate.

9 I am satisfied that a certificate should be granted under s 4 of the Act and will make an order to that effect.

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[1] [2008] VSCA 177[7].

[2] Victoria, Parliamentary Debates, Legislative Assembly, 8 October 1998, 458.