DISTRICT COURT OF QUEENSLAND
CITATION:
Peter Carter Transport Pty Ltd and Anor v Swansway No. 2 Pty Ltd [2021] QDC 109
PARTIES:
PETER CARTER TRANSPORT PTY LTD
(first appellant)PETER CARTER
(second appellant)v
SWANSWAY NO. 2 PTY LTD
(respondent)FILE NO:
154/20
DIVISION:
Appellate
PROCEEDING:
Appeal
ORIGINATING COURT:
Magistrates Court
at MaroochydoreDELIVERED ON:
18 June 2021
DELIVERED AT:
Maroochydore
HEARING DATE:
4 March 2021
JUDGE:
Cash QC DCJ
ORDER:
1. The appellants have leave to appeal;
2. The appeal is allowed;
3. The costs orders of the Magistrate of 14 August 2020 are set aside.
Furthers directions as appear at paragraph [53] of the judgment.
CATCHWORDS:
APPEAL – PROCEDURE – QUEENSLAND – COSTS – COSTS ASSESSMENT – where the Magistrate in the originating court made an order as to costs – where the appellants were ordered to pay the respondent’s costs of the proceeding under the claim on an indemnity basis – where the respondent was ordered to pay the costs of the appellants’ counterclaim on the standard basis – where the appellants seek to appeal the costs order of the Magistrate – whether leave should be granted – whether some important principle of law or justice is involved – whether the lease agreement between the parties was correctly considered – whether the relative success of the parties was correctly considered – whether costs relating to the counterclaim were correctly considered – whether the Magistrate’s discretion as to costs was correctly exercised.
LEGISLATION:
Magistrates Court Act 1921 (Qld), ss 45, 45(2), 47
Civil Proceedings Act 2011 (Qld), s 15
Uniform Civil Procedure Rules 1999 (Qld), r 603, r 680, r 681, r 686, r 687, r 698, r 702, r 748, r 765, r 785CASES:
Allesch v Maunz (2000) 203 CLR 172 at 180 - 1
American Express International Inc v Hewitt [1993] 2 Qd 352
ASIC v Atlantic 3 Financial (Aust) Pty Ltd [2008] QSC 9;
[2008] 2 Qd R 298, [32]
Bank of Western Australia Ltd v Marsh [2000] WASC 208 at
[4]-[5]
Calderbank v Calderbank [1975] 3 WLR 586; 3 All ER 333
Fox v Percy (2003) 214 CLR 118 at [22] - [29]
Hadgelias Holdings and Waight v Seirlis [2014] QCA 325
Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover
Authority (No. 2) (2005) 13 VR 435
House v R (1936) 55 CLR 499 at 504 – 5
Interchase Corporation Limited (in liq.) v Grosvenor Hill (Queensland) Pty Ltd (No. 3) [2003] 1 Qd R 26, [84]
Jamieson v Gosigil Pty Ltd [1982] 2 Qd R 117
J & D Rigging Pty Ltd v Agripower Australia Limited [2014]
QCA 23
Kelly v Slade [2018] QDC 18
Knight v F.P. Special Assets Ltd (1992) 174 CLR 178 at 182,
193
Kyabram Property Investments Pty Ltd v Murray [2005]
NSWCA 87
Lee v Australia and New Zealand Banking Group Ltd [2013]
QCA 284, [9]
Mio Art Pty Ltd v Macequest Pty Ltd & Ors (No 2) [2013] QSC
271, [17]-[20]
NAB v Freeman [2001] QCA 473
Re Adelphi Hotel (Brighton) Ltd [1953] 1 WLR 955, 961; 2 All
ER 498, 502
Scagliotti v Boyd [1962] Qd R 481 per Stable J at 486
The Australian Institute for Progress Ltd v The Electoral
Commission of Queensland & Ors (No 2) [2020] QSC 174; 26
QLR, [15]
The Star Entertainment Qld Limited v Wong [2021] QSC 81
Wanstall v Burke [1925] St R Qd 295, 297
Warren v Body Corporate for Buon Vista CTS 14325 [2007]
QCA 160, [19]
Warren v Coombes (1979) 142 CLR 531 at 551
COUNSEL:
M D White for the appellants
J W Lee for the respondentSOLICITORS:
Butler McDermott Lawyers for the appellants
Miller Sockhill Lawyers for the respondent
Introduction
The first appellant used to lease business premises from the respondent. The second appellant is a director of the first appellant. The respondent sued the appellants in the Magistrates Court for breach of the terms of a lease. The respondent claimed a total of $17,115.95 (plus interest), being $12,256.56 in unpaid rent, $3,261.97 for the costs of repairing electrical fittings and $1,597,42 for work in relation to a wall panel installed by the first appellant. The appellants denied the claim and the first appellant counterclaimed for the recovery of $2,893.33 (plus interest) being the security deposit paid to and held by the respondent. After hearing the trial, the Magistrate, in a written decision delivered on 3 December 2019, dismissed most of the respondent’s claim. He decided that the first appellant should pay the respondent only $923.33 in unpaid rent. He also decided the respondent should refund the security deposit but could set off the unpaid rent such that the amount to be paid to the first appellant was $1,970 with interest of $827.40. The Magistrate invited written submissions on the question of costs.
Having received and considered submissions as to costs, the Magistrate gave his written decision on 14 August 2020. He ordered that the appellants pay the respondent’s costs of the ‘proceedings’[1] on the indemnity basis and that the respondent pay the appellants’ costs of the counterclaim on the standard basis, with some additional qualifications.
[1]In context, this must be understood as the costs of the proceedings initiated by the claim.
The appellants are dissatisfied with the costs orders of the Magistrate. Section 45 of the Magistrate Court Act 1921 (Qld) relevantly provides:
45 APPEAL
(1) Subject to this Act, any party who is dissatisfied with the judgment or order of a Magistrates Court—
(a)in an action in which the amount, value or damage involved is more than the minor civil dispute limit; or
(b)in an action for the recovery of possession of land if—
(i)the value of the land is more than the minor civil dispute limit; or
(ii)the annual rental of the land is more than the minor civil dispute limit; or
(c)in proceedings in interpleader in which the amount or damages claimed, or the value of the goods in question, is more than the minor civil dispute limit; or
(d)in a proceeding under the Property Law Act 1974, part 19, division 4, subdivision 1;
may appeal to the District Court as prescribed by the rules.
(2) Provided that—
(a)where in any of the cases above referred to in subsection (1) the amount, damage or value is not more than the minor civil dispute limit, an appeal shall lie by leave of the District Court or a District Court judge, who shall not grant such leave to appeal unless the court or judge is satisfied that some important principle of law or justice is involved;
(b)an appeal shall not lie from the decision of the Magistrates Court if, before the decision is pronounced, both parties agree, in writing signed by themselves or their lawyers or agents, that the decision of the court shall be final.
(3) Within the time and in the way prescribed by the rules, the appellant must give to the other party or the other party’s lawyer notice of the appeal, briefly stating the grounds of the appeal.
(4) Notice of appeal shall not operate as a stay of execution upon the judgment, but the execution may proceed unless the magistrate or a District Court judge otherwise orders.
(5) In this section—
"minor civil dispute limit" means the amount that is, for the time being, the prescribed amount under the Queensland Civil and Administrative Tribunal Act 2009.
The minor civil dispute limit is $25,000. It was the agreed position of the parties that the appellants required leave to proceed pursuant to section 45(2). As well, the relevant rules provide that a notice of appeal must be filed within 28 days after the decision after the decision appealed from.[2] The notice of appeal was filed on 14 September 2020. To be within time the appeal should have been filed on or before 11 September 2020. The short delay in filing was explained in the affidavit of Peter Boyce, the solicitor for the appellants, filed on 14 September 2020. On 19 October 2020 I made an order extending time. On 4 March 2021 the matter came on for arguments about whether leave to appeal should be given and also the merits of the appeal itself. The questions for me to decide were whether the appellants should have leave to appeal and if so whether their appeals should be allowed. What follows are my reasons for concluding the appellants should succeed on both questions.
[2]Uniform Civil Procedure Rules 1999 (Qld), r 785 and r 748.
The costs decision
Before turning to the questions of leave and disposition of the appeal, it is helpful to set out something of the parties’ positions as to costs before the Magistrate and his decision.
The respondent’s first submission as to costs
The respondent’s first submission as to costs was succinct. It acknowledged that the first appellant had succeeded on the counterclaim. As a consequence, the respondent submitted that the first appellant should have its costs of the counterclaim, on the standard basis. Because the second appellant was not a party to the counterclaim, it was submitted he could not benefit from any costs order in this regard. The respondent noted the Magistrate had given judgement on its claim in the amount of $923.33 and on that basis submitted that the appellants should pay the respondent’s costs of the claim. Despite the respondent’s claim[3] seeking ‘[c]osts on the indemnity basis pursuant to the Lease’, its submissions only asked for costs on the standard basis.
[3]Amended claim filed 16 May 2019.
The appellants’ submission as to costs
The appellants argued that they had been substantially successful. They said they secured judgment in their favour on the counterclaim and that the respondent’s claim almost entirely failed. It followed, they submitted, that the respondent should pay the appellants’ costs of the entire proceedings. The appellants also submitted that a Calderbank[4] offer had been made and unreasonably refused by the respondent, such that the Magistrate should exercise his discretion to award costs on the indemnity basis. The offer was contained in a letter dated 31 May 2017. It was expressed in these terms:
On our instructions, our client [the first appellant] has paid a rental bond of $2, 893.33.
We advise that our client and the Guarantor Peter Carter [the second appellant] hereby offer to settle all matters in dispute between the parties by consenting to your clients retaining the bond in the sum of $2,893.33 in full and final satisfaction of all or any claims that your client may have in relation to those matters referred to in your correspondence and also in respect to all or any matters relating to the Lease and our client’s occupancy and delivery up of the premises.
[4]Calderbank v Calderbank [1975] 3 WLR 586; 3 All ER 333.
The offer was open for 14 days. It was not accepted by the respondent and the claim was filed on 14 July 2017. The appellants submitted to the Magistrate that the offer was made at a time when the parties could realistically assess their prospects, involved an offer that was better than the result the respondent achieved, and was expressed in clear and pragmatic terms. The appellants accepted the offer did not foreshadow an application for indemnity costs but submitted this should not be considered a disqualifying factor.
The respondent’s second submission as to costs
The respondent replied to the appellants’ submission. The reply was much more detailed than the respondent’s first submissions. They joined issue with the appellants’ attempt to treat the claim and counterclaim as one ‘event’ and submitted that a trial of the issues was necessary. For the first time the respondent addressed the issue of indemnity costs. They noted that there had been no offer in accordance with the Uniform Civil Procedure Rules 1999 (Qld) (‘UCPR’) and submitted the letter of 31 May 2017 fell short of a Calderbank offer. The failings identified by the respondent were that the letter was sent ‘only on behalf of the First [appellant]’, it did not state it was a Calderbank offer, and it did not foreshadow an application for indemnity costs. The respondent also pointed to circumstances said to make the rejection of the offer a reasonable decision.
Finally, the respondent cited clause 2.14 of the lease and NAB v Freeman [2001] QCA 473. It was said that the parties had contracted to the effect that the respondent was entitled to recover, on a ‘solicitor and client’ basis, its costs of any proceedings brought to enforce the performance of obligations under the lease. This, it was said, meant that ‘[t]o the extent that any indemnity costs are awarded they should be awarded in the [respondent’s] favour in respect of the claim’.
This was the last word said by the parties on the issue of costs before the Magistrate, and it appears to have been of substantial influence to his Honour’s decision.
The Magistrate’s decision
Near the beginning of the Magistrate’s reasons, he stated:
It is also the case that where a party agrees in a lease or other document to pay costs on the indemnity basis then the costs should be ordered on that basis.
NAB v Freeman was cited as authority for that proposition. It will be necessary to return to a consideration of whether this statement is correct, and whether support for it can be found in the cited decision. The Magistrate set out the relevant clause of the lease, noting some unusual language of the provision. His Honour treated the language as a typographical error. He construed the clause as entitling the respondent, as lessor, to indemnity costs of their claim. That is, the Magistrate seemed to conclude that because of the clause, the respondent was entitled to indemnity costs of the whole claim no matter what measure of success it achieved. His Honour concluded that this clause bound the second appellant as well as the first.
The Magistrate thought the appellants’ offer of 31 May 2017 was not a genuine one. In part that was because the offer did not set out a response to allegations raised by the respondent. The Magistrate also criticised the offer for seeking to settle all claims that might arise out of the appellants’ occupation of the premises. As a result, the Magistrate made the following order:
I order that the [appellants] pay the [respondent’s] costs of an (sic) incidental to the proceedings including reserved costs on the indemnity basis to be assessed.
In relation to the counterclaim the Magistrate accepted the first appellant had succeeded and should get their costs. However, he thought the time this issue required in the hearing was minimal and the counterclaim so simple it did not require counsel to litigate. As such he made the following order (amended to reflect the parties to this appeal):
The [respondent] pay the [appellants’] cost of the counterclaim of the proceedings fixed on the standard basis – Schedule 1 scale a (sic) matters up to excluding the costs of counsel.
Leave to appeal – applicable legal principles
Section 45(2) of the Magistrates Court Act 1921 (Qld) creates for the appellants a substantial barrier. The amount involved in the claim and counterclaim, whether considered separately or together, was less than the minor civil dispute limit.[5] Leave to appeal is necessary and will only be given where the court ‘is satisfied that some important principle of law or justice is involved’. Mere error on the part of the court at first instance will not usually be sufficient.[6] The test has been likened to that required for special leave to appeal to the High Court. To involve an important principle of justice, the case must be one of gravity, public importance or be of a very substantial character; or involve some important question of law or affect property of considerable value.[7] It has been said that an important principle of justice requires that there be a question going beyond the consequences of the decision for the immediate parties to the proceedings.[8]
[5]There was no evidence about the quantity of the costs and the appellant did not argue that the value of the costs should be taken into account in deciding if the ‘amount involved’ was more than the minor civil dispute limit. (Cf. Ramzy v Body Corporate for GC3 CTS38396 & Anor [2012] QDC 397.)
[6]Scagliotti v Boyd [1962] Qd R 481 per Stable J at 486.
[7]Wanstall v Burke [1925] St R Qd 295, 297.
[8]American Express International Inc v Hewitt [1993] 2 Qd R 352.
It may be accepted that the appeal involves no important principle of justice. Even if the decision of the Magistrate is wrong, the sum involved is modest and the matter is not one of gravity or substance. But in this case it is said that there is an important principle of law involved: was the Magistrate correct to construe clause 2.14 as obliging the appellants to pay indemnity costs even where they largely succeeded in the litigation? In my view such a question is raised in the proceedings. Such clauses are common enough in contracts. Ensuring the consistent construction and application of such clauses is important. Another important question of law presented by this appeal concerns the proper application of the law and rules concerning costs in Magistrates Court proceedings. As will be mentioned later in these reasons much of the submissions, consideration and decision as to costs appeared to proceed without regard to the relevant rules and legal principles. It is important to say something about this in the hope that appeals of this sort might be avoided in future.
For these reasons I would give leave to appeal.
Nature of the appeal
An appeal pursuant to section 45 of the Magistrates Court Act 1921 (Qld) may be brought to the District Court ‘as prescribed by the rules’. The relevant rules are in Chapter 18 of the UCPR. Part 3 of Chapter 18 provides that certain rules applying to appeals to the Court of Appeal apply, with necessary changes, to appeals from the Magistrates Court. One of these is rule 765 which provides such appeals are by way of rehearing. The ordinary characteristics of an appeal by way of rehearing are well established. It is necessary for the appeal court to make up its own mind on the basis of the findings of primary fact made at the previous hearing, unless those findings are set aside in accordance with the established principles.[9] It remains necessary for the appellant to show that the decision under appeal was affected by error.[10] Where the appeal is from the exercise of discretion, it must appear that there was an error of principle in the exercise of the discretion, or that the discretion miscarried, or that the result was unreasonable or plainly unjust.[11]
[9]Warren v Coombes (1979) 142 CLR 531 at 551; Fox v Percy (2003) 214 CLR 118 at [22] – [29].
[10]Allesch v Maunz (2000) 203 CLR 172 at 180-1.
[11]House v R (1936) 55 CLR 499 at 504-5.
The powers of the District Court on appeal are set out in section 47:
JURISDICTION OF THE DISTRICT COURT
(1) On the hearing of an appeal or special case, the District Court may do any of the following—
(a)draw inferences of fact from facts found by the Magistrates Court, or from admitted facts or facts not disputed;
(b)order a new trial on such terms as it thinks just;
(c)order judgment to be entered for any party;
(d)make any other order, on such terms as it thinks proper, to ensure the determination on the merits of the real questions in controversy between the parties;
(e)as regards any special case, remit the matter to the Magistrates Court with the opinion of the District Court thereon;
(f)make such order with respect to the costs of the appeal or special case as it thinks proper.
Consideration of the appeal
The appellants advanced five grounds of appeal. It is convenient to deal with each in turn.
Grounds 1 and 2 – the Magistrate erred in law in his construction of the lease agreement and in failing to consider the relative success of the parties
The appellants argue that clause 2.14 of the lease agreement did not entitle the respondent to indemnity costs of the whole claim, regardless of the relative success of their claim. The respondent submits the ‘plain reading’ of the clause meant they should recover all their costs. To resolve this issue, it is necessary to consider both the language of their agreement and the nature of the court’s discretion to award costs. Clause 2.14 is set out below. I have added underlining to highlight the relevant portion, including the words that make the provision less than clear.
COST OF NOTICES RE-ENTRY AND CONSENTS
2.14 The Lessee shall upon demand by the Lessor pay all costs (as between solicitor and client) and expenses incurred by the Lessor in relation to any notice lawfully given to the Lessee pursuant to this Lease, the lawful re-entry or attempted re-entry by the Lessor in to the demised premises, the surrender of this Lease (including any stamp duties and registration fees thereon) the granting of any consents by the Lessor as provided herein and of any proceedings lawfully brought by the Lessor to enforce the performance by the Lessor to enforce the performance by the Lessee of the Lessee’s covenants and obligations under this lease.
The first thing to note is that the relevant part of clause 2.14, as it was drafted and agreed to, makes no sense. At least some of the words should not be there. The Magistrate found that the only sensible reading of the clause is to ignore the words ‘to enforce the performance by the Lessor’. This must be correct. A lessor cannot sensibly bring proceedings to enforce the performance by the lessor of the lessee’s obligations under the lease. The more vexing question is whether the clause entitled the respondent to the order made by the Magistrate.
While the parties had agreed to the clause as set out above, it is to be remembered this cannot bind the Court. Costs, at least in courts of common law, are a creature of statute.[12] In these proceedings, the power to award costs stemmed from section 15 of the Civil Proceedings Act 2011 (Qld) and the UCPR. Relevant rules include:
[12]Knight v F.P. Special Assets Ltd (1992) 174 CLR 178 at 182-182, 193.
680 Entitlement to recover costs
A party to a proceeding can not recover any costs of the proceeding from another party other than under these rules or an order of the court.
681 General rule about costs
(1)Costs of a proceeding, including an application in a proceeding, are in the discretion of the court but follow the event, unless orders otherwise.
(2)Sub rule (1) applies unless these rules provide otherwise.
It follows, as was said in Gomba Holdings (UK) Ltd v Minories Finance Ltd (No 2) [1992] 4 All ER 588 (at 607), that:
(i) An order for the payment of costs of proceedings by one party to another is always a discretionary order.
(ii) Where there is a contractual right to the costs, the discretion should ordinarily be exercised to reflect that contractual right.
While an agreement between the parties is significant, and would usually result in the discretion being exercised to reflect that agreement,[13] a relevant consideration is whether the agreement of the parties ‘plainly and unambiguously’ provides for the assessment of costs other than on the standard basis.[14] And, in all cases, circumstances may exist which would render such an order inappropriate.[15] The Magistrate did not appear to turn his mind to these propositions, instead stating that ‘where a party agrees in a lease or other document to pay costs on the indemnity basis then the costs should be ordered on that basis’. As I have already noted, his Honour cited NAB v Freeman[16] as authority for that proposition.
[13]As well as Gomba Holdings, see Bank of Western Australia Ltd v Marsh [2000] WASC 208 at [4]-[5].
[14]In re Adelphi Hotel (Brighton) Ltd [1953] 1 WLR 955, 961; 2 All ER 498, 502. See also Jamieson v Gosigil Pty Ltd [1982] 2 Qd R 117.
[15]Lee v Australia and New Zealand Banking Group Ltd [2013] QCA 284, [9]; Bank of Western Australia Ltd v Marsh [2000] WASC 208, [7].
[16][2001] QCA 473.
NAB v Freeman concerned arrangements between a bank and a grazier. The bank sued on a facility provided to Mr Freeman pursuant to a deed of agreement after mediation. Mr Freeman unsuccessfully argued the deed should be set aside for duress and other reasons. His counterclaims were also dismissed. By the deed of agreement, Mr Freeman had covenanted to repay the bank any costs it incurred ‘and also the amount of any charges and disbursements for legal advice and assistance to the Bank as between solicitor and client’. The trial judge ordered that Mr Freeman pay the bank’s costs on the indemnity basis. Mr Freeman challenged this order. The entirety of the Court of Appeal’s consideration of this point is found in the decision of Margaret White J, with whom Davies and Thomas JJA agreed, at [55] and [56]:
[55] At general law a mortgagee is entitled to “party and party costs” only (which equate under the UCPR to assessment on the standard basis), AGC (Advances) Ltd v West; Cranston (1986) 5 NSWLR 301 at 305 per Hodgson J and Sandtara Pty Ltd v Australian European Finance Corporation Ltd (1990) 20 NSWLR 82 at 97 per Cole J. That principle is subject to specific agreement, ibid. In AGC (Advances) Ltd Hodgson J allowed costs on a solicitor and client basis where that expression, as here, appeared in the mortgage.
[56] There was no error in the exercise of his Honour’s discretion in ordering costs on the indemnity basis.
In my view, NAB v Freeman does not suggest the existence of a principle of the kind set out by the Magistrate. It is true that White J referred to the ordinary position that a mortgagee is entitled only to ‘party and party’ costs (or, in the language of the UCPR, costs assessed on the standard basis) and then stated that principle is ‘subject to specific agreement’. But this does not translate to a principle of law that a contractual agreement between the parties as to costs ousts the discretion of the court. The decision in NAB v Freeman does not mention Gomba Holdings. The latter case has been consistently followed in Australia, including by the Queensland Court of Appeal.[17] The Court of Appeal in NAB v Freeman dealt succinctly with a complaint about the costs order, made in the exercise of discretion, and in the context of a number of complaints about the decision of the trial Judge. It was hardly a detailed consideration of the circumstances where a contractual agreement should influence, or dictate, the outcome of a costs dispute. Once this broader picture is seen, the statement of White J – that the ordinary position as to costs is subject to the specific agreement of the parties – must be understood as leaving room to accommodate the principles in Gomba Holdings. The Magistrate’s unequivocal statement – that where there is an agreement ‘costs should be ordered on that basis’ – does not find support in NAB v Freeman. In coming to a decision as to costs based upon this incorrect premise, his Honour wrongly fettered his discretion.
[17]See, for example, Kyabram Property Investments Pty Ltd v Murray [2005] NSWCA 87; Lee v Australia and New Zealand Banking Group Ltd [2013] QCA 284; and The Star Entertainment Qld Limited v Wong [2021] QSC 81.
Had the Magistrate considered the correct principles, it would have been apparent that circumstances existed making the orders of the Magistrate inappropriate. The most important circumstance was the relative success of the parties in the litigation. The respondent failed entirely as concerned the bulk of its claims. It succeeded in part on its claim for unpaid rent, but the Magistrate found that there was no liability to pay rent other than for a short period.[18] Damages were assessed at $923.33, as against the respondent’s claim for $12,256.56.[19] On the other hand the first appellant succeeded on its claim for repayment of the security deposit. Even if the lease agreement clearly provided for the assessment of costs on the indemnity basis, it was inappropriate to order the appellants pay the costs of the entire claim.
[18]Paragraphs [146]-[147] of the decision at first instance.
[19]It is a little difficult to discern from the reasons of the Magistrate whether this was because the appellants had no obligation to pay the rent, or if the loss was too remote, or if there was failure by the respondent to mitigate its loss. In any event, the decision of the Magistrate as to the outcome of the claim was not challenged.
For this reason, the decision of the Magistrate to order the appellants to pay the respondent’s costs of the claim to be assessed on the indemnity basis miscarried and must be set aside. It is not necessary to come to a conclusion about whether clause 2.14 conveyed a clear and unambiguous agreement by the appellants to pay the legal costs of the respondent on the indemnity basis. It is enough to observe that the surplus words of the clause do not aid in clarity and that it is not difficult to think of drafting that would more clearly express such an agreement. It is also unnecessary to consider whether the clause bound the second appellant as well as the first.
Ground 3 – the Magistrate erred by allowing ‘pre-proceeding’ costs
Because I have concluded that the order concerning the respondent’s costs of its claim must be set it aside, it is unnecessary to consider this ground in detail. It is, however, appropriate to say something about the form of the order. The actual order made by the Magistrate was that the appellants pay the costs ‘of an (sic, semble “and”) incidental to the proceedings including reserved costs on the indemnity basis to be assessed’. Some of this was unnecessary. Rule 679 provides that ‘costs of the proceedings’:
mean costs of all the issues in the proceedings and includes –
(a) costs ordered to be costs of the proceeding; and
(b) costs of complying with the necessary steps before starting the proceeding; and
(c) costs incurred before or after the start of the proceeding for successful or unsuccessful negotiations for the settlement of the dispute.
This provision is broad enough to capture costs incidental to the proceedings, including pre-litigation costs. For more than two decades, it has been unnecessary and undesirable to include words such as ‘of and incidental to’ in a costs order.[20] The order purported to deal with reserved costs. It was probably unnecessary to do so (even if there were any reserved costs) as rule 698 provides that ‘costs reserved follow the event’.[21] An order that the appellants pay the costs of the respondent’s claim on the indemnity basis would have been sufficient to give effect to the Magistrate’s intentions.[22]
[20]Mio Art Pty Ltd v Macequest Pty Ltd & Ors (No 2) [2013] QSC 271, [17]-[20].
[21]I say probably as there is room for debate about the effect of rule 698: see Mio Art Pty Ltd v Macequest Pty Ltd (No 2) [2013] QSC 271 and Kelly v Slade [2018] QDC 18.
[22]I note that rule 686 sets out the general position that costs may be assessed without a particular order. But for proceedings in a Magistrates Court, rule 683 suggests fixed costs should be the norm, while leaving room for a Magistrate to order that costs be assessed where ‘it is appropriate because of the nature and complexity of the proceeding’. As discussed below, parties did not ask for fixed costs of the proceedings before the Magistrate.
Ground 4 – was the appellants’ offer a Calderbank offer?
The first appellant submits they were wrongly denied indemnity costs of the counterclaim because the Magistrate erred in deciding the offer to settle was not genuine. The offer and its rejection preceded the commencement of proceedings. The provisions of the UCPR dealing with settlement offers are not relevant. But the common law has long recognised that an unreasonable refusal of a genuine offer to settle may be a basis for awarding costs on the indemnity basis.[23] The relevant principles can be stated briefly.[24]
[23]Calderbank v Calderbank [1975] 3 WLR 586; 3 All ER 333.
[24]Taken from Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) (2005) 13 VR 435; J & D Rigging Pty Ltd v Agripower Australia Limited [2014] QCA 23; and Hadgelias Holdings and Waight v Seirlis [2014] QCA 325.
The usual rule is that if one party is to pay the costs of another, they will be assessed on the standard basis.[25] The rule may be departed from if there are circumstances that justify the departure. One such circumstance may be the unreasonable refusal of a genuine offer to settle. Refusal of an offer does not give rise to a presumption in favour of indemnity costs. It is always for the court to exercise its discretion have regard to all relevant circumstances, including the refusal, in an attempt to balance the competing aims of appropriately encouraging settlement while not discouraging potential litigants. A determination that the refusal of the offer was unreasonable will be relevant to deciding if costs should be on the indemnity basis. Factors relevant to the question of whether the refusal was unreasonable will include:
(a) the stage of the proceeding at which the offer was received;
(b) the time allowed to the offeree to consider the offer;
(c) the extent of the compromise offered;
(d) the offeree’s prospects of success, assessed as at the date of the offer;
(e) the clarity with which the terms of the offer were expressed; and
(f) whether the offer foreshadowed an application for indemnity costs in the event of the offeree rejecting it.
[25]UCPR, rule 702.
The argument of the first appellant focusses on the Magistrate’s description of the offer as one that was not ‘genuine’. There may be room for debate as to whether this description was appropriate. But it is unnecessary to spend time on this issue because, considering the circumstances for myself, it was not unreasonable for the respondent to refuse the request.
As set out above, the offer was made on 31 May 2017 and was open for 14 days. It was to forfeit the security deposit of $2,893.33 in ‘full and final satisfaction of all or any claims [the respondent] may have in relation to those matters referred to in your correspondence and also in respect to all or any matters relating to the Lease and our client’s occupancy and delivery up of the premises’ (emphasis added). The offer was a response to a letter from the respondent’s solicitor of 3 April 2017 which set out in some detail the alleged breaches of the lease that gave rise to the claim. The offer did not engage with any of the respondent’s complaints. It was sent nearly two months after the respondent’s correspondence, but allowed only 14 days for consideration of the offer. Most importantly, it was expressed in terms that required the respondent to forego not only the claims identified in its letter of 3 April 2017, but also any other possible claim that might arise from the lease or occupancy of the premises. Another, though admittedly less significant, matter is that the offer did not foreshadow an application for indemnity costs.
In these circumstances it cannot be said the refusal was unreasonable. The Magistrate was correct to decline to order the costs of the counterclaim be indemnity costs.
Ground 5 – there was an error in the Magistrate’s treatment of the counterclaim
The order of the Magistrate regarding the counterclaim was that the respondent ‘pay the [appellants[26]] costs of the counterclaim of the proceedings fixed on the standard basis – Schedule 1 scale a matters up to excluding costs of counsel’. A part of the Magistrate’s reasoning in coming to this conclusion appears to be that the counterclaim was unnecessary as it could have been pleaded as a set-off.[27] The appellants, or at least the first appellant, complains this was an error.
[26]The order used the word ‘Defendants’. It is not clear to which party or parties the Magistrate intended to refer. If it was the first defendant (now first appellant), who brought the counterclaim, the better expression would have been the ‘first defendant’s costs’. If it was intended to be a reference to both defendants, apart from being inexplicable in a case where the second defendant was not a party to the counterclaim, the better phrase would have been the ‘defendants’ costs’.
[27]Magistrate’s costs decision at [33]-[35].
Before considering the merit of this ground it is necessary, again, to say something of the form of the order. The words ‘of the proceedings’ may be ignored as surplusage. Rule 702 of the UCPR makes it unnecessary to order costs be assessed on the standard basis, so there was no need to say they were ‘fixed on the standard basis’. More troubling is the qualification at the end of the order. The meaning of the reference to ‘Schedule 1 scale’ is not clear to me.[28] The UCPR contains two schedules dealing with costs. They are identified in rule 691 which provides:
[28]I suppose it might be that the Magistrate was attempting to fix the first appellant’s costs. But to do so requires the identification of a fixed amount. A reference to a scale or method of calculation by which a figure might be reached does not equate to ‘fixing’ costs.
691 Australian lawyer’s costs
(1) For assessing costs on the standard basis, an Australian lawyer is entitled to charge and be allowed the costs under the scales of costs for work done for or in a proceeding in the court.
(2) The scales of costs are in—
(a) for the Supreme Court and District Court— schedule 1 ; or
(b) for Magistrates Courts— schedule 2 .
(3) For an assessment for Magistrates Courts on the standard basis, the scale in schedule 2 appropriate for the amount the plaintiff recovers applies.
(4) For an assessment for Magistrates Courts on the indemnity basis, the scale in schedule 2 appropriate for the amount the plaintiff claims applies.
(5) If the nature and importance, or the difficulty or urgency, of a proceeding and the justice of the case justify it, the court may allow an increase of not more than 30% of the Australian lawyer’s costs allowable on an assessment under the relevant scale of costs.
(6) A costs assessor has the same authority as the court under subrule (5).
(7) The costs under the scales of costs for work done are inclusive of any GST payable in relation to the work.
(8) Unless the court otherwise orders, the costs are in accordance with the scale of costs in force when the costs were incurred.
As these proceedings were in the Magistrates Court, Schedule 1 is not relevant. Schedule 2 is divided into three parts. The first part sets out circumstances in which certain costs are to be allowed or disallowed. These include that the costs of the attendance of both counsel and solicitor at a trial are not to be allowed unless the court certifies the attendance of both was necessary. Part 2 sets out the scale of costs in proceedings where the amount involved is less than $50,000 and part 3 has the scale if the amount involved is more than $50,000.
It appears from the Magistrates reasons and orders that his intention was to allow the first appellant its costs of the counterclaim, but to limit this to the appropriate scale and to indicate he did not think the matter warranted the involvement of counsel. The former was unnecessary as the rules dictate the appropriate scale. In this case, the counterclaim being for less than $2,500, the scale is that found in Schedule 2, Part 2, Column A. Perhaps it was open to the Magistrate, pursuant to rule 687(2)(d), to order that the costs be assessed having regard to Schedule 1, the scale for proceedings in the District and Supreme Courts, rather than Schedule 2. But it was clearly not the intention of the Magistrate to have the costs assessed at the higher scale. In this case the reference to ‘Schedule 1’ must have been an unfortunate error. As to ‘excluding the costs of counsel’, there are two ways to view this phrase. One is to take it as an indication that the Magistrate did not think the case required the attendance of both solicitor and counsel. The other is to take it as an indication he did not think counsel was required at all, and was signalling to any costs assessor that they should disallow the costs of counsel as being not ‘necessary or proper for the attainment of justice or for enforcing or defending the rights of the party whose costs are being assessed’.[29]
[29]UCPR, rule 702 – the standard basis of assessment.
The reasons of the Magistrate suggest he intended the order to have the latter meaning, and the costs of counsel should not be recoverable. If this is correct, the Magistrate was in error to have so ordered. Whether or not the first appellant’s claim to the security deposit was categorised as a counterclaim or a set-off, it is to be remembered they were in the proceedings first as a defendant. The counterclaim was a smaller aspect of the broader litigation between the parties. It has not been suggested that it was inappropriate to brief counsel to defend the respondent’s claim. To deny the cost of counsel in relation to the counterclaim without dealing with this reality was to ignore a relevant consideration in the exercise of the Magistrate’s discretion. By not having regard to this consideration, the Magistrate’s decision as to the costs of the counterclaim has miscarried and must be set aside.
How should the discretion as to costs have been exercised?
Having decided the Magistrate’s decision on the costs of the claim and counterclaim must be set aside, the question is what is to be done instead? Pursuant to section 47(d) of the Magistrates Court Act 1921 (Qld) this court can ‘make any other order, on such terms as it thinks proper, to ensure the determination on the merits of the real questions in controversy between the parties’. To save further expense, it is desirable for this court to make orders settling the costs dispute between the parties. Before considering the orders I will make, it is helpful to say something of how the costs controversy might have been approached by the parties and resolved by the Magistrate in a way that would have avoided this appeal.
How might the issue of costs been resolved in the Magistrates Court?
Rule 683 of the UCPR provides:
683 Costs in proceedings before Magistrates Court
(1) This rule applies to a proceeding before a Magistrates Court.
(2) The magistrate may fix the amount of the costs of the proceeding and order payment of the amount.
(3) However, the magistrate may order that the costs of the proceeding be assessed by a costs assessor if the magistrate considers it appropriate because of the nature and complexity of the proceeding.
An earlier version of rule 683[30] contained a different subsection (2):
(2) The Magistrate must make an order setting the costs of the proceeding.
[30]At the time it was rule 681.
The words of the present rule 683, and its antecedent provision, indicate there is a presumption in favour of a Magistrate fixing the costs of proceedings. It is only when a case falls into an exceptional category because of its ‘nature and complexity’ that there might be an order for the assessment of costs.[31] The position is in some ways the reverse of that obtaining in the District and Supreme Courts, where costs may be assessed without an order[32] and the discretion to fix costs is found in rule 697(2)(c), which presumes in favour of assessment of costs. The process of fixing costs in the Magistrates Court, at least in proceedings where the amount involved is less than $50,000, is aided greatly by Schedule 2, Part 2 of the UCPR. There is no reason why, in such cases, the parties could not present the necessary evidence to quantify costs on the relevant scale and permit the Magistrate to fix costs and order payment of that amount by the relevant party in accordance with rule 683. The material could have included the parties’ estimates as to costs approached on either the standard or indemnity basis having regard to rules 691, 702 and 703 and the appropriate scales in the schedule. That is what should have happened in this case. Unfortunately the parties did not in their written submissions mention rule 683 or seek to justify why the nature and complexity required an order for assessment in preference of fixed costs. Rather it seems to have been assumed that this would be the result.
[31]There was no reference to this rule in the submissions of the parties or the reasons of the Magistrate.
[32]UCPR, rule 686.
Once armed with such material, the Magistrate would have been in a position to apply the UCPR, and where relevant the common law, to make orders. This would have involved, at least, a consideration of the relevant ‘event’ or ‘events’ and the relative success of the parties to decide who should have the benefit of a costs order. Fixing costs should not usually be difficult. It is not intended to involve the rigour of a costs assessment[33] and can reflect a broad approach.[34] It is desirable to fix costs and avoid the time, trouble, delay and expense that can result from assessment.[35] This is especially the case in the Magistrates Court where the amounts involved in claims are necessarily less than in the District and Supreme Court.
[33]ASIC v Atlantic 3 Financial (Aust) Pty Ltd [2008] QSC 9; [2008] 2 Qd R 298, [32].
[34]Warren v Body Corporate for Buon Vista CTS 14325 [2007] QCA 160, [19].
[35]ASIC v Atlantic 3 Financial (Aust) Pty Ltd [2008] QSC 9; [2008] 2 Qd R 298, [32].
How should this court exercise the discretion?
In this case, as I have already outlined, the appellants were mostly successful in the proceedings before the Magistrate. They defended the majority of the claims brought by the respondent, and the first appellant succeeded entirely in its counterclaim. This is not a case where the court should descend into a consideration of multiple separate ‘events’ that might constitute the outcome of the proceedings.[36] The costs orders should reflect the relative success of the parties. As such the respondent should pay a reasonable amount of the appellants’ costs. It is possible to order that a party only recover a part or percentage of their costs.[37] In this case the orders that would in my view properly reflect the relevant considerations would be to the following effect:
(1) The respondent pay 80% of the first and second appellant’s costs of the proceeding commenced by the respondent’s claim; and
(2) The respondent pay the first appellant’s costs of the proceeding commenced by the first appellant’s counterclaim.
[36]Interchase Corporation Limited (in liq.) v Grosvenor Hill (Queensland) Pty Ltd (No. 3) [2003] 1 Qd R 26, [84]; The Australian Institute for Progress Ltd v The Electoral Commission of Queensland & Ors (No 2) [2020] QSC 174; 26 QLR, [15].
[37]Either pursuant to rule 687(2)(a) if the costs are assessed or 687(2)(d) which is in broad terms.
In both instances the costs should be on the standard basis as it was not unreasonable for the respondent to refuse the appellants’ offer, and there is no other reason to depart from the usual rule.
The parties have not made submissions as to whether the costs of the proceedings in the Magistrate Court should be fixed or assessed. This court is conferred with a broad discretion to make orders on the appeal[38] and may not be limited by rule 683 in the same way as the Magistrates Court. Nevertheless, consistent with the aim of rule 683, I think it is desirable to fix these costs if that is possible. This should not be too difficult having regard to the scale amounts found in Schedule 2, Part 2 of the UCPR. It seems to me the costs would not include the costs of the attendance of both counsel and solicitor (if that happened), as the court below did not certify their attendance was necessary. There are a number of ways in which the fixing of costs might be achieved. Methods that will reduce further costs to the parties to the greatest extent possible are to be preferred. The best course would be for the parties to agree as to the amounts, in which case they can propose an agreed draft order. If there is no agreement I will give the parties the opportunity to be heard in relation to this issue. That may involve the filing of material sufficient to give the court confidence in fixing the amount.[39]
[38]Magistrates Court Act 1921 (Qld), s 47(1)(d).
[39]ASIC v Atlantic 3 Financial (Aust) Pty Ltd [2008] QSC 9; [2008] 2 Qd R 298, [32]. Reference to Supreme Court Practice Direction 3 of 2007 may assist.
Costs of the appeal
Another matter to consider is the costs of the appeal. By section 47 of the Magistrates Court Act 1921 (Qld) this court may make ‘such order with respect to the costs of the appeal … as it thinks proper’. While I have not heard the parties as to the costs of the appeal, it may assist if I were to express some tentative views. The appellants have enjoyed some success on the appeal in that they have overturned the order that they pay indemnity costs and secured an order for some of their costs of the claim. But I was not persuaded those costs should be on the indemnity basis. I have also not been persuaded to alter the effect of the costs decision concerning the counterclaim. In my preliminary view an appropriate order would be for the respondent to pay 50% of the appellants’ costs of the appeal. Again, it would be desirable if those costs were agreed or fixed to spare the parties the expense of further litigation.
Orders and directions
For the reasons I have given it is appropriate today to make the following orders:
1. The appellants have leave to appeal;
2. The appeal is allowed;
3. The costs orders of the Magistrate of 14 August 2021 are set aside.
I have expressed my opinion about how the costs of the proceedings before the Magistrate should be apportioned, and how the costs of the appeal might dealt with. There remains the question of how the quantity of those costs is to be determined. To ensure the matter keeps moving, I will give the following directions:
1. On or before 25 June 2021 the parties are to advise my associate if they have agreed as to the orders to be made dealing with the costs of the proceedings before the Magistrate and of the appeal, and, if they have, to propose a draft order to give effect to that agreement;
2. If the parties do not agree:
a.the appellants have until 2 July 2021 to file and serve any material upon which they intend to rely, including a concise outline of submissions, concerning the orders to be made about the costs of the proceedings in the Magistrates Court and of the appeal. Such material is to include an indication as to whether the appellants seek to make further oral submissions or are content for the issue to be decided on the papers;
b.the respondent has until 16 July 2021 to file and serve any material upon which it intends to rely, including a concise outline of submissions, concerning the orders to be made about the costs of the proceedings in the Magistrates Court and of the appeal. Such material is to include an indication as to whether the respondent seeks to make further oral submissions or is content for the issue to be decided on the papers.