FEDERAL COURT OF AUSTRALIA Hayle Holdings Pty Ltd v Australian Technology Group Ltd [2000] FCA 1699 COSTS – apportionment of costs – whether costs should follow the event – applicant successful on only one of the thirty-one representations pleaded – whether the whole of the course of dealing between the parties was relevant to the issue on which the applicants succeeded – need for economy and efficiency in conduct of litigation – whether applicant improperly or unreasonably raised issues or made allegations – whether respondent should be liable for the applicants' costs associated with those heads of damage on which the applicant was not successful – whether applicants should be entitled to costs thrown away by reason of the respondent changing the basis of its case CAUSATION – whether the applicants' entry into the Share Sale Agreement was causally linked to the misleading and deceptive conduct - 'billiard ball' versus 'common sense' causation Federal Court of Australia Act 1976 (Cth) s 43(2) Trade Practices Act 1974 (Cth) s 87 Oshlack v Richmond River Council (1998) 193 CLR 72 applied Hughes v Western Australian Cricket Association (Inc.) (1986) ATPR 40-748 applied Australian Trade Commission v Disktravel [2000] FCA 62 cited Forster v Farquhar [1893] 1 QB 564 discussed Cretazzo v Lombardi (1975) 13 SASR 4 applied Dodds Family Investments Pty Ltd v Lane Industries Pty Ltd (1993) 26 IPR 261 discussed R v Secretary of State for Transport; ex parte Factortame Ltd [1998] EWCA 2999discussed Re Elgindata Ltd (No 2) [1993] 1 All ER 232 applied HAYLE HOLDINGS PTY LTD & ORS v AUSTRALIAN TECHNOLOGY GROUP LTD & ANOR NG 1136 OF 1998 HELY J 24 NOVEMBER 2000 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NG 1136 OF 1998 BETWEEN: HAYLE HOLDINGS PTY LTD FIRST APPLICANT PANCO ENTERPRISES PTY LTD SECOND APPLICANT NEVILLE JAMES BROWNE THIRD APPLICANT AND: AUSTRALIAN TECHNOLOGY GROUP FIRST RESPONDENT BARRY WESTLAKE SECOND RESPONDENT JUDGE: HELY J DATE OF ORDER: 24 NOVEMBER 2000 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. There be judgment for Hayle Holdings Pty Ltd in the sum of $488,270 together with interest. 2. There be included in the sum for which judgment is given, interest in the sum of $247,914. 3. There be judgment for the respondent as cross-claimant against Panco and Mr Browne in the sum of $300,000 together with interest. 4. There be included in the sum for which judgment is given on the cross-claim, interest in the sum of $54,939.02. 5. Panco and Mr Browne pay the respondents' costs of the cross-claim other than costs which would have been incurred in any event as part of the respondents' defence to the applicants' claim. 6. The respondent pay the applicants' costs of the proceedings, excluding costs referrable to the quantification of the damages claimed, other than costs referrable to the quantification of trading losses incurred as a result of postponing the close of Hayle Sydney from 15 November 1995 to 14 February 1996. 7. The respondents pay the applicants' costs: · of the preparation of the affidavit of Roger Portman sworn 18 June 2000; · of the motion for leave to rely on the affidavit of Mr Dalfen although filed out of time, the preparation of the affidavits of Mr Browne and Dr Cooper sworn 20 June 2000 in response to Mr Dalfen's affidavit; · incurred by reason of the respondents' threat to call Belinda Green as a witness in the proceedings. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NG 1136 OF 1998 BETWEEN: HAYLE HOLDINGS PTY LTD FIRST APPLICANT PANCO ENTERPRISES PTY LTD SECOND APPLICANT NEVILLE JAMES BROWNE THIRD APPLICANT AND: AUSTRALIAN TECHNOLOGY GROUP FIRST RESPONDENT BARRY WESTLAKE SECOND RESPONDENT JUDGE: HELY J DATE: 24 NOVEMBER 2000 PLACE: SYDNEY REASONS FOR JUDGMENT (2) 1 I gave my decision in this matter on 5 September 2000, but reserved for further consideration the question of costs and consequential relief. I have now heard argument on those matters. Costs 2 The applicants seek an order that the respondents pay the costs of the proceedings, as the applicants were the successful party, and recovered a substantial award of damages - $488,270. The respondent contends that no order as to costs should be made in the applicants' favour, who "should meet in large measure" the respondents' costs. That is because the applicants had only a very limited success – damages were awarded with respect to one only of thirty representations relied upon, and for a sum much less than the $40-odd million which was claimed. 3 The award of costs is in my discretion: Federal Court of Australia Act 1976 (Cth), s 43(2); Oshlack v Richmond River Council (1998) 193 CLR 72. However, the discretion must be exercised judicially, and there are authorities which provide guidance as to its exercise. By far the most important factor which courts have viewed as guiding the exercise of the costs discretion is the result of the litigation. A successful litigant is generally entitled to an award of costs, unless for some reason connected with the case, a different order is required: see Oshlack at p 96 (per McHugh J – dissenting in the result) and at p 120 (per Kirby J). 4 In Hughes v Western Australian Cricket Association (Inc.) (1986) ATPR 40-748 at 48,136 Toohey J summarised the effect of decisions of Australian and English Courts on apportionment of costs thus: - ordinarily, costs follow the event and a successful litigant receives costs in the absence of special circumstances justifying some other order; - where a litigant has succeeded only on a portion of the claim, the circumstances may make it reasonable that the litigant bear the expense of litigating that portion upon which it has failed; - a successful party who has failed on certain issues may not only be deprived of the costs of those issues but may be ordered as well to pay the other party's costs. "Issue" in that sense, does not mean a precise issue in the technical pleading sense, but any disputed question of fact or law. This summary has often been referred to in subsequent decisions of Full Courts of this Court with approval: see eg Australian Trade Commission v Disktravel [2000] FCA 62. 5 Forster v Farquhar [1893] 1 QB 564 was a case in which a successful plaintiff was ordered to pay the defendant's costs of the items of special damage which the plaintiff failed to recover. The claims were not made vexatiously or oppressively – they merely failed. At p 570 Bowen LJ said: "The real controversy in the present action was as to the damage suffered, and the question as to damage, though not an issue in the pleader's sense of the word, was a matter in controversy and one which could be split up into separate heads, each involving a different class of evidence. For all purposes of justice these separate heads of controversy were different issues, though not different issues, nor even issues at all, in the sense in which pleaders use the term. Why should the defendants, whose defence has succeeded on the most expensive and the most important of these heads of controversy, bear the cost of litigating it? If by making a special order as to costs the judge could apply distributively to these heads of controversy the maxim that he who loses pays, was it not fair and reasonable so to direct? It seems to us that it was. So far from thinking that Cave, J., had no good cause for making the order he did, what he has directed appears to us, on the contrary, to be an exact and admirable instance of the way in which, in the hands of a competent and accurate judge, the rule as to good cause can usefully be applied." 6 As against that, in Cretazzo v Lombardi (1975) 13 SASR 4 at 16 Jacobs J issued a caveat against too ready a resort to apportionment according to issue based outcomes, a caveat endorsed by the Full Court in Disktravel. The mere fact that the party against whom the judgment goes is successful on particular issues, does not of itself mean that this party should receive the costs of those issues. Yet the Full Court in Dodds Family Investments Pty Ltd v Lane Industries Pty Ltd (1993) 26 IPR 261, after referring to Hughes and Cretazzo, said that the demands of the community for greater economy and efficiency in the conduct of litigation may properly be reflected in a qualification of the presumption (as to which see the majority in Oshlack) that a successful party is entitled to its costs. 7 Lord Woolf, MR, in R v Secretary of State for Transport; ex parte Factortame Ltd [1998] EWCA 2999 made the point that, at least to some extent, decisions of courts on costs reflect established practice, and the practice of courts does evolve. In His Lordship's view, in more recent times there has been greater concern with the extent to which the costs of litigation have been increased by the inclusion of issues on which the successful party failed. That is consistent with the views expressed by the Full Court of this Court in Dodds Family Investments (supra). 8 The third of the principles enunciated by Toohey J in Hughes, is that a successful party who fails on certain issues may be deprived of the costs of those issues, and may also be ordered to pay the other party's costs of those issues. When is it appropriate to order that a successful party should not merely be deprived of its costs of an issue on which it failed, but should also pay the other side's costs of that issue? 9 Re Elgindata Ltd (No 2) [1993] 1 All ER 232 at 237, in the judgment of Nourse LJ, contains a statement of applicable principles. Principle (3) is that if a successful party has caused a significant increase in the length or cost of proceedings by raising issues or making allegations on which he fails, then he may be deprived of the whole or part of his costs. Principle (4) is: "Where the successful party raises issues or makes allegations improperly or unreasonably, the Court may not only deprive him of his costs but order him to pay the whole or a part of the unsuccessful party's costs." A successful party who neither improperly nor unreasonably raises issues or makes allegations on which he fails ought not, in the judgment of the English Court of Appeal, be ordered to pay any part of the unsuccessful party's costs. 10 As the decision of Nourse LJ makes plain, principle (4) flows from the terms of Order 62 rule 10 of the English Rules of the Supreme Court as they then stood; a provision which has no equivalent in the Federal Court Rules. But in Oshlack, at p 97, McHugh J described the traditional rule as being one in which a successful plaintiff ought not to be made to pay the costs of the other side unless he has been guilty of some sort of misconduct. 11 The applicants failed to obtain relief in relation to all bar one of the thirty-one representations on which they relied. But each representation should not be treated as if it were a separate case. In addition to individual representations, the applicants relied upon a course of conduct which was alleged to be misleading or deceptive. 12 The misleading and deceptive conduct which was the basis for the applicants' success on the representation alleged in par 69 of the Second Further Amended Statement of Claim ("2FASC"), first occurred on 27 October 1993. But events which occurred before and after that date were relevant to the issue of whether there was misleading and deceptive conduct, and to the question of causation. Thus the "line in the sand" drawn by Mr Browne, the negotiations in relation to it, and the whole process by which the terms of the proposed deal changed from the inception of the negotiations, were relevant to the case on which the applicants succeeded. Events which occurred after 27 October 1993 were also relevant, as they threw light upon the basis on which the ATG board approved the investment in Hayle. They were also relevant to the credit of Dr Westlake and Dr Harbour, which was a central issue. 13 I reject the submission that the costs awarded to the applicant should be confined, in terms of liability, to the issue tendered by par 69 of 2FASC. The whole course of dealing between the parties was relevant to the issue on which the applicants succeeded. It was not unreasonable or inappropriate for the applicants to expose the whole of the course of dealing between the parties. The fact that aspects of it were alleged to be representations which, for a variety of reasons, were either not established, or did not found any relief, provides an insufficient reason for denying the applicants their costs on the issue of liability. 14 The applicants sought to quantify their damages claim at a sum in excess of $40 million. They are entitled to the costs referrable to the quantification of the trading losses incurred as a result of postponing the close of Hayle Sydney from 15 November 1995 to 14 February 1996, as that is the foundation of the damages which I awarded. 15 An expensive and important aspect of the claim was the contention, on which the applicants failed, that but for the respondents' misleading and deceptive conduct, Hayle would have succeeded in obtaining venture capital in USA, and established a successful business there, or alternatively lost the chance of establishing such a business. I have no direct evidence as to the extent to which the costs of the proceedings were increased by the inclusion of this claim, but the evidence of two Australian accounting experts, and two American venture capitalists would not have been necessary had this claim not been made. The costs of preparing and adducing this evidence must have been substantial. The applicants also failed in recovering expenses incurred in attempting to secure a licensing arrangement, and expenses incurred in developing the 3M relationship. 16 It would be unfair for the respondent to be required to pay the applicants' costs referrable to the quantification of heads of damage which the applicants failed to recover. That is because the costs of the litigation must have been substantially increased by the inclusion of the unsuccessful damages claims, and because of the very limited measure of the applicants' success in relation to the overall damages claim. 17 The applicants did not act improperly or unreasonably in raising the issue of whether they would have obtained venture capital in the USA, and established, or had the chance of establishing, a successful business there. There was some evidence in support of the claim, but nevertheless the claim failed for the reasons given in my earlier judgment. No offer of compromise was made by the respondent, subject to the possible qualification that at an early stage in the proceedings, an offer of settlement of $20,000 was made by the respondent. 18 Counsel for the respondent accepted during the course of submissions that, consistently with established principle, the respondent would only be entitled to its costs of this issue if I came to the conclusion that the applicants had acted improperly or unreasonably in raising the issue. In those circumstances it would not be appropriate to follow the course adopted in Forster (supra). As I am not of the opinion that the applicants acted improperly or unreasonably in raising the issue, I decline to order that the applicants pay the respondents' costs of the issue. 19 The applicants sought an order that certain costs, thrown away by reason of the respondent changing the basis of its case, should be paid by the respondent in any event. The respondent did not oppose the making of an order to that effect. In view of the conclusion which I have reached on the issue of costs it may not be necessary for a specific order to be made in relation to some or all of these costs, but for more abundant precaution, I will make a specific order. 20 The orders which I make as to costs are: (a) the respondent pay the applicants' costs of the proceedings, excluding costs referrable to the quantification of the damages claimed, other than costs referrable to the quantification of trading losses incurred as a result of postponing the close of Hayle Sydney from 15 November 1995 to 14 February 1996. (b) The respondents pay the applicants' costs: · of the preparation of the affidavit of Roger Portman sworn 18 June 2000; · of the motion for leave to rely on the affidavit of Mr Dalfen although filed out of time, the preparation of the affidavits of Mr Browne and Dr Cooper sworn 20 June 2000 in response to Mr Dalfen's affidavit; · incurred by reason of the respondents' threat to call Belinda Green as a witness in the proceedings. Consequential Orders 21 It is common ground that I should amend Order 1 made on 5 September 2000 so as to provide for the entry of judgment in favour of Hayle Holdings Pty Ltd, rather than in favour of the applicants as a body. I will do so. No attention was paid to the position of individual applicants during the hearing. The case was conducted on the basis that it was not material to distinguish between them. 22 The question arises (see judgment [466]-[467]) as to whether the receipt of the first tranche capital subscription of $300,000 by Hayle Holdings Pty Ltd has any impact upon the damages claim. Further, the respondent brings a cross-claim to recover that sum from each of the applicants pursuant to the terms of the share sale agreement entered into on 29 January 1996 and the Guarantee and Indemnity executed on the same date. 23 The Share Sale Agreement was between Mr Browne, Panco, Hayle and ATG. Under it Panco agreed to buy all the shares in Hayle which had been issued to ATG, for a price of $300,000. In the events which happened, the date for payment of that sum became 31 December 1998. Further, the November agreement was terminated, and the parties released each other from "all payments including obligations arising under" the November Agreement. Mr Browne and ATG are the parties to the Guarantee and Indemnity. Mr Browne guaranteed the payment of $300,000 by Panco. 24 It is not clear to me (and the respondents' submissions do not explain) how a liability arises in Hayle Holdings Pty Ltd, under the January agreements, to repay the sum of $300,000 which was paid by the respondent to Hayle Holdings by way of subscription for shares which, under the January agreements, are transferred from the respondent to Panco. 25 In submissions made after the delivery of judgment, it was put that the Court should consider what is the loss that each applicant has suffered in consequence of the misleading and deceptive conduct which has been found to have occurred. It is said to be an inevitable consequence that but for the misleading and deceptive conduct neither the November nor the January agreements would have been entered into. Nor would Panco and Mr Browne have been faced with the cross-claim in the present proceedings, where the respondent seeks to enforce the obligations arising under the January agreement and guarantee. 26 The applicants contend that orders should be made under s 87 of the Trade Practices Act 1974 (Cth) which will have the practical result of preventing or reducing the loss or damage that the applicants, or some of them, have suffered in consequence of the misleading and deceptive conduct. The relief sought is an order reducing the liability of Panco under the January agreement to zero, declaring the guarantee void, and dismissing the respondent's cross-claim. 27 The applicants submit that it would be bizarre if the respondent were to get "full dollar" value (as it would if the cross-claim or a set off were allowed) for the $300,000 which the respondent invested in Hayle Holdings when this was subscribed as equity capital, and when the financial position of Hayle Holdings was such that the shares were not worth anything like $300,000. 28 On one approach, an assessment of the loss suffered by Hayle Holdings in consequence of misleading and deceptive conduct requires there to be taken into account gains which would not have been derived but for the misleading and deceptive conduct, as well as outgoings which would not otherwise have been incurred. On that approach the $300,000 would be set off against the outgoings of $488,270, with Hayle Holdings' loss being assessed as the difference. If that approach were adopted, others of the applicants might be able to establish that one or more of them suffered loss in addition to the loss sustained by Hayle Holdings. For example, Mr Browne and/or Panco might be able to establish that they suffered loss by reason of the capitalisation or subordination of loan accounts which they would not have suffered but for the misleading and deceptive conduct, or they may be able to establish that the value of their shares in Hayle was diminished because of that conduct. 29 In my view, the approach referred to in the previous paragraph ought not to be adopted. The case was not conducted on that basis. Hayle received the $300,000 in return for an issue of share to the respondent. It was not a benefit which it derived from the misleading and deceptive conduct. In no practical sense did this receipt diminish the loss which Hayle suffered in consequence of its continued trading in the period after 15 November 1995. Further, the terms of the January agreements are inconsistent with any entitlement on the part of the respondent to offset the $300,000 subscribed as capital against damages otherwise payable to Hayle Holdings by the respondent. Those agreements assume that the $300,000 remains part of the capital of Hayle Holdings available for its general purposes. The respondent would be unjustly enriched if the $300,000 were applied in reduction of the respondents' liability to Hayle Holdings, yet it remained entitled to recover the price agreed to be paid by Panco to acquire the respondents' shares in Hayle. 30 Accordingly, the issue is whether the respondent is entitled to recover against Panco and Mr Browne pursuant to the cross-claim. It was on that basis that the respondent sought to recoup the benefit of its $300,000 expenditure. As indicated earlier, whilst Hayle Holdings has been joined as a respondent to the cross-claim no basis for recovery against Hayle Holdings pursuant to the January agreements has been identified. 31 Panco and Mr Browne assert that but for the misleading and deceptive conduct, the November agreement would not have been entered into. Had that agreement not been concluded, the January agreement would not have been entered into. The liabilities which Mr Browne and Panco incurred under those agreements should thus be seen as a loss which Mr Browne and Panco suffered by the respondents' misleading and deceptive conduct, even if it be assumed that at the time of entry into of the January agreement each was aware of the misleading and deceptive conduct engaged in by the respondent in the previous year. 32 This claim should be rejected. It depends upon "billiard ball" causation, rather than "common sense" causation. At the time of the entry into of the January agreement the applicants knew of the conduct of which they now complain and of its misleading and deceptive character. No one gave evidence in the proceedings which directly linked the entry into of the January agreements with the misleading and deceptive conduct. The link was left to inference. Whilst causation may be inferred as well as proven by direct evidence, it is unreal, in the circumstances of the present case, to infer that the January agreements were entered into by reason of the earlier representations, when the falsity of those representations was known at the time of the making of the January agreements. 33 In addition to the costs orders earlier referred to, I make the following orders in substitution for the orders made on 5 September 2000: 1 Judgment for Hayle Holdings Pty Ltd in the sum of $488,270 together with interest. 2 Order that there be included in the sum for which judgment is given, interest in the sum of $247,914. 3 Judgment for the respondent as cross-claimant against Panco and Mr Browne in the sum of $300,000 together with interest. 4 Order that there be included in the sum for which judgment is given on the cross-claim, interest in the sum of $54,939.02. 5 Order that Panco and Mr Browne pay the respondents' costs of the cross-claim other than costs which would have been incurred in any event as part of the respondents' defence to the applicants' claim. 34 The interest component of the orders referred to above have been derived from agreed calculations submitted by the parties. I certify that the preceding thirty-four (34) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Hely. Associate: Dated: 24 November 2000 Counsel for the Applicant: Mr J Campbell QC, Mr M Henry Solicitor for the Applicant: Aitken McLachlan & Thorpe Counsel for the Respondent: Mr P O'Loughlin Solicitor for the Respondent: Gordon & Johnstone Date of Hearing: 13 November 2000 Date of Judgment: 24 November 2000