FEDERAL COURT OF AUSTRALIA Sanders v Glev Franchises Pty Ltd [2003] FCA 11 COSTS – principles relevant to an award of costs – whether Court should depart from the ordinary rule Federal Court of Australia Act 1976 (Cth), s 43 Federal Court Rules, O 65 r 15 Ruddock v Vadarlis (No 2) (2001) 115 FCR 229 referred Latoudis v Casey (1990) 170 CLR 534 referred Cummings v Lewis (1993) 41 FCR 559 referred Dr Martens Australia Pty Ltd v Figgins Holdings Pty Ltd (No 2) [2000] FCA 602 referred Verna Trading Pty Ltd v New India Assurance Pty Ltd [1999] 1 VR 129 referred JOHN EDWARDS SANDERS & ANOR v GLEV FRANCHISES PTY LTD & ORS VG 418 of 1992 KENNY J 14 JANUARY 2003 MELBOURNE IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY VG 418 OF 1992 BETWEEN: JOHN EDWARD SANDERS First Applicant CHRISTOPHER ZIENKIEWICZ Second Applicant AND: GLEV FRANCHISES PTY LTD First Respondent GABRIEL CHRISTOU Second Respondent LEO REYES Third Respondent JUDGE: KENNY J DATE OF ORDER: 14 JANUARY 2003 WHERE MADE: MELBOURNE THE COURT ORDERS THAT: 1. The application dated 6 November 1992 be dismissed. 2. The applicants pay the respondents' costs of the proceeding brought by them (including reserved costs), such costs to be taxed in default of agreement. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY VG 418 OF 1992 BETWEEN: JOHN EDWARD SANDERS First Applicant CHRISTOPHER ZIENKIEWICZ Second Applicant AND: GLEV FRANCHISES PTY LTD First Respondent GABRIEL CHRISTOU Second Respondent LEO REYES Third Respondent JUDGE: KENNY J DATE: 14 JANUARY 2003 PLACE: MELBOURNE REASONS FOR JUDGMENT introduction 1 In reasons for judgment delivered on 29 October 2002, the Court proposed to dismiss the application in this proceeding, since the applicants had not made out their case that the respondents were liable to them in damages for misrepresentations made in the course of negotiations prior to the making of a franchise agreement. At [350] of these reasons, I stated: In the ordinary course, the applicants would be required to pay the respondents' costs. There may, however, be considerations that, in the circumstances of the case, support a costs order of a different kind. Accordingly, the parties were afforded an opportunity to make written submissions concerning, amongst other things, the question of costs and the disposition of the respondents' cross-claim. 2 The parties filed written submissions on 13 November 2002. The applicants submitted that the Court should exercise its discretion by making no order as to costs. The respondents submitted that the applicants should be ordered to pay the respondents' costs of the proceeding on a party and party basis. the law with respect to costs 3 Section 43 of the Federal Court of Australia Act 1976 (Cth) provides: (1) Subject to subsection (1A), the Court or a Judge has jurisdiction to award costs in all proceedings before the Court (including proceedings dismissed for want of jurisdiction) other than proceedings in respect of which any other Act provides that costs shall not be awarded. … (2) Except as provided by any other Act, the award of costs is in the discretion of the Court or Judge. 4 Pursuant to O 62 r 15 of the Federal Court Rules ("the Rules"), where the costs of a motion, application or other proceeding are reserved by the Court, the costs so reserved shall follow the event unless the Court otherwise orders. Costs have been reserved on numerous occasions in the course of this proceeding. 5 In Ruddock v Vadarlis (No 2) (2001) 115 FCR 229, a Full Court, consisting of Black CJ, Beaumont and French JJ, considered the principles governing awards of costs. In a joint judgment, the Chief Justice and French J observed, at 234-235: The point of departure in ascertaining the principles that govern costs awards in the Federal Court is s 43 of the Federal Court of Australia Act. It speaks of a judge having 'jurisdiction' to award costs in all proceedings before the Court. No doubt this is to be regarded as a reference to power in aid of jurisdiction rather than a grant of jurisdiction in the sense in which that term is used in Ch III of the Constitution of the Commonwealth. The power of the Court so conferred is not fettered by any stated legislative presumption about the manner of its exercise. … . Like all discretions however, it must be exercised judicially and not against the successful party except for some reason connected with the case. … Within the general discretion of the courts to award costs it is accepted by decisions in both Australian and English jurisdictions that: · 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 upon a portion of the claim, the circumstances may make it reasonable that the litigant bear the expense of litigating that portion upon which he or she 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 parties' costs of them. In this sense 'issue' does not mean a precise issue in the technical pleading sense but any disputed question of fact or law. See Hughes v Western Australian Cricket Association (Inc) (1986) ATPR ¶40-748 at 48,136; approved by the Full Court in Queensland Wire Industries Pty Ltd v Broken Hill Pty Co Ltd(1987) 17 FCR 211 at 222. The award of costs to a successful party is principally by way of perceived restorative justice. The general rule assumes that where an applicant succeeds it will have incurred costs because the respondent's conduct made it necessary for the applicant to bring the proceedings. If the applicant fails, the respondent will have incurred costs defending an action which ought not to have been brought against it. The order made in such cases is compensatory. … . At 236, their Honours continued: Usually the circumstances in which a successful party is denied all or part of its costs have to do with its conduct of the proceedings. The Federal Court Rules 1979 (Cth) make specific provision for the case in which a judgment is obtained which is not more favourable than terms previously offered by a respondent: O 23, r 11. Within the general discretion to award costs, costs may be refused where, for example, the applicant has made an exaggerated claim which has occupied a significant proportion of the proceedings and has succeeded only on a minor aspect of its original claim. Costs may be apportioned according to success or failure on particular distinct or severable issues … . And a trial judge may award only a proportion of the successful party's costs if the conduct of that party at trial was such as to unreasonably prolong the proceedings … . (Citations omitted) 6 As their Honours acknowledge in the above passage, whilst an order for costs will in ordinary circumstances be made in favour of a successful respondent, there are cases in which an order to this effect would not be just and reasonable as, for example, in a case where the respondent has conducted a defence that has prolonged the proceeding unreasonably: see, e.g., Latoudis v Casey (1990) 170 CLR 534, at 544 per Mason CJ; and Cummings v Lewis (1993) 41 FCR 559 ("Cummings v Lewis"), at 603 per Cooper J (with whom Sheppard and Neaves JJ generally agreed). 7 In considering whether a successful defendant should be deprived of an order for costs, Goldberg J observed in Dr Martens Australia Pty Ltd v Figgins Holdings Pty Ltd (No 2) [2000] FCA 602 ("Dr Martens"), at [54]: The observations … in Hughes v Western Australia Cricket Association (Inc) (supra) and Cummings v Lewis (supra) show that in appropriate circumstances a successful defendant might be disentitled to an order for costs in respect of discrete and separate issues. Nevertheless, a court should be reluctant to embrace the proposition that, as a general rule, it is appropriate to undertake an enquiry as to who was successful in relation to particular issues in a case to determine whether there should be an apportionment of costs against a successful party. A court should not be too ready to disallow costs simply because a party has failed upon an issue, unless it be quite a separate and distinct issue from the issues in respect of which it succeeded or unless there be some element of unreasonableness or inappropriate conduct in relation to that issue: cf Verna Trading Pty Ltd v New India Assurance Pty Ltd [1991] 1 VR 129 at 152-154. the parties' submissions on costs 8 The applicants submitted that the Court should have regard to the following matters in connection with the question of costs. First, there was, so the applicants submitted, "a failure, over a prolonged period, on the part of the respondents to respond adequately or at all to the applicants' allegations that there had been misrepresentations as to future matters". Secondly, according to the applicants, the respondents did not plead reasonable grounds nor indicate that they may have made some of the representations pleaded against them until their further amended defence and cross-claim filed in June 2000. Thirdly, the litigation had a protracted procedural history, and the delay between the commencement of the proceeding in 1992 and the hearing of the application had caused the applicants serious prejudice. The respondents submitted, however, that: [T]hey did not unreasonably prolong the hearing of the proceedings (or delay the matter coming to hearing) or fail on any issue at hearing which might be considered to be distinct or separate such as to warrant a departure from the normal order that costs should follow the event. consideration of parties' submissions Some procedural history 9 To varying extents, the parties' submissions on costs relied on the curial history of the proceeding. Whilst it is unnecessary to set this out at length, it is helpful to mention some matters. 10 The applicants commenced the proceeding on 6 November 1992. Their solicitors at the time were B J Fennelly & Associates. They were was replaced by another firm of solicitors in May 1994, and it was not until 11 November 1994 that the firm, Slater & Gordon, assumed responsibility for the proceeding on the applicants' behalf. 11 By motion, notice of which was dated 3 May 1994, the respondents sought an order that the proceeding be dismissed, alternatively stayed, pursuant to O 10 r 7 of the Rules upon the ground of the applicants' failure to provide adequate particulars of their statement of claim. On 30 June 1994, a Judge of the Court in fact ordered that (1) the proceeding be stayed pending further or other order; and (2) the applicants pay the respondents' costs of their motion "such costs to be taxed in default of agreement prior to the conclusion of the proceeding". By motion, notice of which was dated 26 September 1995, the applicants applied for an order to lift the stay. The Court so ordered on 16 November 1995. 12 After a second further amended statement of claim had been filed and served on 22 February 1996, the Court directed, on 3 May 1996, that the proceeding be placed in the list of cases to be fixed for hearing. 13 In written submissions dated 21 March 1997, the respondents submitted that the proceeding should not be listed for trial until judgment was delivered in matter VG 439 of 1993 (Kaytonruby Pty Ltd v Glev Franchises Pty Ltd [1998] FCA 650). The Court acceded to this submission. The trial in matter VG 439 of 1993 commenced in August 1996 and did not conclude until April 1997. The trial judge gave judgment in that matter in August 1998. 14 The Court made further orders, by consent, on 25 August 1998, pursuant to which certain "preliminary matters" were to be listed for hearing (with an estimate of 8 to 10 days). Pursuant to this order, the evidence-in-chief at trial on the preliminary matters was to be given orally (save for the evidence of any accountant or solicitor called on behalf of the applicants on the preliminary matters). 15 In early 1999, the proceeding was listed for trial to commence on 7 June 1999 (with an estimate of 9 days). This date was subsequently vacated at the parties' instance. The trial was re-listed for hearing in March 2000 and then subsequently set down for hearing on numerous dates throughout 2000. The Court file indicates that the trial dates were vacated as a result of disputes between the parties concerning, amongst other things, the adequacy of discovery and pleadings. 16 By a notice of motion dated 12 May 2000, the applicants sought a variation of Ryan J's orders of 25 August 1998 in order that "all issues as to liability in this matter be determined together with issues of liability [in] related matters being numbered VG 419 of 1992 and VG 420 of 1992". An affidavit affirmed on 12 May 2000 by Ms Julie Maree Grainger, solicitor, in support of the applicants' motion deposed that a "substantial amount of the evidence in this matter in respect of the preliminary matters is common to proceedings numbered VG 419 and VG 420 of 1992". On 19 May 2000, the Court dismissed the applicants' motion. 17 The proceeding was ultimately listed for trial on 13 June 2000. The date was subsequently brought forward to 8 June 2000 at the parties' request. As it turned out, the parties were not ready to proceed on 8 June 2000 and the matter was adjourned to 13 June 2000. The parties were in dispute concerning discovery. On 13 June 2000, the Court directed, amongst other things, that the parties confer on discovery issues and that the respondents provide witness statements on the "reasonable grounds" issues. On 14 June 2000, further extensive pre-trial orders were made. The proceeding was again set down for hearing but the date was later vacated. (I interpolate that the parties came before the Court on numerous occasions during late 2000 but these appearances are not relevant for present purposes.) The matter again came before the Court for hearing on 19 January 2001. On that day, the applicants requested additional time to review two witness statements (a statement of Mr Sincock and a further statement of Mr Evan Christou) filed by the respondents the previous day. The matter was adjourned to 22 January 2000. 18 The course of the trial during 2001 was protracted. For present purposes, I refer only to some of the matters that are indicative of the conduct of the trial. 19 On 22 January 2001, counsel for the applicants foreshadowed the filing of a further statement by Mr Christopher Zienkiewicz in response to the further statement of Mr Evan Christou, which had been filed 18 January 2000. 20 On 23 January 2001, counsel for the applicants indicated that Mr Zienkiewicz's further affidavit was still being finalised. He informed the Court: We are in the process of preparing a further witness statement for Mr Zienkiewicz which will be ready later today. … There was a good deal of detail in Mr Christou's second witness statement and the various graphs that he has produced and in part they contain information which we don't have and which we would need to have … before we can finalise that work. … Can I take your Honour to … the Court Book to point out some other areas where we require further information. … The graph at page 110 and the graph at page 111 are in similar form. We find it impossible, due to the compression of the dates and the rather poor copying of the bottom line, the scale, to consider these graphs with any precision. Parts of the graphs in the witness statements were, in fact, illegible and, at the hearing on 23 January 2001, the Court indicated to the respondents' counsel that the applicants should have some clarification of them. 21 On 24 January 2001, counsel for the applicants sought discovery of documents concerning the financial performance of Adelaide or Victorian company-owned franchise stores for the period 1986 to 1991. Documents of this kind were, so it seemed, within the scope of a statement sworn in the proceeding by Evan Christou on 15 June 2000. The information sought was relevant to the applicants' case. The applicants' counsel also applied for leave to further amend the statement of claim. The application was stood over to 25 January 2001. On that day, the respondents opposed the applicants' application to amend, contending that the amendments sought to introduce new causes of action which were statute-barred. 22 In an ex tempore judgment delivered on 29 January 2001, I ordered that the applicants be granted leave to amend the third further amended statement of claim in the manner set out in the proposed fourth further amended statement of claim. This amendment introduced into the pleadings the representations at pars 7(3)(j), 7(3)(k) and 7(3)(l) of the pleading. These representations concerned the profitability of the Pizza Haven chain and the Ormond store. As I have previously observed, the representation pleaded in par 7(3)(j) of the applicants' statement of claim called for the most attention: see [2002] FCA 1332, at [290]. By their January 2001 amendment, the applicants also abandoned some earlier pleaded representations. 23 On 2 February 2001, the respondents sought to file a further (third) statement of Mr Evan Christou in response to the latest amended statement of claim. On 14 February 2001, the Court declined to admit parts of the statement into evidence. 24 As already noted, the respondents have been successful in the result, for the reasons stated on 29 October 2002. Whilst the applicants made out 6 of the numerous representations pleaded by them, they failed ultimately to make out their case. The Court held that some of these 6 representations were in the nature of puffery; others were made on reasonable grounds; and/or there was an absence of reliance. In the ordinary course, the respondents would be entitled to the costs of the proceeding. Delay by the respondents in responding to the applicants' allegations The form of the defence 25 The first two matters to which the applicants refer in support of their no costs submission might, if accepted, represent a failure on the respondents' part to conduct their defence reasonably in all the circumstances. The Court found that, on the evidence before it, the applicants had made out 6 of the numerous representations pleaded by them. As it happened, however, it was not until June 2000 that the respondents, in their pleadings, allowed for the possibility that they may have made some of the representations pleaded against them: see, e.g., par 7A of the respondents' further amended defence and cross-claim filed 13 June 2000. In the previous versions of their defence, they had denied the making of any alleged representations. Further, it was not until June 2000 that the respondents introduced a pleading of "reasonable grounds" as to future matters: see their further amended defence and cross-claim, pars 8A and 8B. Prior to June 2000, the respondents had merely denied the applicants' allegation as to the absence of reasonable grounds in respect of future matters. The incorporation of these paragraphs into their defence altered the case so far as the applicants were concerned and increased its complexity. 26 As already noted, the applicants submitted that the respondents had failed to respond adequately or at all to the applicants' allegations concerning representations as to future matters until late in the litigation. In addition to the respondents' late amendment of their defence, the applicants also referred to the lateness of Mr Evan Christou's third witness statement. 27 Mr Evan Christou was an important witness in connection with the performance of the South Australian stores. Some of his evidence on the subject was set out in his first witness statement, which was filed prior to the trial. He also dealt with this topic further in a third witness statement, which was filed in the course of the trial. A good deal of his third statement was, however, derived from documents that had been discovered to the applicants some years previously. 28 I accept that the third of Mr Evan Christou's statements would have assisted the applicants in assessing their case in so far as it concerned the representations about the projections founded on the South Australian store results. Amongst other things, the statement drew together information contained in numerous other documents. I do not accept, however, that, as the applicants submitted, they were unable otherwise to assess the prospects of their claim in relation to the representation pleaded as par 7(3)(j) of the fourth amended statement of claim. They had in their possession prior to trial the first of Mr Christou's statements and the discovered documents. Further, for much the same reason, I reject the applicants' submission that prior to Mr Evan Christou's third statement the respondents had given no evidence about the existence of their "market research" in Melbourne. Some evidence of this kind was contained in Mr Christou's first statement. 29 In relation to costs, the question that has most troubled me is whether the respondents should be denied a proportion of their costs, having regard to their late incorporation of an expansive reasonable grounds defence. They were, plainly enough, entitled to deny (as they did) the applicants' allegations against them. It was not, however, in accordance with the good conduct of litigation, to delay almost eight years before pleading the matter of reasonable grounds in relation to future matters in an informative way in a case such as this. These amendments were not fairly described as responsive to the applicants' amendments to their statement of claim, also made in June 2000. In the particular circumstances of this case, however, it cannot be said that the effect of the respondents' late amendments to their defence was unreasonably to prolong the proceedings: cf Cummings v Lewis, at 603, referred to with approval by Goldberg J in Dr Martens, and see also Verna Trading Pty Ltd v New India Assurance Pty Ltd [1999] 1 VR 129, at 156 per Kaye J, with whom McGarvie J agreed. The respondents' amendments were properly made, in so far as they set out the defence that the respondents were to make at trial. As it turned out, the amendments were made six months before the trial resumed in January 2001, allowing the applicants a full opportunity to consider the significance of them for their case. Moreover, as already noted, the applicants themselves made significant changes to their own pleading at an even later date, in the course of the trial. The parties were exchanging written statements well after the trial had begun. Discovery lingered on as an issue for much of the hearing. In the circumstances, I am unable to discern any proper basis for depriving the respondents' of their costs. Justice delayed 30 The applicants also submitted that they had been prejudiced by the delay between the commencement of the proceedings and the trial. In written submissions, they said: It is not useful to break down the 10 years it took for the proceeding to be determined into segments, and to seek to attribute responsibility or primary responsibility for various periods of delay to the parties or the processes of the Court. Regardless of the matters contributing to the delay, the respondents reaped the very substantial benefit of only having to deal with two of the four proceedings arising out of the same series of events in 1990, the Kayton Ruby proceeding, which was tried by Ryan J in 1996 and 1997, and this proceeding which was tried in 2001. The respondents did not have to defend the four proceedings in a relatively short space of time (perhaps in 1994/1995) as might otherwise have been the case. The respondents were allowed the luxury of dealing with one case at a time in succession, and litigated each case hard against the individuals involved. 31 Plainly enough, the length of time which elapsed between the events with which these proceedings were concerned and the trial affected the capacity of witnesses to recall the events, and what had been said and by whom. None of the parties had prepared witness statements of their recollection of events (or any like record) until about 8 years after the events with which this proceeding is concerned (although it appears that the applicants prepared a written note for their lawyers in late 1992 or early 1993, in relation to which they claimed legal professional privilege). 32 The Court is concerned with the evidence before it at the time of trial and it must find the relevant facts having regard to this body of evidence. The actual effect of the delay on the outcome of the proceedings cannot be determined. The Court has no evidence as to what witnesses would or could have said had the trial taken place at an earlier date. It is, therefore, impossible to say with any confidence whether or not any party would have presented a stronger case had there been an earlier trial. 33 In any event, as the applicants recognize, it would be virtually impossible to allocate responsibility for the delay primarily to the applicants or to the respondents. I have already referred to the pleading amendments made by all parties prior to trial, and to the ongoing discovery issues. Some 17 months elapsed from the imposition of the stay in June 1994 until the applicants sought to have it lifted by notice of motion in November 1995. The more recent history of the litigation shows that a number of trial dates were given and vacated until the hearing properly got underway in January 2001. Even then, the applicants applied for leave to serve the fourth amended statement of claim, which included pars 7(3)(j), (k) and (l) on 25 January 2001, five days after the hearing had resumed. In final submissions, the applicants sought to amend par 7(3)(f) of their statement of claim. Further, as noted, whether or not as a consequence of the pleading amendments, witness statements were filed on behalf of the applicants and the respondents well into the trial. (The poor state of the court books is perhaps indicative of the difficulties faced by the parties in conducting the proceeding.) 34 As the respondents submitted, the protracted nature of the proceeding and its complexity occasioned difficulties for everyone concerned with them. The applicants had, however, primary responsibility for their conduct and the trial in 2001. For the reasons stated, there would appear to be no basis to depart from the ordinary rule as to costs. The applicants should pay the respondents' costs of the proceeding, including reserved costs. other matters 35 The respondents sought to file further submissions on costs in reply to the applicants' submissions. The applicants opposed this course. It suffices to say that nothing in the respondents' further submissions would cause me to approach the matter of costs in a different manner from that which I have done. 36 The respondents have requested that the cross-claim in the proceeding be listed for directions. They have also indicated that they intend to make a costs application against Mr Russell Taylor, who was a party to the proceeding until 15 February 1996. The Court file indicates that, on that date, the Court made orders, by consent, that the proceeding brought by Mr Taylor be dismissed and the respondents' costs of that proceeding be reserved. This matter will also be listed for directions. I certify that the preceding thirty-six (36) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Kenny. Associate: Dated: 14 January 2003 Counsel for the Applicants: Mr P Bick QC with Mr D Farrands Solicitor for the Applicants: Slater & Gordon Counsel for the Respondents: Mr C Golvan SC Solicitor for the Respondents: Middletons Dates of Hearing: 8/6/00, 13/6/00-14/6/00, 20/6/00, 19/1/01, 22/1/01-25/1/01, 29/1/01-30/1/01, 2/2/01, 5/2/01-9/2/01, 12/2/01-14/2/01, 16/2/01, 27/2/01-2/3/01, 26/4/01-27/4/01, 30/4/01-1/5/01, 5/6/01 & 13/6/01 Date of Judgment: 14 January 2003