Supreme Court New South Wales Medium Neutral Citation: SSABR Pty Ltd v AMA Group Ltd (No 4) [2024] NSWSC 1512 Hearing dates: On the papers; last submissions received 27 November 2024 Date of orders: 28 November 2024 Decision date: 28 November 2024 Jurisdiction: Equity - Expedition List Before: Rees J Decision: Costs order made. Catchwords: COSTS – whether costs should be apportioned, principles at [22]-[25] – late abandonment of claims and cross-claims – costs apportioned based on parties' relative success – no issue of principle. Legislation Cited: Civil Procedure Act 2005 (NSW), s 98 Cases Cited: Bookarelli Pty Ltd v Katanga Developments Pty Ltd (No 2) [2017] NSWCA 94 Bostik Australia Pty Ltd v Liddiard (No 2) [2009] NSWCA 304 Cabport Pty Ltd v Marinchek (No 2) [2013] NSWCA 131 Cretazzo v Lombardi (1975) 13 SASR 4 Dee-Tech Pty Ltd v Neddam Holdings Pty Ltd (No 2) [2012] NSWSC 517 Elite Protective Personnel Pty Ltd v Salmon (No 2) [2007] NSWCA 373 Firebird Global Master Fund II Ltd v Republic of Nauru (No 2) [2015] HCA 53 Hawkesbury District Health Service Ltd v Chaker (No 2) [2011] NSWCA 30 James v Surf Road Nominees Pty Ltd (No 2) [2005] NSWCA 296 Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (No 2) [2014] NSWCA 425 Ryde Developments Pty Ltd v Property Investors Alliance Pty Ltd (No 2) [2018] NSWCA 40 Tomanovic v Global Mortgage Equity Corporation Pty Ltd (No 2) (2011) 86 ACSR 119; [2011] NSWCA 256 Verde Terra Pty Ltd v Central Coast Council [2023] NSWLEC 110 Category: Costs Parties: SSABR Pty Ltd (First Plaintiff) HAAPRC Pty Ltd (Second Plaintiff) AMA Group Ltd (First Defendant) AMA Group Solutions Pty Ltd (Second Defendant) Representation: Counsel: Mr JA Redwood SC / Ms SK Hill (Plaintiffs) Mr MA Robins KC / Mr S Fitzpatrick SC (Defendants) Solicitors: CBD Law (Plaintiffs) K&L Gates (Defendants) File Number(s): 2021/257009 JUDGMENT 1. HER HONOUR: This matter has been remitted to determine whether the plaintiffs are entitled to their costs of the trial: SSABR Pty Ltd v AMA Group Ltd (No 2) [2024] NSWCA 201. The defendants relied on the affidavit of their solicitor, Alexandra Smith. The parties provided two 'rounds' of submissions. This judgment assumes familiarity with my previous judgments in this matter, including most recently SSABR Pty Ltd v AMA Group Ltd (No 3) [2024] NSWSC 1415. Facts 1. In reprise, the plaintiffs sold two smash repair businesses to the first defendant, AMA Group Ltd, for $4.8 million plus an "Earn-Out Amount" to be paid in two years' time. The smash repair businesses were in Gosford, being a panel beating and spray-painting repair shop called "Simply Smashing Auto Body Repairs" (Simply Smashing) and a prestige car smash repair shop called "Harris & Adams Prestige Auto Body Repairs" (Harris & Adams) (together the Businesses). Raffie Nercessian ran the Businesses, both before the sale and during the Earn-Out Period. 2. In September 2021, the plaintiffs commenced these proceedings, suing for the Earn-Out Amount. By Cross-Claim, AMA Group sought rectification of the Business Sale Agreement and recovery of an overpayment of the purchase price. The pleadings were amended from time to time. 3. In June 2022 the defendants were directed to provide discovery of 16 compendiously worded categories directed to: 1. JobKeeper payments; 2. rebates and market incentives; 3. arrangements with Suncorp and the number of vehicles repaired by Harris & Adams for that insurer; and 4. arrangements with ACM Auto Parts. 1. In August 2022, the plaintiffs were directed to provide discovery. The categories were directed to: 1. arrangements with Suncorp; 2. alleged representations; and 3. the negotiation and drafting of the Business Sale Agreement, presumably going to rectification. 1. In November 2022, the plaintiffs amended their pleadings, dropping their claim regarding Driver Care. Lay and expert evidence was gradually served. The parties retained forensic accounting experts. The plaintiffs' expert, Brian Morris, produced three reports. AMA Group's experts, Andrew Archer and Darryn Hockley of Grant Thornton, produced two reports. The experts together produced a joint report. 2. The defendants disputed a claim for privilege by the plaintiffs. In October 2023, Ball J found that privilege had been waived and ordered production of the relevant material. The matter was listed for trial on 16 October 2023, and was heard over four days. 3. The plaintiffs relied on the evidence of Mr Nercessian and former Chief Commercial Officer of AMA Group, Peter Bubeck. The defendants relied on the evidence of Chief Executive Officer, Carl Bizon, and solicitor and former director of AMA Group, Leath Nicholson. The parties' expert witnesses were as earlier described. The first and last day were occupied by opening and closing submissions. Roughly one day was occupied with lay evidence and one day with expert conclaves. 4. The starting point for calculating the Earn-Out Amount was Earnings Before Interest and Tax (EBIT) "for the Earn-Out Period." At trial, the plaintiffs contended that this meant total EBIT earned by the Businesses over the two years, while AMA Group said that it meant average annual EBIT. I concluded that the plaintiffs' construction was correct; this was upheld on appeal. In the alternative, AMA Group sought rectification to bring the contract in line with the parties' common intentions laid out in Binding Heads of Agreement executed a month earlier. I made orders for rectification. These orders were set aside on appeal. Mr Morris opined that the Earn-Out Amount was $374,460 if AMA Group had not halved the EBIT during the Earn-Out Period. Where AMA Group did not disagree with that calculation, the plaintiffs were entitled to that amount given the Court of Appeal's judgment in respect of rectification. 5. In addition, in determining EBIT, the purchaser was obliged to "apply accounting treatment in accordance with Australian Accounting Standards." The plaintiffs contended that this required JobKeeper payments and rebates on paint supplies to be included as income in the calculation of EBIT. Failure to take JobKeeper into account was said to have understated the Earn-Out Amount by $1.8 million, while failure to account for paint rebates understated the Earn-Out Amount by $1.511 million. 6. On remitter, it was necessary to construe further provisions of the Business Sale Agreement, being cl 5.1(b) and its embedded definition. Where these provisions referred to EBIT, both Mr Morris and Mr Archer expressed views on the extent to which Australian Accounting Standards affected the calculation of EBIT. I preferred Mr Archer's view on that subject: SSABR v AMA Group (No 3) at [56]. 7. I preferred Mr Archer's opinion and evidence of generally accepted accounting principles and practices in relation to the plaintiffs' claim for paint rebates to be included in the Earn-Out calculation. I was not satisfied that AMA Group breached the Business Sale Agreement for failing to include rebates attributable to the Businesses' usage of paint during the Earn-Out Period: SSABR v AMA Group (No 3) at [69]. 8. I preferred Mr Morris's opinion in respect of JobKeeper. Given the Court of Appeal's judgment in respect of rectification, it followed that the plaintiffs were entitled to the additional amount calculated by Mr Morris in respect of this item, being $1.8 million: SSABR v AMA Group (No 3) at [83]. In the result, I gave judgment in favour of the plaintiffs in the amount of $2,174,640 plus interest. Submissions 1. The plaintiffs submitted that they had obtained a judgment of $2,174,640 plus interest and successfully resisted the defendants' rectification suit and related construction arguments. The plaintiffs were awarded more than 50% of the damages sought (my calculation is slightly less than 50%) and had achieved substantial success. This was said to be a clear situation where the ordinary rule should apply and costs should follow the event. The plaintiffs submitted that there was "no reasonable or principled basis for departing from the ordinary rule". 2. The plaintiffs submitted that this was not a situation where any kind of apportionment would be appropriate. Courts do not usually apportion costs between issues but act on the outcome of the proceedings as a whole, without attempting to differentiate between particular issues on which the successful party may not have succeeded: Cretazzo v Lombardi (1975) 13 SASR 4 at 12. As the High Court cautioned in Firebird Global Master Fund II Ltd v Republic of Nauru (No 2) [2015] HCA 53 at [6], there are "good reasons not to encourage applications regarding costs on an issue-by-issue basis, involving apportionments based on degrees of difficulty of issues, time taken to argue them and the like". The severability of one issue on which the successful party failed was not, without more, sufficient to warrant departure from the general rule in Hawkesbury District Health Service Ltd v Chaker (No 2) [2011] NSWCA 30 at [14]. Unless a particular issue or group of issues was clearly dominant or separable, it would ordinarily be appropriate to award the costs of proceedings to the successful party without attempting to differentiate between those particular issues on which it was successful and those on which it failed: Bostik Australia Pty Ltd v Liddiard (No 2) [2009] NSWCA 304 at [38]. 3. The plaintiffs submitted that the fact that they did not succeed on their Australian Consumer Law claim and in respect of paint rebates did not justify departing from the usual rule and depriving the plaintiffs of the fruits of their victory. Whilst those claims were important, neither could they be properly described as "clearly dominant" in the trial as a whole. Nor could they be regarded as "clearly separable" as the evidence in relation to both had significant overlap with the balance of the claims upon which the plaintiffs were successful. To the extent that there was any discrete evidence in relation to either claim it was minimal and took up only a relatively minor portion of the hearing. In relation to the paint rebate, the expert reports, the Australian Accounting Standards to be considered, the construction principles and the submissions heavily overlapped with the plaintiffs' claim that Jobkeeper payments should be included in the Earn Out calculation. 4. AMA Group submitted that, both quantitatively and qualitatively, the result in these proceedings for the plaintiffs would, at best, be described as 'mixed': Surf Road at [34]. As to quantum, the plaintiffs closed their case seeking around $4.57 million but obtained judgment for less than half that amount. The plaintiffs achieved that result having put AMA Group to very considerable expense in defending a number of separable issues on which the plaintiffs did not succeed, and others which they abandoned immediately prior to trial. 5. AMA Group submitted that it should be ordered to pay no more than 50% of the plaintiffs' costs of the proceedings. Case preparation, including extensive (and expensive) discovery from AMA Group, was conducted on the basis of the plaintiffs' pleaded claims. However, in the two weeks before the trial, the plaintiffs abandoned a number of aspects of their claims, including their claims concerning the arrangements with Suncorp and PDR President, and purchasing from ACM Auto Parts. Having regard to the abandonment of those issues on the eve of trial, and the plaintiffs' mixed success on the claims that were pressed, AMA Group submitted that this was a case in which the Court's costs discretion should be exercised : Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (No 2) [2014] NSWCA 425 at [27] per Macfarlan JA (Meagher and Barrett JJA agreeing); Liddiard, at [38]; Elite Protective Personnel Pty Ltd v Salmon (No 2) [2007] NSWCA 373 at [13]); Dee-Tech Pty Ltd v Neddam Holdings Pty Ltd (No 2) [2012] NSWSC 517 at [50] per White J. 6. AMA Group submitted that late abandonment of issues may also result in a successful party being deprived of a portion of its costs of the proceedings: Elite Protective Personnel Pty Ltd v Salmon (No 2) [2007] NSWCA 373 at [10] (Beazley, McColl and Basten JJA). In addition, where a party runs a case that is 'not reasonably arguable', the Court may depart from the usual order as to costs: Bookarelli Pty Ltd v Katanga Developments Pty Ltd (No 2) [2017] NSWCA 94 at [9]-[11] and [19] per Macfarlan and Payne JJA, and Sackville AJA; Cabport Pty Ltd v Marinchek (No 2) [2013] NSWCA 131 (at [6] per Meagher and Barrett JJA, and Tobias AJA). At the portion of the Cross-Claim which AMA Group abandoned, this was said to be based purely on the proper construction of the Business Sale Agreement and the plaintiffs' costs in addressing this were de minimis. 7. AMA Group submitted, that while the plaintiffs succeeded on the legal question concerning construction and rectification, and in establishing that JobKeeper payments were a relevant input to the Earn-Out calculation, the plaintiffs failed on their claim in respect of paint rebates. The plaintiffs abandoned their claim that any rebate or market incentive from PDR President was a relevant input to the Earn-Out calculation. The plaintiffs abandoned or failed on their claims concerning post-acquisition changes to the businesses, including as to Suncorp pricing and purchasing from ACM Auto Parts. The Suncorp pricing claim was said to be objectively hopeless and discrete, and pressed unreasonably: Katanga at [9]-[11]. The plaintiffs failed on their misleading or deceptive conduct case. 8. AMA Group submitted that the 'separable' issues on which the plaintiffs failed 'took up a significant part of the trial': Yazgi at [24]. Those issues which were abandoned extended the interlocutory phase of the case. The proceedings would have been shorter and less expensive for the parties, and less burdensome for the Court, had the plaintiffs narrowed their case (as they did voluntarily) sooner, and not advanced the claims that they lost. AMA did not seek a costs order in its favour in respect of any issue on which it was successful. However, the 'event' which the plaintiffs produced was of less than half the value they claimed, and by success on a minority of the issues they raised. Indeed, the only two issues on which they succeeded were perhaps the least burdensome in terms of evidence and argument. Those factors supported an award of no more than 50% of the plaintiffs' costs. Consideration 1. The Court has wide discretionary powers to apportion costs where a case involves multiple issues and a party succeeds on some issues but fails on others. For example, a plaintiff may obtain judgment in their favour but the defendant may have succeeded on issues that occupied the bulk of the time taken by the proceedings. The successful plaintiff may not only be deprived of the costs of those issues but may be ordered as well to pay the defendant's costs in respect of such issues: James v Surf Road Nominees Pty Ltd (No 2) [2005] NSWCA 296 at [32]-[36] (per Beazley, Tobias and McColl JJA). 2. As the Court of Appeal observed in Ryde Developments Pty Ltd v Property Investors Alliance Pty Ltd (No 2) [2018] NSWCA 40 at [6]: "Section 98 of the Civil Procedure Act 2005 (NSW) confers on the Court a wide discretion with respect to costs. Under r 42.1 of the Uniform Civil Procedure Rules 2005 (NSW) the general rule is that the Court is to order that costs follow the event. The 'event' may be characterised in more than one way. Generally the 'event' refers to the result of the claim or counterclaim, as the case may be, and may be understood as referring to the practical result of a particular claim: Doppstadt Australia Pty Ltd v Lovick & Sons Developments Pty Ltd (No 2) [2014] NSWCA 219 at [15] per Ward, Emmett and Gleeson JJA. Where there has been a mixed outcome in the proceedings, and it is appropriate to entertain the process of apportioning costs as between different issues in the proceedings, in general such an exercise will be carried out on a relatively broad brush basis, and largely as a matter of impression and evaluation by the Court: Doppstadt at [19]; James v Surf Road Nominees Pty Ltd (No 2) [2005] NSWCA 296 at [36]; Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (No 3) (1998) 30 ACSR 20 at 22." 1. Similarly, apportionment of costs between issues has been described as "very much a matter of discretion, [where] mathematical precision is illusory": Tomanovic v Global Mortgage Equity Corporation Pty Ltd (No 2) (2011) 86 ACSR 119; [2011] NSWCA 256 (per Campbell JA, with whom Macfarlan and Young JJA agreed) at [84]. 2. More recently in Verde Terra Pty Ltd v Central Coast Council [2023] NSWLEC 110, Pepper J summarised the principes on the appointment of costs at [22]: (citations omitted) "Without being exhaustive, the legal principles governing the apportionment of costs may be summarised as follows: (a) the fact that a party does not succeed on all issues raised in the proceedings is not sufficient in and of itself for the Court to depart from the usual rule and award costs only in respect to the issues on which the party succeeded. The general rule is that "where there are multiple issues in a case the Court generally does not attempt to differentiate between issues on which a party was successful and those on which it failed"; (b) this is because justice may not be served if parties are dissuaded from canvassing all material issues for fear of an adverse costs order. Equally, litigants should not be rewarded for the pursuit of unmeritorious issues; (c) there is a distinction between cases that involve clearly discrete issues for determination and those in which all issues are inseparable, or at least sufficiently linked, to the overall disposition of a particular matter. Unless a particular issue, or group of issues, is clearly dominant, separable or discrete, it will be appropriate to award the costs of the proceedings to the successful party without attempting to differentiate between those issues on which it was successful and those upon which it failed; (d) where a court exercises its discretion to apportion costs, any apportionment itself involves an exercise of the wide discretionary powers of the court, which should be liberally construed; (e) mathematical precision is illusory and the exercise of discretion will often depend on matters of impression and evaluation; (f) once it is decided that an otherwise successful plaintiff has failed on a separable or dominant issue such that it is not appropriate that the plaintiff receive all of its costs, in deciding how the discretion as to costs should be exercised to achieve fairness the perspective of both parties should be considered; (g) a separate issue can relate to any disputed question of fact or law before a court upon which a party fails; (h) in determining the discreteness of the issue, it is relevant to consider whether the time taken on each issue during argument and in evidence can be identified or realistically estimated; (i) it is also relevant to consider whether the issues on which the party failed lacked real merit; and (j) the circumstances in which a party that is successful overall may be deprived of its costs or ordered to pay costs on a discrete issue are not limited to cases where it was unreasonable for the successful party to raise the issue on which it failed." 1. As I see it, the parties advanced the issues listed in the following table, against which I have also indicated who 'won' that issue and the monetary consequences which attached to that 'victory': Issue Plaintiffs Defendants 1) What is the proper construction of the Earn-Out clause? ✓$374,460 2) Are the defendants entitled to rectification of the Earn-Out clause? ✓ 3) Are the defendants entitled to a refund for an overpayment of the purchase price? Dropped shortly before trial 4) Is there an express or implied term in the contract that AMA Group will make no change to the businesses after acquisition? ✓ 5) If not, did AMA Group engage in misleading and deceptive conduct by representing that it would make no changes to the businesses after acquisition? ✓ 6) Were the plaintiffs entitled to damages as a consequence of fundamental changes made to businesses acquired: (a) changing arrangements with Suncorp; ✓ (b) changing arrangements with Driver Care; Dropped in December 2022 (c) requiring the businesses to purchase parts from ACM Auto Parts, Dropped shortly before trial (d) requiring the businesses to purchase paint from a particular manufacturer? Dropped in December 2022 7) Should JobKeeper payments be included in the Earn-Out calculation? ✓ $1.8 million 8) Should rebates be included in the Earn-Out calculation which AMA Group received from: (a) the paint manufacturer; and ✓$1.511 million (b) PDR President Pty Ltd? Dropped shortly before trial 1. I consider that each of these issues were distinct and readily separable, both in terms of the legal issues and the witnesses who gave evidence on that issue. Whilst one witness sometimes gave evidence in respect of more than one issue, the topics on which they gave evidence were clearly delineable. 2. The plaintiffs succeeded on the issue of construction of the Earn-Out provisions, which was straight forward and occupied little time. 3. The plaintiffs succeeded on appeal on the issue of rectification. There was some oral evidence on this subject and a moderate amount of contemporaneous documents to analyse. 4. The plaintiffs failed on post-purchase changes, both as to the existence of the asserted contractual obligation and, in the event I was wrong about that, whether any such obligation had been breached. There was some oral evidence on this subject and quite a lot of contemporaneous documents to analyse, including a large number of invoices. There was also some expert evidence on quantum given by Mr Morris, albeit it (from memory) the defendants' experts did not engage with his views on this topic. 5. As to the Australian Consumer Law claim, the plaintiffs failed to prove that the alleged representations had been made. There was limited oral evidence on this subject and a small amount of contemporaneous documents to analyse. 6. The plaintiffs succeeded on one accounting issue and failed on another. The lay and expert witnesses on these issues were the same: Mr Bizon, Mr Morris and Mr Archer. AMA Group's expert, Mr Archer, was accepted on more issues whilst the plaintiffs ultimately obtained more 'dollars' than they failed to obtain, as a consequence of the acceptance of Mr Morris' view in respect of JobKeeper. Overall, the plaintiffs and AMA Group had a roughly equivalent measure of success in this part of the case. 7. Given the Court of Appeal's judgment in respect of rectification, the plaintiffs have succeeded, obtaining judgment for roughly half of the amount sought. Of the contentions initially advanced, the plaintiffs 'won' on four issues but lost or 'dropped' nine issues, many dropped shortly before trial. Whilst it is laudable that the plaintiffs abandoned these claims before trial, AMA Group were put to the cost of providing discovery on a number of these issues, as well as putting on evidence and preparing to meet those issues at trial. AMA Group also 'dropped' their claim to recover overpayment of purchase price shortly before trial. It was not necessary for me to engage with that issue and so I cannot say whether the relief was said to follow from the proper construction of the contract (as AMA Group submitted) or something more. Either way, the plaintiffs also needed to be ready to meet that issue, until it was abandoned. 8. As I see it, the parties have enjoyed a fairly equal measure of success and failure, having regard to the issues won and lost, the time taken with each issue in terms of oral evidence and documentary material, and the 'dollars' awarded and successfully defended. Having regard to the parties' relative successes and failure, the extent to which both parties abandoned issues 'late in the day' or were put to the cost of meeting issues advanced by the other until abandoned, I consider it appropriate that the defendants pay 50% of the plaintiffs' costs of the proceedings on the ordinary basis and I so order. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 28 November 2024