New South Wales Supreme Court CITATION : Graham Leonard Brand & Ors v Digi-Tech (Australia) Limited & Ors; Christopher Gerard Kelliher & Ors v Digi-Tech (Australia) Limited & Ors [2002] NSWSC 762 FILE NUMBER(S) : SC 50169/99; 50087/00 HEARING DATE(S) : 23/08/02 JUDGMENT DATE : 28 August 2002 Graham Leonard Brand & Ors (Plaintiffs) Christopher Gerard Kelliher & Ors (Plaintiffs) McLean Pty Ltd, AI McLean Pty Ltd (Plaintiffs) PARTIES : Digi-Tech (Australia) Limited (1st Defendant) Digi-Tech Equities Limited (2nd Defendant) Digi-Tech Communications (3rd Defendant) John Anthony Reid (4th Defendant) JUDGMENT OF : Einstein J Mr I Jackman (all Plaintiffs except McLean Pty Ltd and AI McLean Pty Ltd) COUNSEL : Mr R Forster SC (McLean Pty Ltd; AI McLean Pty Ltd) Mr J Sheahan SC, Mr M Christie (Defendants) Atanaskovic Hartnell (all Plaintiffs except McLean Pty Ltd and AI McLean Pty Ltd) SOLICITORS : Gillis Delaney Brown (McLean Pty Ltd and AI McLean Pty Ltd) Blake Dawson Waldron (Defendants) CATCHWORDS : Costs CASES CITED : Oshlack v Richmond River Council (1998) 193 CLR 72 DECISION : Short minutes of order should be brought in. IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST EINSTEIN J 28 AUGUST 2002 50169/99 GRAHAME LEONARD BRAND & ORS v DIGI-TECH (AUST) LTD & ORS 50087/00 CHRISTOPHER GERARD KELLIHER & ORS V DIGI-TECH (AUST) LTD & ORS JUDGMENT - COSTS 1 The reserved Judgment was delivered in these proceedings on 13 August 2002. The matter has been before the court in terms of submissions as to costs of the proceedings. 2 In Oshlack v Richmond River Council (1998) 193 CLR 72 at 96, McHugh J, with whose reasons for judgment Brennan CJ was in general agreement, after dealing with the statutory jurisdiction conferring on the Court a broad discretion to award costs said: " The discretion must be exercised judicially Although the statutory discretion is broadly stated, it is not unqualified. It clearly cannot be exercised capriciously. Importantly the discretion must be exercised judicially in accordance with established principle and factors directly connected with the litigation. In this manner, the law has gradually developed principles to guide the proper exercise of the discretion and, in some cases, to highlight extraneous consideration which if taken into account, will cause the exercise of the discretion to miscarry. Consistent with the aim of justice the law could not have developed otherwise...by far the most important factor which Courts has 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. As Develin J said Smeaton Hanscomb v Sassoon when setting aside an arbitrator's costs award: "The arbitrator is not directing his mind to one of the most, if not the most, important of the elements which ought to affect his discretion, namely the result of the case. Prima facie, a successful party is entitled to his costs. To deprive him of his costs or to require him to pay a part of the costs of the other side is an exceptional nature." The combined force of the sentiments recognised above by Mason CJ regarding the need for consistency in order to avoid injustice, and by Devlin J, regarding the most significant factor affecting the costs discretion, provides the juris prudential basis for the important principle commonly referred to as the 'usual order as to costs'. The Usual Order as to Costs The expression the 'usual order as to costs' embodies the important principle that, subject to certain limited exceptions, a successful party in litigation is entitled to an award of costs in its favour. The principle is grounded in reasons of fairness and policy and operates whether the successful party is the plaintiff or the defendant. Costs are not awarded to punish an unsuccessful party. The primary purpose of an award of costs is to indemnify the successful party. If the litigation had not been brought or defended, by the unsuccessful party the successful party would not have incurred the expense which it did. As between the parties, fairness dictates that the unsuccessful party typically bears the liability for the costs of the unsuccessful litigation. As a matter of policy, one beneficiary by-product of this compensatory purpose may well be to instil in a party contemplating commencing, or defending, litigation a sober realisation of the potential financial expense involved. Large scale disregard of the principle of the usual order as to costs would inevitable lead to an increase in litigation with an increased and often necessary, burden on the scarce resources of the publicly funded system of justice." 3 Some debate has taken place as to the extent to which the section 52 issues may be said to have dominated the hearing time and as to the interrelationship between, on one hand, the section 52 case and on the other hand, the plaintiff's case rebutting the defendants claimed termination of the subject agreements. 4 At the same time both groups of parties seem to accept that two groups of plaintiffs ["the unsuccessful plaintiffs"] in particular were relevantly unsuccessful namely the Kalifair and Kalinick companies [Kalifair Pty Ltd and Kalinick Pty Ltd] and the two McLean companies [McLean Pty Ltd and AI McLean Pty Ltd]. 5 I reject as of no substance whatever the plaintiffs' submission that insofar as the defendants may be regarded as having succeeded as against the Kalifair and Kalinick companies, this victory should be regarded in any sense as a pyrrhic victory for the reason that each of these companies was a two-dollar company. The submission flies in the face of the proper approach to litigation involving corporations. Whether and if so to what extent the verdicts against these companies, as a matter of commercial reality, will ultimately lead to effect of substantial recovery by operation of the Corporations Law or otherwise is not a matter in respect of which this Court may inquire. 6 In my view this is a case in which it is necessary to stand back from the whole of the proceedings and to recognise the whole of the landscape in terms of the forensic approaches and causes of action pursued by each set of parties. The judgment surveys that landscape and it is not necessary to repeat any section of the judgment in this regard. 7 In my view it can be truly said that with the exception of the unsuccessful plaintiffs, both sets of parties succeeded in successfully defending major and pivotal causes of action pursued by one another. Whilst it is true that a very substantial section indeed of the hearing and doubtless of the preparation, concerned the section 52 cases brought by the plaintiffs, those cases may properly be regarded as having been prosecuted as part and parcel of the complex mosaic made up of the several interrelated causes of action and their off-shoots which should be regarded as a single arena. The proper exercise of the courts discretion as between the successful plaintiffs and the defendants is to make no order as to costs to the intent that each of those groups of parties pay their own costs. Each such group was substantially successful in rebutting the very substantial causes of action pursued by the other. 8 In relation to the unsuccessful plaintiffs although they succeeded in part in rebutting the proposition that the agreements had been validly terminated by the relevant defendant, they essentially failed in the vast bulk of the cause of action which they had pursued. The proper exercise of the courts discretion is that the unsuccessful plaintiffs pay that portion of 80 percent of the defendant's costs of the proceedings which is equivalent to their several percentage interest in the partnerships as represented at the hearing. 9 It is not appropriate to accede to the defendants' application that an order be made that in the event that Kalifair or Kalinick default in satisfying the orders for costs against them, Toltex Human Resources Pty Ltd or Divome Properties Pty Ltd, (in respect of each of their respective subsidiaries) be liable to pay those costs. Short minutes of Order 10 Short minutes of order should be brought in. I certify that paragraphs 1 - 10 are a true copy of the reasons for judgment herein of the Hon. Justice Einstein given on 28 August 2002 ___________________ Susan Piggott Associate 28 August 2002 Last Modified: 09/03/2002 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.