New South Wales Supreme Court CITATION : Pioneer Park Pty Limited (in liquidation), Clifford John Carpenter, Merlo Australia Pty Limited & Ors v Australia and New Zealand Banking Group Limited [2006] NSWSC 1176 HEARING DATE(S) : 8/11/06 JUDGMENT DATE : 10 November 2006 JURISDICTION : Equity Division Commercial List JUDGMENT OF : Einstein J DECISION : Costs orders made. CATCHWORDS : Costs - Indemnity costs - Calderbank letter LEGISLATION CITED : Civil Procedure Act 2005 (NSW) Baulderstone Hornibrook Engineering Pty Limited v Gordian Runoff Limited (Formerly Gio Insurance Limited) and Ors [2006] NSWSC 583 Donald Campbell & Co Limited v Pollak [1927] AC 732 Harrison v Schipp [2001] NSWCA 13 CASES CITED : Illawong Village v State Bank of New South Wales [2005] NSWSC 524 Latoudis v Casey (1990) 170 CLR 534 Oshlack v Richmond River Council (1998) 193 CLR 72 Sagacious Procurement Pty Ltd v Symbion Health Ltd [2006] NSWSC 779 Waters v P C Henderson (Australia) Pty Limited, (unreported, Supreme Court of New South Wales Court of Appeal, Kirby P, Mahoney JA, Priestley JA, 6 July 1994, BC9404952) PARTIES : Pioneer Park Pty Limited ACN 002 706 881 (in Liquidation); Clifford John Carpenter; Merlo Australia Pty Limited; Merlo Wholesale Pty Limited and Domino Hire Pty Limited [Plaintiffs] Australia and New Zealand Banking Group Limited [Defendant] FILE NUMBER(S) : SC 50156/04; 50163/04; 50096/05; 50118/05 COUNSEL : Mr JJ Garnsey QC (Plaintiffs) Mr J Thomson (Defendant) SOLICITORS : PMF Legal (Plaintiffs) Minter Ellison (Defendant) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST Einstein J Friday 10 November 2006 50156/04 Pioneer Park Pty Limited (in liquidation) v Australia and New Zealand Banking Group Limited 50163/04 Clifford John Carpenter v Australia and New Zealand Banking Group Limited 50096/05 Merlo Australia Pty Limited & Ors v Australia and New Zealand Banking Group Limited 50118/05 Australia and New Zealand Banking Group Limited v Clifford John Carpenter JUDGMENT The issues before the Court 1 Following the delivery of the reserved judgment [2006] NSWSC 883 the parties have been before the Court for the purpose of determination of costs issues and related matters. The orders sought by the Pioneer Parties 2 The Pioneer Parties have submitted that each of the parties should pay their own costs. Alternatively that the Pioneer Parties should have the costs of the issues on which they succeeded. The orders sought by ANZ 3 The Bank has in each of proceedings 50156 of 2004 ["the first Commercial List Proceedings"], 50163 of 2004 ["the second Commercial List Proceedings"] and 50096 of 2005 ["the third Commercial List Proceedings"], sought orders for the payment by particular named defendants of the costs of the proceedings (including the consolidated proceedings) including all reserved costs: a) on the ordinary basis (pursuant to Rule 42.2 of the UCPR) from the commencement of the proceedings until 23 December 2005 and b) from 24 December 2005 on an indemnity basis (pursuant to Rule 42.5 of the UCPR). 4 Certain other orders are sought by ANZ including in the first Commercial List Proceedings, an order entitling ANZ to forthwith call for payment on particular Banker's Undertakings issued by Westpac Banking Corporation at the request of Mr Carpenter in favour of ANZ in particular amounts. The discretion to order costs-the principles 5 Section 98 of the Civil Procedure Act 2005 gives to the Court full discretion to award costs. Part 42 rule 42.1 of the Uniform Civil Procedure Rules provides that if the Court makes any order as to costs, the Court shall order that the costs follow the event, except where it appears to the Court that some other order should be made as to the whole or any part of the costs. 6 The well-known authorities support the proposition that the general principle of an award of costs is that costs are awarded to compensate the successful party for the expense of being put to the necessity of litigation: Oshlack v Richmond River Council (1998) 193 CLR 72, at 97-98 per McHugh J, at 120-123 per Kirby J; Latoudis v Casey (1990) 170 CLR 534 at 543 per Mason CJ. 7 Accordingly, in the ordinary course, costs will follow the event (Oshlack at 97 per McHugh J, at 121 per Kirby J; Donald Campbell & Co Limited v Pollak [1927] AC 732 at 811-812 per Viscount Cave LC). 8 In Oshlack McHugh J, with whose reasons for judgment Brennan CJ was in general agreement, after dealing with the statutory discretion conferring on the Court a broad discretion as to costs, said at 96: "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 considerations 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 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. ... 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 jurisprudential 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." Dealing with the submissions of the Pioneer Parties 9 Mr Garnsey QC appearing for the Pioneer Parties contended that ANZ was disentitled from obtaining any order for costs against the Pioneer Parties for the reason it had misconducted itself in relation to the transactions the subject of the proceedings in fashion as was said to be evidenced by the reasons. The misconduct is said to be constituted by ANZ's failure to carry out an annual review, ANZ's failure to provide a basis for its letter of 3 June 1999 to be effective, ANZ's purporting to rely upon its letter of 8 June 1999 and its asserted failure to give any express notice of non-monetary defaults upon which it relied before acting on the letter of 8 June 1999. ANZ is said to have failed "to conduct itself as a fair institutional party" and to have by its conduct, given rise to the litigation in a substantial and material way [transcript 35] 10 Mr Garnsey sought to rely upon a number of particular paragraphs in the reasons for judgment in support of Pioneer Parties' asserted entitlement to all or part of their costs of the proceedings. Those paragraphs it is fair to say, addressed a number of criticisms of ANZ: i. in terms of its internal records, ii. in terms of its case that it had carried on an annual review, iii. in terms of its not having being in a contractual position to hold open for an indeterminate time of its choosing, the period of time such a review could be commenced and then duly completed, iv. in terms of its options as at late November 1998, v. in terms of the circumstances having shown that ANZ had failed to protect its own interests by: a) either properly documenting yet a further variation to the terms upon which the facilities were being provided, so as to leave in place its entitlement to carry out a further review on an appropriate date, such for example as three-months following 20 November 1998 or b) carrying out an annual review and in circumstances which would appear to have engaged General Condition 9 (2), to have given a 30 day notice either pursuant to subclause (2) (a) or (b). 11 However none of these findings nor observations justify the principled exercise of the relevant discretion as being by an order that ANZ pay the costs or any part of the costs of the proceedings of any of the Pioneer Parties. Reliance by ANZ upon non-monetary breaches/default was always pleaded. 12 The principled approach to dealing with costs requires the Court to focus upon and only upon, the conduct of the actual proceedings which have taken place. Conduct anterior to the commencement of the proceedings may be remediable if that conduct exposes a cause of action, in which event success on that cause of action is in general, the mode and the only mode, by which the innocent party receives redress from the Court. 13 Albeit that the decision of the Court of Appeal in Harrison v Schipp [2001] NSWCA 13 treated with the principles governing an award of costs on an indemnity basis, to my mind the reasons given by Giles JA [with whose reasons with respect to costs Handley and Fitzgerald JJ agreed] at in particular [134] and [136] support the above proposition. The alternative submission 14 Mr Garnsey alternatively submitted that the Pioneer Parties should have the costs of the issues on which they had succeeded, these being the issues concerning whether or not an annual review had taken place and the issue concerning the validity or invalidity of the 3 May 1999 letter from ANZ. 15 The principles concerning differentiation of issues for the purposes of particular costs orders were summarised in Baulderstone Hornibrook Engineering Pty Limited v Gordian Runoff Limited (Formerly Gio Insurance Limited) and Ors [2006] NSWSC 583 as follows: [10] The effect of UCPR Pt 42 r 42.1 is that an unsuccessful party may be ordered to pay the entirety of the costs of a successful party, even though the successful party did not succeed on all issues. Special circumstances are generally required to justify some other order being made. [11] Unless a particular issue or group of issues is clearly dominant or separable it will ordinarily be appropriate to award the costs of the proceedings to the successful party without attempting to differentiate between those particular issues on which it was successful and those in which it failed: Waters v PC Henderson (Aust) Pty Ltd (unreported, Supreme Court of New South Wales Court of Appeal, Kirby P, Mahoney JA, Priestley JA, 6 July 1994, BC 9404952). [12] Whilst the general principle is that an ultimately successful party ought not be put at risk as to costs merely by having relied upon additional issues upon which it did not succeed (on the basis that the ultimate ends of justice may not be served if a party is dissuaded by the risk of costs from canvassing all issues which might be material to the decision in the case8), a successful party may only get a proportion of its costs if the unsuccessful party is able to identify clearly dominant or separable issues lost by the successful party. 16 It is clear that a proper application of these principles to the hearing involves the rejection of the submission put by the Pioneer Parties that the issues upon which they succeeded were clearly dominant or separable from those issues upon which they failed. They were neither dominant nor separable in the relevant sense from the issues upon which the Pioneer Parties failed. Remaining issues 17 ANZ relies upon the Calderbank letter forwarded by its solicitors to the solicitors for the Pioneer Parties dated 7 December 2005 as substantiating its entitlement to indemnity costs for the period from 24 December 2005 onwards. The letter plainly entitles ANZ to indemnity costs as claimed. None of the challenges to the reasonableness of the letter are of substance. The schedule to the letter constituted a fair reflection of ANZ's stance. 18 In terms of the application made in the first Commercial List proceedings for orders for the payment out of moneys paid into Court as security, the matter is dealt with by the following statement of principle taken from Sagacious Procurement Pty Ltd v Symbion Health Ltd [2006] NSWSC 779 [which followed the decision of Campbell J in Illawong Village v State Bank of New South Wales [2005] NSWSC 524]: [28] There is then an issue as to the application by the defendant for the payment out of security for costs funds provided by or on behalf of the plaintiff to the defendant. [29] There are some significant questions of principle, which require to be addressed here. They include the undoubted fact that the orders of the Court [made with the agreement of the parties] are now sought to be outflanked by the defendant's application that this is appropriate, following what is put as 'material changes in circumstance' exhibited by the actual costs of the proceedings far exceeding the amount of the security ultimately provided. [30] It is true that the defendant is able to establish a prejudice to it in terms of being practically unable to make an application for interest on its costs until the date of production of a certificate of assessment. Mr Pritchard, who today appears for the defendant, has pressed upon the Court the reasoning to be found in the judgment of Justice Campbell in Illawong Village at para 18, where the following is to be found: In the present case the plaintiff has established that the costs of the assessment may well be significant. The costs could, at the top end of the possible range, run as high as $120,000 or thereabouts. The plaintiff submits that if it were to succeed on the appeal and the costs order were to be overturned, the costs and effort involved in conducting the assessment at this stage would be wasted. That is undoubtedly true. However, insofar as the time of professional people is involved, whether they be solicitors, costs assessors or cost consultants, that is a loss which can be adequately compensated for by a costs order. There is no real doubt that if the plaintiff were to succeed in the appeal it would receive a cost order from the Court of Appeal, and that the costs of carrying through an order for costs made at first instance by assessing those costs are part of the costs concerning which a successful appellant's costs order would be recovered. 19 Nor indeed have the Poineer Parties yet given instructions to appeal. 20 The Pioneer Parties have conceded that they do not challenge the quantum of disbursements the subject of the affidavit given by Ms Vine Hall and the exhibit thereto. 21 In those circumstances ANZ has made good its entitlement to order 2 as sought in the proposed judgment/order be made in the first Commercial List Proceedings 22 The Court makes the following orders: i. In proceedings 50156 of 2004, the Court makes orders in terms of paragraphs 1, 2 and 3 of the document entitled Judgment/Order in the form which I initial and date 10 November 2006 and the Court notes the matters recited in paragraph 4 of the same document; ii. In proceedings 50163 of 2004 the Court makes orders in terms of paragraph 1 of the document entitled Judgment/Order in the form which I initial and date 10 November 2006 and the Court notes the matters recited in paragraph 2 of the same document; iii. In proceedings 50096 of 2005 the Court makes orders in terms of paragraph 1 of the document entitled Judgment/Order in the form which I initial and date 10 November 2006 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.