New South Wales Supreme Court CITATION : Darryll Cullen v ZLB Behring LLC [2006] NSWSC 359 HEARING DATE(S) : 28/4/06 JUDGMENT DATE : 28 April 2006 JURISDICTION : Equity Division Commercial List JUDGMENT OF : Einstein J EX TEMPORE JUDGMENT DATE : 05/28/2006 DECISION : Plaintiff to pay 75% of defendant's costs on party party basis. CATCHWORDS : Practice and Procedure - Costs - Discretion - Matters to be taken into account Civil Procedure Act 2005 (NSW) LEGISLATION CITED : Supreme Court Rules (NSW) Uniform Civil Procedure Rules 2005 (NSW) Bostock v Ramsay Urban District Council [1900] 2 QB 616 Donald Campbell & Co Limited v Pollak [1927] AC 732 Harnett v Vise (1880) 5 Ex D 307 Harrison v Schipp [2001] NSWCA 13 Jones v Bradley (No 2) [2003] NSWCA 258 Latoudis v Casey (1990) 170 CLR 534 CASES CITED : Leichhardt Municipal Council v Green [2004] NSWCA 341 Oshlack v Richmond River Council (1998) 193 CLR 72 Rolls Royce Industrial Power (Pacific) Ltd v James Hardie & Co Pty Ltd (2001) 53 NSWLR 626 Permanent Trustee Australia Ltd v FAI General Insurance, Co Ltd (unreported, Supreme Court of New South Wales, 3 June 1998, Hodgson CJ in Eq, BC9802305) Russell v Edwards [No 2] [2006] NSWCA 52 Smallacombe v Lockyer Investment Co Pty Ltd (1993) 42 FCR 97 Whitlam v Insurance Australia Group [2005] NSWSC 200 Waters v P C Henderson (Australia) Pty Limited (unreported, New South Wales Court of Appeal, 6 July 1994, Kirby P, MahoneyJA and Priestley JA, BC9404952) PARTIES : Darryll Cullen (Plaintiff) ZLB Behring LLC (Defendant) FILE NUMBER(S) : SC 50125/04 COUNSEL : Mr M Einfeld QC, Mr V Kerr (Plaintiff) Mr TGR Parker SC, Mr NJ Kidd (Defendant) SOLICITORS : Carneys Lawyers (Plaintiff) Allens Arthur Robinson (Defendant) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST Einstein J Friday 28 April 2006 ex tempore Revised 1 May 2006 50125/04 Darryll Cullen V Zlb Behring LLC JUDGMENT Costs 1 The reserved judgment in these proceedings was delivered on 12 April 2006 [2006 NSWSC 265]. The only remaining matters are the making of appropriate orders, including orders as to costs. The parties have made submissions in relation to costs. The principles 2 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. 3 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. 4 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). 5 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." 6 In the notes to the Supreme Court Rules Part 52A 11.2, the originator to Part 42 rule 42.1, the following appears (cited with approval by the Court of Appeal in Waters v P C Henderson (Australia) Pty Limited, unreported, NSWCA, 6 July 1994, BC9404952): "Where the proceedings involve multiple issues the application of the rule that costs follow the event may involve hardship where a party succeeds on some issues yet fails on others. Particularly is this so where, for example, a defendant succeeds on issues that occupy the bulk of time taken by the proceedings. Nevertheless, unless a particular issue or group of issues is particularly dominant or separable, it would 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 on which it failed." Unusual circumstances 7 It is inappropriate to repeat the reasons for judgment. Clearly the circumstances litigated were unusual in the extreme. Clearly also (and as the judgment makes plain in a number of places) both parties were at different times and for different reasons to blame for the rather extraordinary state of affairs which took place in relation to their contractual dealings. 8 Notwithstanding the strictures which accompany the so called usual order as to costs and its reflection of the important principle that a successful party in litigation is entitled to an award of costs in its favour, from time to time certain cases do throw up a real need to look at the exceptions. 9 The exceptions to the usual rule cannot be codified. It is clear that where a question of whether or not to order costs on an indemnity basis is raised in proceedings, the proper approach is to endeavour to seek to ascertain some form of delinquency or misconduct relating to the litigation or the circumstances leading up to the litigation. Examples given by McHugh J in Oshlack (at paragraphs 97 to 98) include the successful party, by its lax conduct, effectively inviting the litigation or unnecessarily protracting the proceedings: cf Harrison v Schipp [2001] NSWCA 13 at 132-134 to the same effect. 10 During the taking of submissions the Court elicited from both counsel an acceptance of the proposition that amongst the parameters appropriate to be taken into account in the principled exercise of the Court's discretion are the whole of the circumstances of the case and everything which led to the litigation. Authority for that proposition is to be found in Bostock v Ramsay Urban District Council [1900] 2 QB 616 per A L Smith LJ at 622 where the following appears: "It seems to me that the Lord Chief Justice was right when on general principles he came to the conclusion that 'the judge is not confined to the consideration of the defendant's conduct in the actual litigation itself but may also take into consideration matters which led up to and were the occasion of that litigation'. I say on general principles, because his attention does not appear to have been called to the case of Harnett v Vise (1880) 5 Exchequer Division 307 in which it was distinctly held by the Court of Appeal that the judge is not confined, in considering the question whether there is good cause for depriving the successful party of costs, to the conduct of the parties in the litigation itself, but must consider the circumstances of the case and everything which led to the action." 11 What is presently before the Court (outside of the defendant seeking indemnity costs in respect of a defined period), concerns the principled exercise of the discretion as to which party should pay the costs of the other. 12 There is, it seems to me, some substance in the proposition that neither party succeeded on its claim. Likewise there is substance in the proposition that the cross-claim formed no part of the defendant's defence (primary or otherwise) to the plaintiff's claim. There is substance in the proposition that by electing to prosecute the cross-claim the defendant was always vulnerable to being ordered to pay costs of the cross-claim should it have failed. However, the situation in respect of a cross-claim which is pursued was examined by Hodgson CJ in Eq (as his Honour then was) in Permanent Trustee Australia Ltd v FAI General Insurance Co Ltd (unreported, New South Wales Supreme Court, 3 June 1998), where Hodgson CJ in Eq said as follows: "Dealing first with severability I should state right away that I am not here dealing with the situation where there are separate claims for different relief such as two claims by a plaintiff for different relief, or a claim by a plaintiff and a cross-claim by a defendant. In those cases it is generally fairly clear that the overall winner will get the general costs of the action, but will be liable to pay costs to the extent that they were increased by the separate claim on which he or she was unsuccessful." 13 The essential substratum of the plaintiff's contentions with respect to costs is that the costs order should reflect the substantial time and costs incurred on those factual matters upon which the defendant failed. As the plaintiff has contended, the question as to whether there should be an apportionment of that nature "is very much a matter of discretion, the exercise of which will often depend on matters of impression and evaluation": Whitlam v IAG [2005] NSWSC 200 at 25. 14 Standing back from all of the matters litigated, it does seem to me that the defendant has succeeded in resisting the very substantial claims to relief by the plaintiff, including the permanent injunction which had been sought, which if granted, would have been to sterilise the defendant's trade in Australia. The principled approach to exercise of the discretion as to costs is to order that the plaintiff pay 75 per cent of the defendant's costs on a party-party basis. The apportionment is appropriate by reason of (1) the time and costs incurred on those factual matters upon which the defendant failed and (2) the whole of the circumstances of the case and everything, which led to the litigation. 15 It is inappropriate to order that any costs of the defendant be paid on an indemnity basis for the reasons given by the plaintiff in his written submissions, which are adopted in what follows: Calderbank letters 7. Aventis relies on 3 "Calderbank" letters: (a) letter dated Monday 20 March 2006, received that day, offering $250,000, with the offer closing at 4pm on 24 March 2006 (1st offer ); (b) letter dated Thursday 30 March 2006, received at 3:19 pm that day, offering $500,000, with the offer closing at 12 noon the following day (2nd offer); (c) letter dated Thursday 6 April 2006, received at 9:25 am that day, offering $500,000, with the offer closing at 5 pm that day ( 3rd offer). 8. For the Court to depart from the general rule that costs be paid on a party-party basis, in the context of a rejected Calderbank offer which is not bettered at trial, a defendant must show the plaintiff's rejection of the offer was 'unreasonable'. That discretion is to be exercised in all the circumstances of the case. Indemnity costs do not flow as a matter of course from unaccepted defendant offers. See SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 at [37], approved in Jones v Bradley (No 2) [2003] NSWCA 258 at [9], Leichhardt Municipal Council v Green [2004] NSWCA 341 at [19] and [46] and Russell v Edwards & Anor [No 2] [2006] NSWCA 52 at [6] and [7]. 9. MDA's failure to accept Aventis' offers, having regard to their timing, period for acceptance and circumstances at the time they were made, was not unreasonable and should not attract the indemnity costs consequence for which Aventis contends. Timing and period for acceptance 10. An offer may be made at a time so late in the proceedings or may be open for so short a period of time that it is reasonable for the offeree not to act upon it: Smallacombe v Lockyer Investment Co Pty Ltd (1993) 42 FCR 97 at 102. 11. Each of the offers suffered from timing defects. The difficulty is most stark for the 2nd and 3rd offers. The 2nd offer was open for acceptance for less than a day and was served on the second last day before the trial commenced, when the plaintiff and his legal team can be taken to have been heavily focused on trial preparation. The 3rd offer was open for several hours only, was served on the fourth day of trial, shortly before the day's proceedings began (that day involving cross examination of Aventis' witnesses) and on a day upon which the trial continued until 5pm, at which time the offer closed. 12. The 1st offer, although open for a longer period and served at an earlier point of time, also provided a relatively short time for consideration at a late point in the proceedings, namely less than 2 weeks prior to commencement of the trial. Circumstances at the time of the offer 13. The efficacy of any offer is to be assessed having regard to the circumstances which exist at the time the offer is made, so that a significant change in circumstances may denude an offer of "Calderbank" effect: Rolls Royce Industrial Power (Pacific) Ltd v James Hardie & Co Pty Ltd (2001) 53 NSWLR 626 at [95] – [99]. 14. The preparation of this case for trial had been attended by significant delays by Aventis in filing and serving its affidavit evidence. Those delays culminated in Bergin J formally noting, at a directions hearing on 3 June 2005, that Aventis had informed the Court that it had served all affidavits upon which it proposed to rely, at least in draft form and other than Ms Campbell's affidavit (a copy of the orders is attached). 15. By 3 June 2005 Aventis had served (in draft form) its evidence purporting to substantiate the quantification of its cross claim. That evidence (Mr Ho's first affidavit, subsequently sworn on 13 June 2005) was, to the extent it addressed the quantum of Aventis' damages claim, entirely objectionable. Aventis did not rectify this position until after objection by MDA, when Aventis served Mr Ho's third affidavit, to which was exhibited the confidential document which eventually became Exhibit D7, in an unsworn form on 30 March 2006. 16. Thus, MDA was entitled to assess Aventis' 1st offer (which was to settle both the claim and cross claim) having regard to Aventis' lack of admissible evidence on damages. Had Aventis served Mr Ho's third affidavit in a timely fashion MDA's response to the 1st offer may have been considerably different. In this case the late service of Mr Ho's third affidavit on 30 March 2006 constituted a significant change in circumstance. 17. Those circumstances, coupled with the lateness of the 1st offer and the relatively short period for MDA to accept it, mean that MDA's failure to accept it was not unreasonable. 16 In those circumstances, the Court makes orders in terms of paragraphs 1, 2, 3 and 4 of the short minutes of order in the form which I initial and date 28 April 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. 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