Supreme Court New South Wales Medium Neutral Citation: Barescape Pty Limited as trustee for the V's Family Trust & Anor v Bacchus Holdings Pty Limited as trustee for The Bacchus Holdings Trust & Anor (No 12) [2012] NSWSC 1591 Hearing dates: 13 November 2012; written submissions 19-28 November 2012 Decision date: 19 December 2012 Jurisdiction: Equity Division Before: Black J Decision: Detailed orders as to costs made. Catchwords: COSTS - Orders - Whether costs should follow the event. Legislation Cited: - Civil Procedure Act 2005 (NSW) ss 56, 98(1), 98(4), 98(4)(c), 99, 101 - Legal Profession Act 2004 (NSW) s 366 - Trade Practices Act 1974 (Cth) - Uniform Civil Procedure Rules 2005 (NSW) rr 42.1, 42.4 Cases Cited: - Ainsworth v Criminal Justice Commission (1992) 175 CLR 564 - Australian Competition and Consumer Commission v Teracomm Ltd [2009] FCA 903 - Bostik Australia Pty Ltd v Liddiard (No 2) [2009] NSWCA 304 - Calderbank v Calderbank [1975] 3 All ER 333 - Cat Media Pty Ltd v Allianz Australia Insurance Ltd [2006] NSWSC 790 - Chell Engineering Ltd v Unit Tool & Engineering Co Ltd [1950] 1 All ER 378 - Chen v Chan [2009] VSCA 233 - Commonwealth of Australia v Gretton [2008] NSWCA 117 - Cretazzo v Lombardi (1975) 13 SASR 4 - Delta Electricity v Blue Mountains Conservation Society Inc [2010] NSWCA 263 - Drummond & Rosen Pty Ltd v Easey (No 2) [2009] NSWCA 331 - Elite Protective Personnel Pty Ltd v Salmon (No 2) [2007] NSWCA 373 - Evans Shire Council v Richardson (No 2) [2006] NSWCA 61 - Godden v Alford [1960] WAR 235 - Herning v GWS Machinery Pty Ltd (No 2) [2005] NSWCA 375 - Howards Storage World Pty Ltd v Haviv Holdings Pty Ltd [2010] FCAFC 5; (2010) 182 FCR 84 - Hughes v Western Australia Cricket Association (Inc) (1986) ATPR 40-748 - Insight SRC IP Holdings Pty Ltd v Australian Council for Educational Research Ltd (No 2) [2012] FCA 1063 - Ireland (as Executor of the Estate of the late Gordon) v Retallack (No 2) [2011] NSWSC 1096 - Keller v LED Technologies Pty Ltd [2010] FCAFC 55 - Keays v JP Morgan Administrative Services Australia Ltd [2012] FCAFC 100 - Lahoud v Lahoud [2011] NSWSC 1186 - MGICA (1992) Pty Ltd v Kenny & Good Pty Ltd (1996) 70 FCR 236 - Milne v Attorney-General (Tas) [1956] HCA 48; (1956) 95 CLR 460 - Ng v Chong [2005] NSWSC 385 - Nu Line Construction Group Pty Ltd v Fowler (aka Grippaudo) [2012] NSWSC 816 - Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72 - Phipps v Boardman [1964] 1 WLR 993 - Polwood Pty Ltd v Foxworth (No 2) [2008] FCAFC 168 - Ruddock v Vadarlis (No 2) [2001] FCA 1865; (2001) 115 FCR 229 - Seven Network Ltd v News Ltd [2007] FCA 1489; (2007) 244 ALR 374 - Sherbourne Estate (No 2): Vanvalen & Anor v Neaves & Anor [2005] NSWSC 1003; (2005) 65 NSWLR 268 - Skalkos v T&S Recoveries Pty Ltd [2004] NSWCA 281; (2004) 65 NSWLR 151 - Specsavers Pty Ltd v The Optical Superstore Pty Ltd (No 4) [2012] FCA 652 - University of Western Australia v Gray (No 21) (2008) 249 ALR 360 - Visible Results Properties Inc v Sushi Train (Australia) Pty Limited [2007] FCA 514 - Ying v Song [2011] NSWSC 618 Category: Costs Parties: Barescape Pty Ltd atf The Vs Family Trust (First Plaintiff/First Cross-Defendant) Anthony Ventura (Second Plaintiff/Second Cross-Defendant) Midfielder Pty Ltd (Third Cross-Defendant) Bacchus Holdings Pty Ltd atf The Bacchus Holdings Trust (First Defendant/Cross-Claimant) Matthew Gordon Higgins (Second Defendant) Representation: Counsel: C. D. Wood (Plaintiffs/Cross-Defendants) A.A. Henskens SC, N.E. Furlan (Defendants/Cross-Claimant) Solicitors: Anthony Ventura (Plaintiffs/Cross-Defendants) Bilbie Dan (Defendants/Cross-Claimant) File Number(s): 09/291437 Judgment 1I delivered my principal judgment in these proceedings on 27 August 2012 ("Judgment") following a lengthy hearing. I delivered a further judgment on 25 October 2012 resolving some fourteen issues as to which the parties were in disagreement as to the form of orders and delivered a brief further judgment on 13 November 2012. It remains to deal with the question of the cost of the proceedings. That question involves issues of some complexity, in common with the conduct of the proceedings generally, not least because the parties sought orders as to costs which were differently structured and relied on different matters, with little common ground between them. 2I will refer in this judgment to the Plaintiffs and First and Second Cross-Defendants, Barescape Pty Limited as trustee for the V's Family Trust ("Barescape") and Mr Ventura together as "the Plaintiffs"; the Defendants, Bacchus Holdings Pty Limited as trustee for The Bacchus Holdings Trust ("Bacchus") and Mr Higgins together as "the Defendants"; and the Cross-Claimant, Bacchus, by that name. Applicable principles 3Section 98(1) of the Civil Procedure Act 2005 (NSW) relevantly provides that: "Subject to rules of court and to this or any other Act: (a) costs are in the discretion of the court; and (b) the court has full power to determine by whom, to whom and to what extent costs are to be paid, and (c) the court may order that costs are to be awarded on the ordinary basis or on an indemnity basis." Rule 42.1 of the Uniform Civil Procedure Rules 2005 (NSW) ("UCPR") in turn provides that, where the Court makes an order as to costs, the Court is to order that costs follow the event unless it appears to the Court that some other order should be made as to the whole or any part of the costs. 4The principles underlying an award of costs include that costs are awarded to compensate the successful party for the expense of being put to the necessity of litigation; a wholly successful party should ordinarily receive its costs unless good reason is shown to the contrary; and the discretion to order costs must be exercised judicially and not against the successful party except for some reason connected with the proceedings: Milne v Attorney-General (Tas) [1956] HCA 48; (1956) 95 CLR 460 at 477; Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72 at 97-98 per McHugh J, at 129-123 per Kirby J; Ruddock v Vadarlis (No 2) [2001] FCA 1865; (2001) 115 FCR 229 at 234. In Howards Storage World Pty Ltd v Haviv Holdings Pty Ltd [2010] FCAFC 5; (2010) 182 FCR 84, Gray J observed (at [17]) that: "The overriding principle that costs are in the discretion of the Court can also be expressed in terms of the negative proposition that no rule or principle should be applied mechanically in the determination of the question where costs should lie in any particular case. Attention must always be paid to the particular circumstances of the individual case. The aim is to do substantial justice in relation to costs, based on the outcomes of the various issues in the proceeding, as between the entities that are parties to that proceeding." Whether the result of the Statement of Claim and the Cross-Claim should be aggregated 5A preliminary issue arises as to whether the results of the Statement of Claim and the Cross-Claim should be aggregated and the costs of the proceedings should be determined on that basis. Barescape succeeded in establishing a right to payment, reflected in a money judgment, on Bacchus' acquisition of its interest in the Bacchus Partnership in accordance with the terms of the Partnership Agreement. Bacchus was substantially successful in respect of its Cross-Claim, although the quantum of damages which it recovered was substantially less than it had sought. In the Judgment, I held that Barescape's involvement as a shareholder in Midfielder and a beneficiary of the Ace's Family Trust and Mr Ventura's involvement with Longworth House were in breach of fiduciary duty owed to Bacchus and a defence of informed consent, waiver or ratification was not established. I also held that Bacchus was entitled to recover equitable compensation and damages for functions falling within the category of Longworth Redirects (as defined in the Judgment) and, subject to a substantial discount for contingencies, for the opportunity to convert function inquiries falling within the category of Non-Longworth Redirects (as defined in the Judgment). Ultimately, the Plaintiffs recovered more in their claim under the Statement of Claim than Bacchus recovered in the Cross-Claim, although the amounts involved were less than either party had claimed. 6Where a claim and cross-claim raise essentially different issues and a plaintiff succeeds in the claim and the defendant on the cross-claim, there should generally be separate judgments on the claim and the cross-claim with the plaintiff having the costs of the claim and the defendant having the costs of the cross-claim, although a special order may be made if the issues are interlocked: Chell Engineering Ltd v Unit Tool & Engineering Co Ltd [1950] 1 All ER 378; Godden v Alford [1960] WAR 235 at 236-237. It appears that, in Visible Results Properties Inc v Sushi Train (Australia) Pty Limited [2007] FCA 514, Allsop J adopted the former approach in ordering that an unsuccessful applicant/cross-respondent ("Visible Results") pay the costs of the respondent/cross-claimant ("Sushi Train") of the application and that Sushi Train pay Visible Results' costs of the Cross-Claim. However, that approach was there advanced by one party and not opposed by the other. On the other hand, the result of an appeal and cross-appeal were aggregated where there was an overlap between them in Polwood Pty Ltd v Foxworth (No 2) [2008] FCAFC 168 at [12]-[13], where the Full Court of the Federal Court pointed to the undesirability of potentially separate taxation of the costs of an appeal and cross-appeal giving rise to disputes as to whether a particular attendance was a cost in one or the other and ordered payment of a percentage of costs of the appeal and cross-appeal. 7In the present case, the Statement of Claim and the Cross-Claim raised distinct matters, with the former involving matters of contractual construction and valuation methodology, and the latter involving questions as to the conduct of Mr Ventura in establishing and diverting functions to a competing business. I do not consider that this case is within the principle referred to in Chell Engineering Ltd v Unit Tool & Engineering Co Ltd and Godden v Alford as warranting a special order based on an aggregation of the results of the claim and cross-claim. A further difficulty with aggregation of result, by reference to the monetary results achieved in the Statement of Claim and the Cross-Claim alone, is that that approach would disregard the non-monetary, but real, significance of the declarations of right obtained by Bacchus in respect of the Cross-Claim, to which I will refer further below. The Plaintiffs' position as to the Statement of Claim and Cross-Claim 8The Plaintiffs seek an order that each party pay their own costs of the hearing up to 1 September 2011 without disturbing any existing orders for costs and that the Defendants/Cross-Claimant pay their costs of the proceedings, including the costs of and incidental to the Cross-Claim, from 2 September 2011 on an indemnity basis. The Plaintiffs rely on a Calderbank [Calderbank v Calderbank [1975] 3 All ER 333] offer made on 1 September 2011 to seek indemnity costs of the proceedings after that date. 9The Plaintiffs' Calderbank letter of 1 September 2011 was one of numerous letters exchanged between the parties on a without prejudice except as to costs basis making a range of, often complex, proposals for the settlement of the proceedings. For example, by a "without prejudice save as to costs" letter dated 24 July 2010, the Plaintiffs offered to compromise the proceedings on the basis that Bacchus pay $50,000 within 7 days and pay their costs as agreed or as assessed. The Plaintiffs repeated that offer by an offer of compromise made on 27 July 2010. 10By a "without prejudice save as to costs" letter dated 20 August 2010, Bacchus offered to settle the proceedings on terms that it would pay the Plaintiffs the amount of $39,530 referable to the purchase of Barescape's interest in the Bacchus Partnership; that Mr Ventura must provide an apology in respect of his conduct in respect of Bacchus Restaurant which was to acknowledge that conduct "was unbecoming of business partners and employees" and to express regret for that conduct, addressed to Mr and Mrs Higgins, the staff at Bacchus Restaurant and all suppliers, contractors and consultants to Bacchus Restaurant; and a deed of settlement and release would be executed which was to extend to the Partnership accountants, Sidcor Chartered Accountants, their principal Mr Siderovski and his wife. The amount of $39,530 reflected the valuation of Barescape's interest in the Bacchus Partnership made by the Partnership accountant with a 40% discount to goodwill and was more than the Plaintiffs recovered in the Judgment. The operation of that offer is complicated by the inclusion of additional elements including the letter of apology addressed to third parties and the release of Mr and Mrs Siderovski and Sidcor, particularly where there then existed another arrangement between Mr Higgins and Mr and Mrs Siderovski to which I referred in the Judgment. 11By letter dated 6 June 2011, the Plaintiffs made a counter-offer that included a release in favour of Sidcor and Mr and Mrs Siderovski and a letter which expressed regret for the deterioration in the partnership relationship, but was less expansive than the apology sought by Bacchus, and contemplated that the Defendants would pay the Plaintiffs' costs as agreed or as assessed. That offer was rejected by the Defendants by letter dated 15 June 2011, and the Defendants then served a further offer of compromise offering to compromise the proceedings for a payment of $1 plus costs to the Defendant. There were several other offers and counter-offers, on which parties did not place particular weight in their submissions as to costs and which it is not necessary to review. 12The Calderbank offer dated 1 September 2011, on which the Plaintiffs now put primary weight, was made by them after the first stage of the trial, heard over eight days concluding on 18 August 2011, after the parties had attended an unsuccessful mediation before the Honourable Mr Lindgren QC on 25 August 2011 and prior to the recommencement of the hearing on 6 September 2011. By that letter, the Plaintiffs offered to compromise the proceedings on the basis that there should be verdict in favour of the Defendants on the Plaintiffs' claim, with each party to pay their own costs; there should be verdict for Bacchus on the Cross-Claim in the amount of $20,000, with each party to pay their own costs; and the Plaintiffs would pay costs in accordance with a costs order made on 15 August 2011 as agreed or assessed. 13That letter also drew attention to various matters in respect of the merits of the proceedings, including issues as to the admissibility of Bacchus' expert evidence, which Bacchus was ultimately successful in addressing by tender of supporting documents and further expert reports in the proceeding; issues as to Bacchus' claim for an account of profits, which was ultimately not pursued by Bacchus; issues as to evidence and informed consent, as to which the Plaintiffs were ultimately not successful; and the proposition, which was obviously correct in hindsight, that the costs of a further trial to both parties would be significant and not justified by the sums at issue. That letter stated that the offer was made in accordance with the principles in Calderbank v Calderbank above and the offer was left open for nearly 2 days, until 5pm on 2 September 2011. 14A failure to accept a Calderbank offer can be relevant to whether the Court should exercise its discretion to order costs on an indemnity basis rather than on a party and party basis, if the offeree achieves a result less favourable than the offer: MGICA (1992) Pty Ltd v Kenny & Good Pty Ltd (1996) 70 FCR 236. However, the making of a Calderbank offer does not automatically result in a favourable costs order, even if the judgment is more favourable to the party making the offer than the terms of the offer, and, an entitlement to indemnity costs under a Calderbank offer requires that the offer represent a genuine element of compromise of the dispute and that it was unreasonable for the defendants to reject it, when viewed in light of the circumstances existing at the time of its rejection: Herning v GWS Machinery Pty Ltd (No 2) [2005] NSWCA 375; Evans Shire Council v Richardson (No 2) [2006] NSWCA 61; Seven Network Ltd v News Ltd [2007] FCA 1489; (2007) 244 ALR 374 at 388; University of Western Australia v Gray (No 21) (2008) 249 ALR 360 at 361; Commonwealth of Australia v Gretton [2008] NSWCA 117; Keays v JP Morgan Administrative Services Australia Ltd [2012] FCAFC 100; Insight SRC IP Holdings Pty Ltd v The Australian Council for Education Research Ltd (No 2) [2012] FCA 1063. 15The relevant principles were recently summarised by Ward J in Nu Line Construction Group Pty Ltd v Fowler (aka Grippaudo) [2012] NSWSC 816 at [9]-[15], where her Honour observed that: "The rationale for the principles applied in relation to Calderbank offers was outlined in Commonwealth v Gretton [2008] NSWCA 117 by Beazley JA, her Honour noting (at [41]) that the public policy considerations underpinning the making of favourable costs orders where a Calderbank offer has been made (and not accepted) are the encouragement of settlement of disputes as soon as possible and the discouragement of wasteful and unreasonable behaviour by litigants. The Court of Appeal in Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 recently reiterated the public policy objectives of special costs orders in the context of offers of compromise. Basten JA (with whom McColl and Campbell JJA agreed) referred at [6] to the objects underlying the formal offer of compromise procedures under the then court rules that were identified in Maitland Hospital v Fisher (No 2) (1992) 27 NSWLR 721 at 724 as including: 1. To encourage the saving of private costs and the avoidance of the inherent risks, delays and uncertainties of litigation by promoting early offers of compromise by defendants which amount to a realistic assessment of the plaintiff's real claim which can be placed before its opponent without risk that its "bottom line" will be revealed to the court; 2. To save the public costs which are necessarily incurred in litigation which events demonstrate to have been unnecessary, having regard to an earlier (and, as found, reasonable) offer of compromise made by a plaintiff to a defendant; and 3. To indemnify the plaintiff who has made the offer of compromise, later found to have been reasonable, against the costs thereafter incurred. This is deemed appropriate because, from the time of the rejection or deemed rejection of the compromise offer, notionally the real cause and occasion of the litigation is the attitude adopted by the defendant which has rejected the compromise. In such circumstances, that party should ordinarily bear the costs of litigation. The onus is on the party seeking to rely on a Calderbank offer (in this case, the defendants) to satisfy the Court that it should exercise the costs discretion in its favour (Evans Shire Council v Richardson (No 2) [2006] NSWCA 61). An indemnity costs order will not automatically follow from the fact that a genuine offer of compromise more favourable than the final judgment was made nor is there any presumption to that effect (Cat Media Pty Ltd v Allianz Australia Insurance Ltd [2006] NSWSC 790; Rolls Royce Industrial Power (Pacific) Limited v James Hardie & Co Pty Limited [2001] NSWCA 461). What must be considered is the reasonableness of the offeree's rejection or non-acceptance of the offer, having regard to the relevant circumstances at the time that the offer fell to be considered (ie, here, as at September 2006) (citing MGICA (1992) Pty Limited v Kenny & Good Pty Limited [1996] 70 FCR 236 per Lindgren J). The question is whether, in all the circumstances, the failure to accept the offer "warrants departure from the ordinary rule as to costs" (SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 per Giles JA at [37]). ... Save where there is a special costs order by reference to the procedure provided for under the Rules or in accordance with the principles in Calderbank v Calderbank [1975] 3 All ER 333; 3 WLR 586, it has been said that a court should depart from the general rule (and award indemnity costs only where the conduct of the party against whom the order is sought is "plainly unreasonable" (Sydney City Council v Geftlick [2006] NSWCA 280; Dunstan v Rickwood (No 2) [2007] NSWCA 266). In Leichhardt Municipal Council v Green [2004] NSWCA 341, Santow JA (at [57]) said that indemnity costs orders should be reserved for the most unreasonable actions by unsuccessful plaintiffs. In that regard, it remains to be seen whether the exhortation in the above cases as to the category of case in which conduct by an unsuccessful plaintiff would warrant an indemnity costs order is to be reconsidered having regard to the regime now in place in relation to the conduct of litigation in this Court and, in particular, the recognition in s 56(5) of the Civil Procedure Act that non-compliance with the statutory objectives provided for in that legislation may be taken into account in the exercise of a discretion as to costs. ..." 16The Plaintiffs' offer was ultimately more favourable to the Defendants than the result they have achieved, since it would have resulted in a payment of $20,000 to them, if no account is taken of costs. However, the Defendants contend that this offer should not be treated as a genuine compromise because it did not provide for any payment towards their costs of the proceedings, and a payment of $20,000 on the basis that each party would pay its own costs would be a small proportion of the costs already incurred by the Defendants in the conduct of the proceedings to that date. Bacchus relies on an affidavit of its solicitor, Mr Faraday-Bensley, dated 22 November 2012 which indicates that, as at 20 August 2010 (the date of the Defendants' offer to which I referred above), the Defendants' total solicitor and client legal costs were approximately $85,000 and, as at 1 September 2011 (the date of the Plaintiffs' offer) their total solicitor and client legal costs were approximately $725,000. Mr Faraday-Bensley gives evidence that, in his experience, litigants are typically awarded between 60% and 70% of their actual solicitor and client costs on an assessment. On any view, the Plaintiffs' offer of 1 September 2011 required Bacchus to forego a substantial amount of costs that would, in the ordinary course, be recoverable if it was successful in the Cross-Claim. 17I accept that the Plaintiffs' offer dated 1 September 2011 would, so far as they were concerned, have involved their not then pressing for costs on their part; however, so far as the Cross-Claim was concerned, Bacchus could then have reasonably have formed the view that it had substantial prospects of establishing liability and recovering substantive damages in respect of the Cross-Claim, and thereby recovering its costs of the Cross-Claim. In my view, it was not unreasonable for the Defendants to decline to accept that offer, where they would have been left to bear their own costs of the proceedings to that date in an amount substantially in excess of the amount offered by the Plaintiffs. Accordingly, I do not consider that the Plaintiffs' claim for indemnity costs of the proceedings after 1 September 2011 is established. The Defendants' position as to the Statement of Claim 18The Defendants accept that they should be ordered to pay the Plaintiffs' costs of the Statement of Claim between 26 November 2009 and 30 March 2010. They contend that the Plaintiffs should pay their costs of the Statement of Claim from 30 March 2010. They rely, for this contention, on their Defence served on 30 March 2010, which contended that Barescape was only entitled to 25% of the market value of the Bacchus business, discounted by 40% of goodwill to a total of $39,530 and that, by reason of the conduct pleaded against the Plaintiffs in the Cross-Claim, Bacchus was entitled to set off the amount of the loss and damage caused by the Plaintiffs and was entitled to retain the amount of $39,530 otherwise due to Barescape. 19The Defendants contend that the amount recovered by the Plaintiffs in the proceedings - once the initial valuation undertaken by the accountant to the Bacchus Partnership was set aside on their application, a valuation on which they relied was not adopted, and the value of Barescape's interest in the Bacchus Partnership was determined by expert evidence - was (as I had noted in paragraph 95 of the Judgment) less than the amount of $39,530 referred to in the Defence. 20However, the Defendants' position in the proceedings (putting aside the various offers made on a without prejudice except as to costs basis, which required the Plaintiffs to accept other terms) at all relevant times was that they were entitled to withhold the amount of $39,530 referred to in the Defence by reason of the Cross-Claim and that amount was not paid at any relevant time. The Defendants have been unsuccessful in that contention in the proceedings, to the extent that the amount that Bacchus recovered under that Cross-Claim was less than the amount that the Plaintiffs have recovered under the Statement of Claim. In my view, the Plaintiffs must be treated as having succeeded in the Statement of Claim to the extent that they have recovered monies that the Defendants had asserted they were not required to pay. I therefore do not accept the Defendants' submission that the Plaintiffs should be required to pay its costs of the Statement of Claim from 30 March 2010. 21In my view, once it is held that the costs of the Statement of Claim and the Cross-Claim should be dealt with separately, the costs of the Statement of Claim should follow the event. I will therefore order that the Defendants should pay the Plaintiffs' costs of and incidental to the determination of the Statement of Claim as agreed or as assessed. The position as to the Cross-Claim 22Bacchus contends that the Plaintiffs should pay its costs of the Cross-Claim. As I noted above, Bacchus was substantially successful in respect of its Cross-Claim and, once it is held that the costs of the Statement of Claim and the Cross-Claim should be dealt with separately, the costs of the Cross-Claim would generally also follow the event. 23The Plaintiffs contend that, if the Court was considering an order for payment by them of Bacchus' costs of the Cross-Claim, it should have regard to the fact that Bacchus failed in various aspects of the Cross-Claim. While costs may be apportioned between issues where a party has succeeded only on some issues, there are many cases where that is not an appropriate course. In Cretazzo v Lombardi (1975) 13 SASR 4 at 16, Jacobs J noted that: ... trials occur daily in which the party, who in the end is wholly or substantially successful, nevertheless fails along the way on particular issues of fact or law. The ultimate ends of justice may not be served if a party is dissuaded by the risk of costs from canvassing all issues, however doubtful, which might be material to the decision of the case. There are, of course, many factors affecting the exercise of the discretion as to costs in each case, including in particular, the severability of the issues, and no two cases are alike. I wish merely to lend no encouragement to any suggestion that a party against whom the judgment goes ought nevertheless to anticipate a favourable exercise of the judicial discretion as to costs in respect of issues upon which he may have succeeded, based merely on his success in those particular issues. 24In Hughes v Western Australia Cricket Association (Inc) (1986) ATPR 40-748 at 48-136, Toohey J observed that: "(1) Ordinarily, costs follow the event and a successful litigant receives his costs in the absence of special circumstances justifying some other order. (2) Where a litigant has succeeded only upon a portion of his claim, the circumstances may make it reasonable that he bear the expense of litigating that portion upon which it has failed. (3) 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 party's 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." 25On the other hand, in Elite Protective Personnel Pty Ltd v Salmon (No 2) [2007] NSWCA 373 at [6]-[7], Beazley, McColl and Basten JJA observed that: "Where there are multiple issues in a case the Court generally does not attempt to differentiate between the issues on which the appellant was successful and those on which it failed. 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 on which it failed: Waters v P C Henderson (Aust) Pty Ltd (Court of Appeal, 6 July 1994, unreported). As the appellants submit, the commencing position is that costs follow the event so that a successful party is entitled to costs. In relation to trials it has been said that it may be appropriate to deprive a successful party of costs or a portion of the costs if the matters upon which that party was unsuccessful took up a significant part of the trial, either by way of evidence or argument: Sabah Yazgi v Permanent Custodians Ltd (No 2) [2007] NSWCA 306 (at [24]). A similar approach is adopted in the Court of Appeal. If the appellant loses on a separate issue argued on the appeal which has increased the time taken in hearing the appeal, then a special order for costs may be appropriate which deprives the appellant of the costs of that issue: Sydney City Council v Geftlick (No 2) [2006] NSWCA 374 (at [27])." That approach was in turn endorsed in Bostik Australia Pty Ltd v Liddiard (No 2) [2009] NSWCA 304 at [38]. The relevant principles were summarised by the Court of Appeal of the Supreme Court of Victoria in Chen v Chan (No 2) [2009] VSCA 233 at [10] as follows (omitting footnotes): "3. Where there is a multiplicity of issues and mixed success has been enjoyed by the parties, a court may take a pragmatic approach in framing the order for costs, taking into consideration the success (or lack of success) of the parties on an issues basis. Generally, if such an order is made, it is reflected in the successful party being awarded a proportion of its costs but not the full amount. 4. A court may, when fixing costs in a claim where there has been mixed success, take into account complications which it considers will arise in the taxation of costs, as part of its consideration of the overall interests of justice." 26In the present case, accepting that Bacchus was not successful on all of the issues on which it relied on the Cross-Claim, it was successful on the most substantial of those issues, including establishing breaches of the no conflict and no profit rules and its claim for wrongful diversion of function business from Bacchus Restaurant to Longworth House. I do not consider this is a proper case in which to seek to subdivide costs to seek to exclude or adjust for the costs of subordinate issues, which I also do not think could be done in any reliable, even if approximate, manner. 27The Plaintiffs also contend that the length of the trial was extended by the need to cross-examine as to several affidavits that, as I observed in the Judgment, tended to overstate the witnesses' evidence. While that is correct, the trial was extended by many matters, including difficulties with both parties' discovery and the Plaintiffs not having admitted matters that were ultimately established in the Cross-Claim. The Plaintiffs also point to the fact that the Court had raised with Counsel, on several occasions during the proceedings, the possibility that the range and complexity of issues raised in the proceedings was disproportionate to the amount of the likely recovery by either party to them. I will return to that matter below. 28The Plaintiffs also point out that Bacchus pursued a substantial claim for compensation, initially quantified by its accounting expert as in excess of $760,000 on its most favourable claim, and ultimately recovered a substantially smaller amount. The Plaintiffs submit that a costs order should be proportional to the judgment. The importance of proportionality of costs has of course, been recognised in the case law. In Skalkos v T&S Recoveries Pty Ltd [2004] NSWCA 281; (2004) 65 NSWLR 151 at [8], Ipp JA (with whom Sheller JA and Grove J agreed) observed, in dealing with a matter where the costs assessed were several times the amount of damages awarded, that: "In my opinion, in determining whether costs have been reasonably and properly incurred, it is relevant to consider whether those costs be a reasonable relationship to the value and importance of the subject matter in issue". Barescape also contends that the question of proportionality should be addressed after any counterclaims are taken into account, on an aggregated basis. I have addressed, and not accepted, that submission in paragraphs 6-7 above. 29Section 98(4) of the Civil Procedure Act in turn provides: "In particular, at any time before costs are referred for assessment, the court may make an order to the effect that the party to whom costs are to be paid is to be entitled to: (a) costs up to, or from, a specified stage of the proceedings, or (b) a specified proportion of the assessed costs, or (c) a specified gross sum instead of assessed costs, or (d) such proportion of the assessed costs as does not exceed a specified amount." The jurisdiction under this section is to be exercised by reference to the overriding purpose of facilitating the just, quick and cheap resolution of the real issues in dispute under s 56 of the Civil Procedure Act, the objects of case management and the requirement that the court follow the dictates of justice under ss 57-58 of the Civil Procedure Act and the objective of achieving proportionality between the cost of the proceedings and their importance and complexity under s 60 of the Civil Procedure Act. 30In an appropriate case, the Court may exercise its powers under s 98(4) of the Civil Procedure Act where the recoverable costs of a party are otherwise likely to be excessive in the circumstances: Sherbourne Estate (No 2): Vanvalen & Anor v Neaves & Anor [2005] NSWSC 1003; (2005) 65 NSWLR 268 at [42]-[44]; Ireland (as Executor of the Estate of the late Gordon) v Retallack (No 2) [2011] NSWSC 1096 at [42]-[43]. 31In Sherbourne Estate (No 2): Vanvalen v Neaves & Anor above at [45]-[46], Palmer J observed that it would generally be undesirable to exercise the power to cap an order for costs retrospectively, and also pointed to the difficulty of making such an order where there was not sufficient information before the Court to make a logical, fair and reasonable estimate of what would be an appropriate gross sum to incorporate in a costs order. His Honour declined to make such an order in that case, noting that: "While I agree that the costs incurred by [the plaintiffs] are disproportionate to the result which they achieved, the fact remains that they were successful in their claims, they are entitled to costs in some amount, and no evidentiary basis has been put forward upon which the Court could rationally and reasonably make an estimate of the proper amount which should be inserted in a costs order under s 98(4)(c)." 32In Delta Electricity v Blue Mountains Conservation Society Inc [2010] NSWCA 263 at [134]-[137], Beazley JA observed that the power to fix the maximum recoverable costs under UCPR r 42.4 was similarly to be exercised by reference to ss 56-58 and 60 of the Civil Procedure Act and that: "... sight cannot be lost of the fact that the criteria of the "just, quick and cheap resolution of disputes" and the "dictates of justice" apply to both parties. It may not be just to limit the amount of costs recoverable if the amount specified is disproportionate to the reasonable costs likely to be incurred by the opposing party. That is a factor to which the court must have regard. As Palmer J identified in Sherborne, the proportionality of costs to the value of the result is central to the just and efficient conduct of proceedings. His Honour made this comment in the context of disproportionately high costs to the value of the proceedings. However, it holds good as a general proposition. The outcome in a particular case will depend upon the total mix of factors relevant to the exercise of the discretion and the importance that the court gives to any particular factor or factors." 33In Ireland as Executor of the Estate of Gordon v Retallack (No 2) above, Pembroke J took a potentially broader view of the application of s 98(4)(c) of the Civil Procedure Act to that taken by Palmer J in Sherborne (No 2) above, in circumstances that his Honour had found that substantial costs incurred by a party's legal representatives were unnecessary to an efficient resolution of the proceedings. 34I have had regard to several matters in determining whether to order that Bacchus be allowed its costs of the Cross-Claim in full, as a specified percentage of assessed costs or capped at a specified sum. Relevant factors to whether an order limiting costs should be made, as summarised in Ritchie's Uniform Civil Procedure NSW at [s 98.45], include the parties' relative responsibility for the costs incurred; the degree of disproportion between the issues litigated and the costs claimed; the complexity of the proceedings in relation to their cost; and the capacity of the unsuccessful party to satisfy any costs liability. In the present case, I consider that Bacchus bears some, but not all, of the responsibility for the substantial costs likely to be incurred in the Cross-Claim, which reflected not only the complexity of the matters litigated but also Bacchus' approach to quantification to which I will refer below. I accept that those costs would also have been increased by reason of issues as to the adequacy of production of documents by the Plaintiffs to which I referred in the Judgment; the Plaintiffs' denial of breach of fiduciary duty, which they did not sustain; and the Plaintiffs' ultimately unsuccessful reliance on informed consent as a defence to the Cross-Claim. 35In my view, the quantum of damages recovered in the Cross-Claim should also not be treated as the only measure of Bacchus' success, where it had a proper interest in obtaining vindication of its rights, and there is also a public interest served in enforcing fiduciary duties. As Bacchus points out, in the leading case of Phipps v Boardman [1964] 1 WLR 993, Lord Wilberforce at first instance made an order that the plaintiffs have their costs of the proceedings in which a breach of fiduciary duty had been established, notwithstanding that an account was still to be taken and the amount of the profit which would then be recovered by the plaintiffs was then unknown. The case law also indicates that the Court may award costs in an application in which the plaintiff obtained only declaratory relief: see, for example, Ainsworth v Criminal Justice Commission (1992) 175 CLR 564. In Ng v Chong [2005] NSWSC 385 at [8], Hamilton J observed that an order for costs in favour of a party may be justified even if it recovers nominal damages (which is not the case here) where some other right is vindicated by the judgment. In Australian Competition and Consumer Commission v Teracomm Ltd [2009] FCA 903, the Court ordered the respondent to pay the costs of a regulatory body that obtained only declaratory relief. In Keller v LED Technologies Pty Ltd [2010] FCAFC 55 at [131], Emmett J treated declaratory relief as sufficient to support an order for costs, and held that a trial Judge's discretion had miscarried in ordering that an applicant who had established contraventions of the Trade Practices Act 1974 (Cth), but no loss in addition to that recoverable under other causes of action, pay the respondent's costs of that aspect of the trial. In this case, Bacchus obtained declarations as to its rights and also recovered substantive, rather than merely nominal, damages. I accept Bacchus' submission that declaratory relief had particular significance where Mr Ventura had previously claimed that its principal, Mr Higgins, had wrongly advanced the allegations made in the proceedings. 36I initially saw some merit in an order capping Bacchus' costs of the Cross-Claim to a fixed amount, where they would otherwise be a multiple of the amount recovered by it in the Cross-Claim. I have ultimately concluded that I should not make such an order in that form for two reasons. First, as Palmer J noted in Re Sherborne Estate (No 2) above, it seems to me that it would generally be undesirable retrospectively to exercise the power to cap an order for costs to a fixed amount. Second, there is a real difficulty in making a capping order in this case, where the Court does not have the information before it that would be before a costs assessor so as to have a proper base to fix a capped amount. Third, in my view, the Court should also be reluctant to adopt an approach to capping costs, by imposing a fixed limit retrospectively, that would create a significant deterrent to the beneficiary of a fiduciary duty from bringing proceedings to vindicate that duty, where there may be uncertainty as to the amount of damages that will ultimately be recovered. 37On balance, I consider that the costs of the Cross-Claim should follow the event and should not be retrospectively capped to a fixed amount. However, it does not follow that Bacchus should, at the other extreme, be entitled to recover all of its party-party costs incurred in the Cross-Claim without regard to the additional time spend in the hearing and additional costs necessarily incurred by reason of the manner in which it approached the quantification of the compensation claimed in that Cross-Claim. As I noted above, I had raised with Counsel, on several occasions during the proceedings, the possibility that the range and complexity of issues raised in the proceedings was disproportionate to the amount of the likely recovery by either party to them. A particular difficulty with Bacchus' approach to quantification of its Cross-Claim was that one of the bases on which it proceeded, and was ultimately successful to some extent, involved claims for compensation in respect of numerous individual functions and function inquiries, involving the tender of documents, cross-examination of witnesses and significant accounting evidence as to particular functions, as to which Bacchus' loss was often small and sometimes non-existent. The time spent and costs incurred in that exercise was plainly disproportionate, particularly after allowance was made (after detailed submissions as to the onus of proof in respect of mitigation of loss) for offsetting a la carte and function earnings of the Bacchus Restaurant where functions had been diverted, and for the fact that the "functions" for which Bacchus claimed compensation under the category "Non-Longworth Redirects" were largely preliminary inquiries as to which a significant discount for contingencies was required. 38I have noted above that these were not the only matters that contributed to the length and costs of the proceedings. Nonetheless, in my view, a reduction of recoverable costs is required, consistent with the overriding purpose specified in s 56 of the Civil Procedure Act and the object of proportionality specified in s 60 of the Act, where, in my view, the volume of evidence, the length of the hearing and the time spent in submissions was significantly increased because compensation was sought to be proved by Bacchus in a manner that was unduly complex and unduly time-consuming for the amount of the claim. At least in this context, it is proper to have regard to the fact that, as I have noted above, the amount recovered by Bacchus in the Cross-Claim fell well short of the amount initially claimed and this exacerbated the disproportion between the time and costs incurred in respect of quantification of the Cross-Claim and the amounts in issue; compare Specsavers Pty Ltd v The Optical Superstore Pty Ltd (No 4) [2012] FCA 652 at [38]. 39I consider that, in these circumstances, the Court should exercise its power under s 98(4)(b) of the Civil Procedure Act to limit the proportion of assessed costs that are recoverable by Bacchus on the Cross-Claim. Any such limit is necessarily a matter of impression and evaluation rather than a mathematically precise exercise: Bostik Australia Pty Ltd v Liddiard (No 2) above at [38]. Having regard to these matters, I consider that the Plaintiffs should pay 80% of Bacchus' costs of and incidental to the determination of the Cross-Claim against them as agreed or as assessed. Claim for interest and costs 40The Defendants also seek an order that the Plaintiffs pay them interest on costs and disbursements from 30 March 2010 under s 101 of the Civil Procedure Act 2005. The form of that order reflects the position advanced by the defendants in paragraph 18 above, which I have not accepted. The question whether that order should be made nonetheless arises in respect of the Cross-Claim. The Plaintiffs resist that order but, if it is made, seek a corresponding order in respect of costs payable to them. 41The principles applicable to an award of interest and the proper process for calculation of that interest were comprehensively reviewed by Ward J in Ying v Song [2011] NSWSC 618 at [99]ff. I accept that, where the proceedings have continued over a long period, the parties will often have been out-of-pocket by the payment of costs to their lawyers and an order for interest on costs can be made to compensate them for that matter, in the absence of any countervailing discretionary factor: Drummond & Rosen Pty Ltd v Easey (No 2) [2009] NSWCA 331 at [4]; Ying v Song above at [99]-[103]. 42However, in Drummond & Rosen Pty Ltd v Easey (No 2) at [49], Handley JA (with whom Tobias JA agreed) observed that the power under s 101(4) should not be exercised without evidence of the amounts paid and the dates of payment. Neither the affidavit sworn by Mr Faraday-Bensley, Bacchus' solicitor, in this application nor Mr Ventura's affidavits contain that information as to the proceedings as a whole, although some information as to the payment of bills in the period to November 2011 is contained in Mr Ventura's second affidavit. Even if sufficient information had been available to support such an order, I would have been reluctant to make it given the likely difficulty of splitting costs referable to the Statement of Claim and Cross-Claim in individual bills in order to calculate the amounts to which interest should be applied. Accordingly, I will not make an order for interest on costs in the proceedings. Other matters 43The Plaintiffs seek an order that the Defendants pay their costs of the Summons up to and including 7 December 2009. The Plaintiffs contend that an order for costs in the cause was made on 7 December 2009. The Court's record of orders on that date indicates that costs were reserved, and the contrary has not been established before me. Mr Ventura's evidence is that an electronic copy of the MYOB data for the Bacchus Restaurant was provided on the day of the hearing of the Summons. On balance, and having regard to the difficulties with production of documents on the part of both parties throughout the proceedings, I consider that the appropriate course is to make no order as to the costs of the Summons on 7 December 2009. 44The Plaintiffs seek an order that the Defendants pay their costs of and incidental to the tender of reports of the Defendants' accounting expert, Mr Claude Jugmans dated 6 July 2011 and 5 August 2011, including the costs of and incidental to the argument about the admissibility of those reports and the costs reserved on 18 August 2011. I rejected the tender of Mr Jugmans' reports dated 6 July 2011 and 5 August 2011, in the context of the tender of a joint expert report, in my Judgment delivered on 18 August 2011 and made observations as to the admissibility of those reports generally. This was a discrete issue on which the Plaintiffs were substantially successful, although the Defendants were ultimately able to remedy the difficulties with those reports by the tender of further documents and the provision of a further expert report of Mr Jugmans. I will make the order sought by the Plaintiffs in this regard. 45The Plaintiffs also seek an order that the Defendants pay the costs of the Third Cross-Defendant, Midfielder Pty Limited from 28 February 2011. I do not propose to make that order. As Mr Wood fairly conceded in submissions, although subsequently retreated from that concession in further written submissions, it is highly unlikely that there are any material costs in respect of Midfielder in the proceedings, since the claims against it were derivative of the claims against other parties in the proceedings. 46For completeness, I note that no party submitted that in order for costs should not be made by reason of UCPR r 42.34, which deals with circumstances where a plaintiff obtains a judgment against a defendant in an amount of less than $500,000. In my view, the court can be satisfied that the commencement and continuation of the proceedings in this court, rather than the District Court, was warranted given the nature of the relief sought in the proceedings and their complexity. Orders 47Accordingly, I make the following orders: 1 The Defendants pay the Plaintiffs' costs on the ordinary basis of and incidental to the determination of the Statement of Claim as agreed or as assessed. 2 The Plaintiffs/First and Second Cross-Defendants pay 80% of the Cross-Claimant's costs on the ordinary basis of and incidental to the determination of the Cross-Claim against them as agreed or as assessed. 3 The Defendants pay the Plaintiffs' costs on the ordinary basis of and incidental to the tender of reports of the Defendants' accounting expert, Mr Claude Jugmans dated 6 July 2011 and 5 August 2011, including the costs of and incidental to the argument about the admissibility of those reports and the costs reserved on 18 August 2011. 48Each party has had a measure of success in respect of costs, although neither achieved the position for which it contended, and I will make no further order as to costs of submissions or the hearing in respect of this issue. ********** 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: 24 January 2013