District Court New South Wales Medium Neutral Citation: FJ & SM Monaghan Pty Ltd v S & W Slade Pty Ltd & Ors (No 2) [2017] NSWDC 182 Hearing dates: 7 July 2017 Date of orders: 11 July 2017 Decision date: 11 July 2017 Jurisdiction: Civil Before: Hatzistergos DCJ Decision: (1) The First Defendant pay the Plaintiff's costs of the proceedings on the Plaintiff's claim; (2) The Plaintiff pay 20% of the costs of the Second and Third Defendants' costs on the Plaintiff's claim; (3) The Cross-Claimants pay the Cross-Defendants' costs on the cross-claim; and (4) Each party pay their own costs on the costs argument. Catchwords: COSTS – costs follow the event – Plaintiff successful against First Defendant – whether other Defendants enjoyed success – whether substantive issue in dispute severable from other issues – whether substantial time occupied by issue on which Defendants succeeded – broad brush approach – separation of issues does not offend broad brush approach to costs – underlying notion of fairness Legislation Cited: Civil Procedure Act 2005 (NSW) s 98 Legal Profession Uniform Law 2014 (NSW) s 172 Uniform Civil Procedure Rules 2005 (NSW) r 42.1 Cases Cited: Arian v Nguyen (2001) 33 MVR 37; [2001] NSWCA 5 Baker v Towle [2008] NSWCA 73 Byrns v Davie [1991] 2 VR 568 Commonwealth of Australia v Gretton [2008] NSWCA 117 Griffith v Australian Broadcasting Corporation (No 2) [2011] NSWCA 145 Milne v Attorney General for Tasmania (1956) 95 CLR 460 Ritter v Godfrey [1920] 2 KB 47 Verna Trading Pty Ltd v New India Assurance Co Ltd [1991] 1 VR 129 Texts Cited: GE Dal Pont, Law of Costs (LexisNexis Butterworths, 3rd ed, 2013) Category: Costs Parties: FJ & SM Monaghan Pty Ltd (Plaintiff/Cross-Defendant) S & W Slade Pty Ltd (First Defendant/Cross-Claimant) Mr Stephen Garry Slade (Second Defendant/Second Cross-Claimant) Mrs Wendy Maree Slade (Third Defendant/Third Cross-Claimant) Representation: Counsel: Mr A Cornish (Plaintiff/Cross-Defendant) Mr J Stephenson (Defendant/Cross-Claimant) Solicitors: Byrnes Lawyers (Plaintiff/Cross-Defendant) PJ Wood and Associates (Defendant/Cross-Claimant) File Number(s): 2013/164903 Judgment 1. On 9 June 2017, I published my reasons in relation to the substantive proceedings. The effect of my decision was to find in favour of the Plaintiff against the First Defendant in respect of the contractual claim for payment of interest but to find in favour of the Second and Third Defendants in respect of a claim seeking to make the latter liable under a contract of guarantee. All three Defendants had brought a cross-claim seeking recovery of monies alleged by them to have been overpaid to the Plaintiff. However I found in favour of the Plaintiff/Cross-Defendant in this respect. 2. Accordingly I ordered: 1. Verdict and judgment for the Plaintiff against the First Defendant in the sum of $750,000; 2. Verdict for the Second and Third Defendants on the Plaintiff's claim; and 3. Verdict for the Cross-Defendant on the Cross-Claimant's cross claim. 1. At the time, I indicated I would hear from the parties as to costs. Written submissions were prepared and argument took place on 7 July 2017. Judgment on costs was reserved to this day. The Plaintiff's submissions 1. The Plaintiff contends that costs should follow the event. In respect of the construction of the guarantee by the Second and Third Defendants it contends that it was readily severable from other legal and evidentiary issues and is the sole event in respect of which they enjoyed any success. It argues in written submissions that the guarantee was a minor element in the dispute in evidentiary and legal terms, and the narrow basis upon which the Second and Third Defendants avoided liability for the substantial debt owed to the Plaintiff by the First Defendant ought not to entitle them to their costs of the proceedings generally. 2. Accordingly whilst the Plaintiff acknowledges that the Second and Third Defendants had success on basis indicated, it submitted that the appropriate orders should be that the Defendants pay the Plaintiff's costs of the proceedings save as to the costs of the issue of the construction of the Second and Third Defendants' guarantee. 3. The effect of such an order it is said would be to absolve the Second and Third Defendants from paying the Plaintiff's costs in relation to the issue of the construction of the guarantee thereby depriving the Plaintiff of its costs in respect of that issue and causing the Second and Third Defendants to bear their own costs in relation to that issue. [1] 4. In the alternative, the Plaintiff contends that were the Court was minded to deprive the Second and Third Defendants of their costs in relation to the construction issue then it sought orders that:- 1. The Defendants pay the Plaintiff's costs of the proceedings save for costs of the issue of construction of the Second and Third Defendants' personal guarantee and; 2. The Plaintiff to pay the Second and Third Defendants' costs of the issue of construction of the personal guarantee. The Defendants' submissions 1. The Defendants for their part contend that the appropriate orders should be:- 1. The First Defendant pay the Plaintiff's costs of the Plaintiff's claim against the First Defendant; 2. The Plaintiff pay the Second and Third Defendant's costs of the Plaintiff's claim against the Second and Third Defendants; and 3. The Cross-Claimants pay the Cross-Defendants' costs of the cross-claim. 1. In relation to the third proposed order it argued this could be reflected elsewhere in the order as to costs bearing in mind the interrelationship of issues. 2. In support of the orders it contends for, the Defendants draw attention to Uniform Civil Procedure Rules 2005 (NSW) ("UCPR") r 42.1 and argue that the relevant event should be the parties' overall success in relation to the claim and there is no basis to deprive the Second and Third Defendant of their costs. 3. In support of this argument, the Defendants argue they are entitled to costs drawing support from: Ritter v Godfrey [2] and Milne v Attorney General for Tasmania. [3] 4. The Defendants acknowledge that the Plaintiff had success against the First Defendant and that the Second and Third Defendants joined in the argument presented by the First Defendant on the contractual claim as to interest. Nevertheless they contended that the principles as to costs recognised that greater latitude is given to a Defendant as there is little choice for them, short of settlement, to defend a claim and so a successful Defendant should not be penalised where substantially successful but failed as to the to the same extent as the Plaintiff who sues. Reference in this regard was made to the decision in Griffith v Australian Broadcasting Corporation (No 2). [4] 5. The Defendants also argue that even if it were appropriate to make costs orders referable to issues, the orders proposed by the Plaintiff fail to recognise that the Defendants were successful on a number of matters in relation to which significant costs were incurred. 6. The argument was summarised in the written submissions of the Defendant at [8] – [11] as follows:- [8] In any event, even if, which is denied, it was appropriate for the Court to make costs orders by reference to issues, the orders proposed by the plaintiff fail to recognise that the defendants were successful on a number of issues in relation which significant costs were incurred. [9] At paragraph [149] of the judgment delivered on 9 June 2017 the Court ultimately concluded that the plaintiff had not discharged the onus of establishing that the letter of 10 October 2015 [sic] had been sent. This issue took up substantial time at the hearing and was also dealt with extensively in the evidence. This issue also comprised a substantial part of the judgment delivered on 9 June 2017 (paragraphs 33 to 49 and 140 to 150). [10] At the commence of the hearing, the plaintiff conceded that the account reconciliation prepared by Ms Susan Johnson (being tab 7 of Ex SMJ-1 to Ms Johnson's affidavit dated 24 August 2014) was accurate. This is in circumstances where a substantial part of Ms Johnson's affidavit identified and addressed the differences between the various statements served by the plaintiff and the statement provided by the defendant. [11] Further, the defendants objected to a majority of the report of Mr Hugo Longergan, the plaintiff's expert dated 1 July 2016 and the attached schedules which resulted in the plaintiff not reading the majority of that report. The plaintiff also accepted the report of Mr Bruce Kitson, the defendant's expert, who was not even required for cross-examination. 1. Finally in response to the Plaintiff's submission the Defendant argued that only in an exceptional case would a successful party both be deprived of costs and ordered to pay the opponent's costs. [5] Legal principles 1. UCPR r 42.1 provides:- 42.1 General rule that costs follow the event Subject to this Part, if the court makes any order as to costs, the court is to order that the 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 1. The question of what constitutes the "event" was described by Beazley JA (as her Honour then was) in Baker v Towle. [6] Her Honour stated:- [22] … It would be odd and, indeed, unfortunate, if the identification of "the event" in one way resulted in an order for costs, on the basis of "costs follow the event" whereas a different, but equally appropriate identification of "the event" meant a different application of the rules. The oddness in there being different possible applications of the rule (in this respect I am not referring to the exercise of the discretion under the rule) depending on the identification of "the event" raises in my mind the question whether this is the correct approach. In most cases, the costs order will almost invariably depend upon the exercise of the discretion. [23] The real question is what is the appropriate order for costs. An obvious starting point is the pleadings. However, the identification of the issues in the pleadings is likely to be only one of several considerations relevant to the costs order that ought to be made. The considerations may include whether any offers of settlement have been made and if so what those offers were. The discretionary considerations may also include the manner in which the proceedings are conducted. These are but 2 examples. There may be a whole range of relevant circumstances depending upon the particular case. [7] 1. In this respect, I also adopt what was said regarding the relevant rule in Griffith v Australian Broadcasting Corporation (No 2) at [16] by Hodgson JA. There his Honour reinforced the view he expressed in Commonwealth of Australia v Gretton [8] that the notion underlying the rule and departures from it are based on the notion that costs should be paid in a way that is fair having regard to what the Court considers to be the responsibility of each party for the incurring of costs. 2. The principles which the Defendants refer to as encompassed in Ritter v Godfrey and Milne v Attorney General for Tasmania were based on different rules to that in the instant case. 3. In Ritter v Godfrey, Atkin LJ stated: "In the case of a wholly successful defendant, in my opinion the judge must give the defendant his costs unless there is evidence that the defendant (1) brought about the litigation, or (2) has done something connected with the institution or the conduct of the suit calculated to occasion unnecessary litigation and expense, or (3) has done some wrongful act in the course of the transaction of which the plaintiff complains." [9] 1. Gobbo J in Byrns v Davie [10] observed that Ritter v Godfrey was criticised by the House of Lords in Donald Campbell and Co Ltd v Pollak [11] by Viscount Cave LC to the extent that it was inconsistent with the broad discretion under the rules. Gobbo J further observed that that criticism was also noted by the Supreme Court of Victoria in Verna Trading Pty Ltd v New India Assurance Co Ltd. [12] However his Honour held that he did not read the decision as confining the ambit of judicial discretion where there are separate issues that were litigated in respect of which the Defendant had failed. [13] 2. Milne v Attorney General for Tasmania involved a refusal to order costs in circumstances where the Respondent was wholly successful except in respect of two matters described as being of small importance. The High Court set aside the order stating that it was a general rule that a wholly successful Defendant should receive costs unless good reasons are shown to the contrary. 3. I do not see anything in that case which qualifies the general discretion vested in the Court under UCPR r 42.1 and s 98 of the Civil Procedure Act 2005 (NSW). Analysis 1. With this in mind, the Court made orders for the Plaintiff to pay the Defendants' costs thrown away by reason of the grounds of leave to file an Amended Statement of Claim on 25 February 2016. Neither party argued that that order be disturbed. 2. The Plaintiff has succeeded in their claim against the First Defendant and it ordinarily follows that they are entitled to costs on the claim. 3. The Defendants have failed in their cross-claim and it ordinarily follows that the Plaintiff is entitled to its costs in defending that part of the proceedings. 4. So far as the Second and Third Defendants' costs are concerned, it is relevant that they joined with the First Defendant in contesting the Plaintiff's claim as to the term of the substantive contract as to interest. That component of the claim occupied a substantial part of the proceedings and hearing time. It is largely severable from that which related to the construction of the guarantee argument on which they succeeded. No submission was advanced by the Defendants to the contrary. 5. Overall, I would assess the construction issue as having occupied no more than 10% of the hearing. 6. I do not accept the Defendants' argument that in separating the two aspects of the case as I have referred, offends against the concept of taking a broad brush approach to costs. Nor do I consider it is necessary to descend to a mere detailed issue by issue approach. The separation as I have found it enables the Court to make proper and fair adjustments between the parties. 7. The question regarding the letter of 10 October 2015 whilst determined adversely to the Plaintiff was interrelated with other aspects of the contractual claim as to interest. Other matters raised by the Defendants as to the conduct of the proceedings by the Plaintiff are more properly matters for assessment to determine whether or not the Plaintiff's actions and associated costs were fair and reasonable. [14] 8. I do not accept the Plaintiff's argument that the Defendants should pay the Plaintiff's costs excluding the construction of the guarantee nor its alternative proposal that the Defendants pay the Plaintiff's costs on all matters except the construction of the guarantee in respect of which the Plaintiff should pay the Second and Third Defendants' costs. 9. The Plaintiff chose to join both Defendants and bore the risk of being liable to compensate them in respect of their costs in the event of not succeeding. 10. On the other hand it was open to the Second and Third Defendants to confine their Defence (and not to join in the cross-claim). To allow the Second and Third Defendants a full costs order would inevitably dilute the effect of the Plaintiff's costs order against the First Defendant in circumstances where the Second and Third Defendants' argument were indistinguishable from the First Defendant and all Defendants are represented by the same legal representatives. On the other hand, the Second and Third Defendants were made parties at the hand of the Plaintiff and their participation in the proceeding was in that sense, mandated. 11. In my view, the proper exercise of discretion requires that the Plaintiff should pay a proportion of the Second and Third Defendants' costs less than their full costs but more generous than what would in my view be payable if the order were confined to defending the guarantee claim. To this end, I would, taking a broad approach, order the Plaintiff to pay 20% of the Second and Third Defendants costs. Such an approach is consistent with that taken by Gobbo J in Byrns v Davie. [15] Orders 1. For these reasons in addition to previous orders as to costs I order:- 1. The First Defendant pay the Plaintiff's costs of the proceedings on the Plaintiff's claim; 2. The Plaintiff pay 20% of the costs of the Second and Third Defendants' costs on the Plaintiff's claim; and 3. The Cross-Claimants pay the Cross-Defendants' costs on the cross-claim. 1. As each party has had some success in its arguments as to costs I would propose, subject to any submission to the contrary, that each party pay their own costs on the costs argument. Endnotes 1. In light of their partial success on the construction issue in terms of the argument presented 2. [1920] 2 KB 47 3. (1956) 95 CLR 460 at 476 – 7 4. [2011] NSWCA 145 at [19] (Hodgson JA with whom McClellan CJ at CL agreed) 5. Arian v Nguyen (2001) 33 MVR 37; [2001] NSWCA 5 6. [2008] NSWCA 73 7. [2008] NSWCA 73 at [22] – [23] (Beazley JA with whom Mathews AJA agreed) 8. [2008] NSWCA 117 at [121] (Hodgson JA with whom Mason P agreed, and Beazley JA substantially agreed) 9. [1920] 2 KB 47 at 60 (Atkin LJ) 10. [1991] 2 VR 568 at 569 – 570, 571 (Gobbo J) 11. (1927) AC 723 12. (1991) 1 VR 129 13. [1991] 2 VR 568 at 571 (Gobbo J) 14. Legal Profession Uniform Law 2014 (NSW) s 172 and GE Dal Pont, Law of Costs (LexisNexis Butterworths, 3rd ed, 2013) at [16.23] 15. [1991] 2 VR 568 at 569 (Gobbo J) Amendments 11 July 2017 - Amended title to: (No 2) 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: 11 July 2017