Solicitors:
W H Lawyers (Plaintiff)
Matthews Folbigg Lawyers - as agents for O'Loughlins Lawyers (Defendant)
File Number(s): 2014/365787
[2]
Judgment
I gave judgment in relation to the liability issue in this matter on 21 April 2017: AAP Industries Pty Ltd v Rehau Pte Ltd [2017] NSWSC 390. I found that properly construed the Supply Agreement required exclusive dealing so that Rehau was obliged to order the items contained in the Supply Agreement from AAP and no other. I found that there was no such term of exclusivity in relation to the Further Supply Agreements.
I found also that Rehau had repudiated the Supply Agreement and that Rehau breached the Supply Agreement at various times from 2007 to the time its repudiation was accepted by AAP in June 2014.
The damages had been calculated on the basis that a term of exclusivity would also have been found in relation to the Further Supply Agreements. The result was that it was not possible for me to calculate damages on the evidence available. The parties had accepted that that would be so in the event that I found a distinction between the Supply Agreement and the Further Supply Agreements. In my judgment I set out some principles or guidelines for the proper calculation of the damages.
The proceedings were adjourned to enable the parties to recalculate the damages that flowed to AAP from the repudiation of the Supply Agreement that I had found by Rehau.
Three heads of damages were claimed being:
(a) Loss of profits;
(b) Loss in respect of completed stock manufactured for Rehau remaining on hand;
(c) Loss in respect of raw materials acquired for the purpose of manufacture of goods for Rehau remaining on hand.
The parties have now, commendably, agreed two of the heads of damage, namely, loss of profits at $86,903 and loss in respect of finished goods at $26,458.
The remaining area of dispute concerned the loss in respect of raw materials, and that dispute was limited. AAP claimed $83,583 based on a further report of Mr Vella prepared on 1 June 2017. That amount was made up of two amounts being the loss in respect of raw materials less scrap value of $54,159 and what Rehau asserted amounted to a new head of damage being loss in respect of the cost of mitigation of further raw materials in the sum of $29,424. Rehau accepts the figure of $54,159 but says AAP is not entitled to the sum of $29,424.
That dispute arose in this way. On 25 May 2017 Mr Vella prepared a further report on the basis of what I had said in my judgment. Relevantly, Mr Vella produced in Part D of Schedule 6 to that statement a calculation of the loss in relation to raw materials. The data for that calculation was derived from the affidavit of Mr Sarapuu of 14 August 2015. Mr Sarapuu's affidavit identified that there were 36,315kg of raw materials on hand at the time of the swearing of that affidavit. On that basis Mr Vella calculated the value of that material at $219,626. He then deducted an amount of $116,519 being the amount of the value as scrap of that material based on the letter from Southern Cross Metals Pty Ltd of 4 August 2015. Accordingly, the loss in relation to raw materials was said to be $103,108 (it should have been $103,107).
In response to that report the solicitors for Rehau wrote to AAP's solicitors saying that Mr Vella's assessment failed to take into account the matters deposed to in the fifth affidavit of Mr Sarapuu dated 27 October 2016 and adopted into Mr Vella's report of 27 October 2016. The letter went on to say this:
13. While those affidavits were not read, your client cannot now depart from the fact that it has attempted to mitigate its loss by running down the amount of raw material that it previously held. If necessary we will read the relevant portions of that affidavit in respect of any enquiry if quantum cannot be agreed and cross-examine Mr Vella on these topics if necessary, subject to any order of the Court.
The affidavit of Mr Sarapuu and Mr Vella's report of 27 October 2016 constituted the material which I declined to permit the Plaintiff to rely on at the hearing because of its late service - see my earlier judgment at [20]-[22]. Mr Sarapuu's affidavit showed (at paragraph 9) that the raw material on hand had been reduced to 23,825.71kg.
In my earlier judgment I said this:
[102] Rehau submits that the only obligation on AAP was to maintain a minimum two months of buffer stock of the articles the subject of the Supply Agreement. Rehau said there was no obligation to maintain raw materials. Whilst that is true in terms of what the Supply Agreement obliges AAP to do, it is difficult to see how AAP could constantly maintain a buffer of two months stock if it did not maintain a measure of raw material to enable that buffer stock to be available. Further, clause I says that one of the reasons the Agreement is made is "for AAP… to plan the raw material necessary to ensure that deadlines are met". Clause IV provided that those deadlines were "absolutely binding".
[103] Mr Sarapuu calculated the loss from the value of the raw material on hand at that time to be $266,280.00, reduced by $141,629.00 being the quote from Southern Cross Metals Pty Ltd of 4 August 2015. That figure was adopted by Mr Vella for his calculations. Ultimately those figures were reduced so that, taking into account what was realisable for scrap value the loss by reason of raw materials on hand was said to be $75,059.00.
[104] There are two difficulties with this head of damage. First, there is no division between the raw materials required to produce the articles the subject of the Supply Agreement and those that were the subject of the Further Supply Agreements. Secondly, and similarly to the point made about finished product, it is not clear to what extent the raw materials simply happened to be in stock as opposed to being required absolutely to maintain the minimum two month buffer stock under the Supply Agreement. Mr Sarapuu's evidence suggested that there was more than two months' stock remaining.
Mr Vella, in response to the letter from Rehau's solicitors, prepared a further report on 1 June 2017. Relevantly, it quoted [102]-[104] of my earlier judgment and went on to say this:
11. I observed that the figure of $75,059 [referred to in my judgment at [103]] is the difference between the value of raw materials on hand disclosed in Mr Sarapuu's affidavit of 27 October 2016 ($170,362), and the scrap value of that raw material ($95,302). That figure does not take account of the loss described at paragraph 16 below.
Mr Vella then went on to calculate the loss based on the raw material quantity identified by Mr Sarapuu in his affidavit of 27 October 2016. Taking into account the scrap value he calculated that the loss for raw materials was $54,159. Mr Vella then drew attention to further parts of Mr Sarapuu's affidavit of 27 October 2016 where he indicated that the reduction in stock had come about through AAP's use of brass in manufacture of goods for other customers. Mr Sarapuu had said that modifications were necessary because the brass was not in all cases the right size for the other customers. Mr Sarapuu had in his affidavit calculated what the extra costs associated with the modification of the material was to enable it to be sold to the other customers.
Mr Vella then calculated, based on the brass for the items in the Supply Agreement, what the cost to AAP was of modifying the material for the purposes of sale. That cost was said to be a cost of mitigation and amounted to $29,424.
Subsequently Rehau accepted Mr Vella's calculation of the loss associated with raw material of $54,159 but resisted the further claim for the $29,424.
On the present application before me the matter played out in this way. AAP sought to read on the present application the affidavit of Mr Sarapuu of 27 October 2016 together with Mr Vella's report of that date. It then sought to tender Mr Vella's report of 1 June 2017 by reading an affidavit of Mr Vella sworn 23 August 2017. Rehau objected to the reading of that material.
Mr Heath of counsel said that objection was taken because AAP was seeking to adduce fresh material from affidavits that were excluded in the proceedings. He submitted that the effect of my earlier decision was to recalculate the damages on the basis of the evidence in the proceedings. What AAP was doing was seeking in effect either to reopen the case on damages and lead additional evidence or to act as if there were an enquiry on this aspect of the damages. Mr Heath submitted further that the reference to the figure of $75,059 at [102] of my earlier judgment marked the upper limit of damages that were able to be claimed in respect of the raw material. He drew attention also to the two matters that I identified at [104].
In my opinion, the evidence contained in the 2016 affidavit and report is admissible in relation to the assessment of damages. There are a number of reasons for this. First, the material was rejected at the earlier hearing because of the late service without any adequate explanation and in circumstances where there had been a failure to respond to a Notice to Produce in relation to this material as early as 17 February 2016. I considered it unfair to Rehau in those circumstances to permit AAP to rely on it.
Secondly, there can be no prejudice to Rehau in permitting AAP to rely on the October 2016 material now. Rehau has now had ample time to consider that material.
Thirdly, it was accepted by the parties that if I reached the view that there was a distinction to be made between the Supply Agreement and the Further Supply Agreements there would need to be a recalculation of damages. In that way, all I could do in my first judgment was to determine issues of liability and, at best as I tried to do, to give some preliminary indications about the calculation of damages in terms of general principles. It was thought by the parties and by me when I delivered my earlier judgment that the issue of damages would devolve simply to an arithmetical exercise that involved separating the items and material the subject of the Supply Agreement and those the subject of the Further Supply Agreements. As matters have transpired things were not so simple.
Fourthly, the question of the calculation of damages is at large and is not limited by my judgment or otherwise to the position as set out by Mr Sarapuu in August 2015. More significantly, it would be entirely artificial, as Rehau's solicitor's letter of 26 May 2017 pointed out, to work on the false basis that AAP had the amount of raw materials that Mr Sarapuu said it had in August 2015 when appropriate mitigatory steps had been taken by AAP since that time to make use of that raw material. The true position was exemplified by the latest evidence about the stockpile of raw material. It would not be fair to Rehau to have worked on an artificial basis focused on the position in August 2015 when the true position was otherwise.
Further, Rehau wishes to obtain the benefit of the reduction in the amount of the raw materials so that the loss in that regard is, in the first instance, reduced from $103,108 (the position in August 2015) to $54,159 (the position in October 2016). However, it does not wish to have any responsibility for the cost to AAP in having brought that reduction about. That is known as arrogating and derogating.
There is no doubt that a plaintiff can recover money reasonably spent in mitigating or attempting to mitigate losses: Whitehouse Hotels Pty Ltd v Lido Savoy Pty Ltd (1975) 49 ALJR 93; Hammond & Co v Bussey (1887) 20 QBD 79; Sheahan v Stockman (1922) 22 SR (NSW) 415 at 423 and 426.
Costs of mitigation in running down the amount of raw materials were expended in the sum of $29,424. That amount does not constitute a new head of damage but brings about the net loss to AAP of $83,583 of raw materials.
Rehau thereafter sought to contend that damages should be assessed at the present time rather than October 2016. To that end Mr Heath cross-examined Mr Sarapuu with a view to ascertaining what change there had been in the stock between October 2016 and the present time and what costs had been involved in bringing about such a change.
The difficulty that became immediately apparent was that Mr Sarapuu did not have his books and records available to him so that reliable evidence could be given of those matters. The level of uncertainty in the evidence given by Mr Sarapuu can be seen from the following:
Q. Have you had any alternative orders? Do you see "However, there's no certainty AAP will obtain orders from alternative customers", see that?
A. Yes.
Q. Have you had any alternative orders since 27 October 2016?
A. Yes, we have.
Q. What is the value of those orders, approximately?
A. I can't tell you. We have used - we finalised that particular raw material, 22 - about a tonne I said. Others we can't use because it's simply too big and we have been buying raw material elsewhere. We can't use Rehau or this particular raw material.
Q. What's the value approximately if the alternative orders that you have received since 26 October 2016 and today?
A. As in customer? Value of the customer orders?
Q. The dollar amount?
A. Sometimes ten thousand a month, sometimes twenty. I really can't tell you.
Q. Can you give me an approximate figure between 27 October and now? Doing the best you can.
A. Maybe 60 70 thousand.
…
HIS HONOUR: Mr Sarapuu, when you answered Mr Heath before and you said roughly 67 thousand came to you
HEATH: It was 60 or 70.
HIS HONOUR
Q. Sixty or $70,000, that was the amount you received from those customers?
A. Yes, about 10,000 a month.
Q. What was your cost in producing that material to bring in that revenue? What was your net figure out of the use of that 1 tonne?
A. We used to make 40 points on when we were buying proper material for third parties, ever since we started using Rehau and trying to mitigate, it dropped to about 14 or 15 on average, the profit margin.
Q. So is that what you are saying the profit margin was between October 2016 and now?
A. No, from October 2016, till now we could only use 1 tonne, this 1 tonne and 10 kilograms for other customers.
Q. And that brought revenue of 60 70?
A. No, the revenue was all up.
Q. What was the profit?
A. I would have to really check.
Q. You don't know?
A. Well, no.
HIS HONOUR: Mr Heath, I am sorry but all you had asked him was what they would paid for producing it.
HEATH: I understand your Honour's question. Could I have liberty to follow up with a question?
HIS HONOUR: Yes.
FURTHER CROSS EXAMINATION BY MR HEATH
Q. Mr Sarapuu, nobody expects you to be precise. His Honour was asking you questions about what the net profit would have been on sales between October 2016 and now?
A. Mm.
Q. You referred to a profit margin of 14 15 per cent, I think?
A. Yes, when we use Rehau or yes.
Q. So could you answer his Honour's question or my question now, that is approximately what profit did you make between October 2016 and now? Just approximately?
A. Using the Rehau material?
Q. Yes?
A. I need a calculator. I need to figure out how many parts you can make out of 1 tonne 60.
HIS HONOUR
Q. Well 15 per cent of $60,000 is 9,000?
A. Yeah but 60 doesn't come into the picture, I am afraid because the original question was how much we get out of third party. The contractor so called for whom we make brass. We get about 10 thousand in turnover a month. But that's fine and then but we only used 1 tonne of this material, so it is two different things. Out of this may be make 14 points. Out of proper brass, right size, right grade, we make up to 40. Now you want and we are talking five to six different parts. That I can't calculate. It would have been easier to bring in the numbers and showed you rather than trying to do this off my head.
HIS HONOUR: Mr Heath, I think this demonstrates the difficulty I have mentioned before.
HEATH: I understand that. I will have to make either I have one go at asking Mr Sarapuu to come to an approximate figure that provides some guidance or make a submission to your Honour.
HIS HONOUR: You can ask him the questions you want.
HEATH
Q. Mr Sarapuu, I understand you need to think about it. But all we are asking you to do and I have a calculator here is to give the Court an approximate figure of the net profit AAP would have made on the Rehau material between October 2016 and now. Do you understand that question?
A. Yes.
Q. Can you do that for me? I have a calculator here for you. Just approximately. Err on the side of conservatism if you wish?
A. It is going to be very hard. I would say a good guess but I would say a couple of thousand dollars but it is too hard.
Q. Would you accept a position of $2,000?
A. Yes.
Q. That's probably as good as it gets.
HIS HONOUR
Q. Is it too hard because you need the figures in front of you?
A. We are talking about generally six different parts, they are all different lengths. It is too hard to even try to calculate how much parts to make out of 1 tonne. It is just simply too hard. I just took the position that because 1 tonne the value is 7,700. Normally with brass shock half of your job is brass, then you add labour, washing, packing, deliver et cetera. We know we make about 14, 15 points. I guessed we make 2,000 but that could be wrong.
HEATH: I am stuck with that answer, so subject to what your Honour makes of it I will make a submission.
I do not consider that the evidence was sufficiently reliable to form the basis for any assessment of damages at the present time. Counsel agreed what the modification of the figures would be if Mr Sarapuu's rough estimates were accepted. In circumstances where I have already determined that cost of mitigation should be allowed in AAP's favour, the reduction in the damages payable by Rehau would be a little over $1,300. If the position is considered at October 2016 the damages for the three heads payable by Rehau is $196,944. If the position with raw material is considered at the present time the damages would be $195,607. In my opinion this is de minimis, and in the light of the uncertainly to Mr Sarapuu's evidence I consider the appropriate time to assess damages for this head of damage is October 2016.
The Defendant had drawn attention to a concern I expressed at [104] of my earlier judgment that no distinction had been made in relation to raw materials between the Supply Agreement and the Further Supply Agreements. This was a matter Mr Heath took up with Mr Vella when cross-examining him. I am entirely satisfied from Schedule 6 of Mr Vella's report of 26 May 2017 that the only items with which he has concerned himself are those covered by the Supply Agreement. That matter has been followed through into his report of 1 June 2017. I note that counsel for Rehau correctly accepted this position after Mr Vella's evidence was concluded.
The result is, therefore, that AAP is entitled to a judgment for $196,944 together with interest.
[3]
Costs
Rehau first advanced two contentions in relation to costs. The first was that it was entitled to indemnity costs in its favour on and from 6 November 2015. Secondly, and alternatively, it seeks an order that there be a proportionate costs order made pursuant to s 60 of the Civil Procedure Act 2005 (NSW). I subsequently raised with counsel r 42.34 Uniform Civil Procedure Rules 2005 (NSW). Thereafter, Rehau advanced a third contention that, although the proceedings were properly commenced in the Supreme Court because of the jurisdictional issues, they should thereafter have been transferred to the District Court.
The background to these contentions was this.
Prior to the commencement of proceedings the Plaintiff wrote a letter of demand to the Defendant dated 2 June 2014. The total amount claimed in that letter was $2,689,612.95. The two biggest heads of damage were loss of profits at $1,213,521.75 and loss of opportunity to enter into a further supply agreement with Rehau for at least a further three years of $985,593.60. The letter then indicated that AAP would accept in full and final satisfaction the sum of $1,000,000. That was not accepted by Rehau. Proceedings thereafter commenced on 12 December 2014.
Rehau was not a local company. Condition 15 of the standard conditions of purchase spoke of Singapore being the exclusive jurisdiction for determination of disputes. An application was made by Rehau for a permanent stay on the basis of the standard terms and conditions but that was refused by McCallum J: AAP Industries Pty Limited v Rehau Pte Limited [2015] NSWSC 468. I made reference to this in my earlier judgment at [47(f)].
On 21 August 2015 a report of Mr Vella was served quantifying the damages. Those damages were then said to amount to $724,428.
The claim for loss of opportunity costs was abandoned early in the hearing. A second report of Mr Vella was served at the hearing reducing the overall claim to $518,759.
Prior to that time, a settlement conference was held on 3 September 2015. No settlement was reached. Following the settlement conference on 5 November 2015 Rehau's solicitors sent a Calderbank letter of offer to the Plaintiff. The letter relevantly provided:
Finished Goods
1. Your client claims a loss in respect of finished goods in the sum of $99,118.00 (Vella 39; KS 56). Our client will purchase the finished goods on the following basis:
a. Your client engages our client's Chinese supplier directly to undertake pressure testing (batch only) on the finished goods. We understand that the goods are then marked with a yellow dot and then available for sale as a universal gas fitting; and
b. Your client will provide a written warranty that the finished goods are approved for gas application;
2. Subject to your client agreeing to the above, in respect of the finished goods our client will pay to your client within 21 days of the delivery of the finished goods and the warranty referred to above:
a. The sum of $99,119.00; and
b. Reimburse your client for the cost of undertaking the fitting and testing with the Chinese supplier (which we understand to be $26,160 plus certification costs of $25,000).
Scrap material
3. Your client claims a loss in relation to raw materials on hand [Vella 3]. Our client no longer utilises the raw material and therefore the raw material has no value to our client over and above any amount that is recoverable as scrap. Our client will therefore purchase the raw material at the amount of the current scrap rate to be confirmed on the date on which the material is scrapped and pay that amount to your client within 21 days of receipt of the scrap price.
Costs Order - Jurisdiction Issue
4. Our client will pay your client's costs pursuant to the costs order dated 10 April 2015 to be agreed or assessed.
Further settlement payment
5. In addition to the payments above, our client will also pay your client the further sum of $50,000.00 within 21 days of acceptance.
The total of the amounts in items 1 and 5 was $200,239. At the time the letter of offer was sent the information available to Rehau concerning scrap material was that there was 36,315kg of scrap in AAP's possession.
As indicated earlier, I have determined that the damages payable by Rehau are $196,944.
Rehau submitted that all of the matters detailed, from the initial demand, to the amount ultimately claimed in the course of the hearing in November 2016 attested to the reasonableness of the offer made by Rehau on 5 November 2015. The amount to which AAP is entitled is less than the letter offers. Further, in the result, even if AAP was to be successful in its approach to the claim for raw material, the amount ultimately recovered by AAP would have been well within the jurisdiction of the District Court.
In relation to whether proceedings should have been brought or continued in this Court Rehau submitted that by 21 August 2015, four months before the matter was set down for hearing (it was fixed for 3 May 2016 on 17 December 2015) the amount claimed had been reduced to $724,428. Rehau submitted that there was nothing complex about the issues in the case. The case was a straightforward one on whether a term or terms should be implied into the Supply Agreement and the Further Supply Agreements. Rehau submitted that authority has settled the law for implication of terms. Alternatively, Rehau says that even if the proceedings ought to have remained in this Court it is appropriate to bear in mind the provisions of s 60 to make a costs order that is proportionate to the damages that are recovered.
Rehau submitted that AAP have been entirely unsuccessful on the claim relating to the Further Supply Agreements. That was said to be a further basis for suggesting that the ordinary costs rule should be departed from. Reference was made to what was said by White J (as his Honour then was) in Priestley v Priestley (No 2) [2016] NSWSC 1259 at [47], [49] and [53]. Rehau submitted that extensive discovery was required in relation to the loss of opportunity claim but that claim was abandoned at the hearing. Further, affidavits had been served which were not permitted to be relied upon by AAP. The costs ordered should not include the costs of those affidavits. Reference was made in that regard to Jones v Krawczyk (No. 2) [2011] NSWSC 352 at [9].
AAP submitted that the Calderbank letter from Rehau did not amount to a genuine offer of compromise and it was not unreasonable for AAP to reject it. AAP submitted that a compromise connotes that a party give something away. The conditions attached to paragraph 1 of the offer were onerous and imposed a significant detriment on AAP including exposing it to a considerable legal liability by the provision of the warranty. For those reasons that aspect of the offer could not be said to be a genuine offer of compromise. AAP submitted that Rehau, having purchased the finished goods, would in any event sell them for a profit and was not in that sense giving anything away by the offer. In effect, the only offer in the letter was one to pay $50,000. Costs of the interlocutory application had already been ordered and at the date the offer was made for scrap value AAP had some four months earlier received an identical offer from Southern Cross Exploration.
In relation to the proportionate cost application AAP submitted that s 60 was not relevant to a costs application. Further, AAP submitted that the authorities show that ordinarily a distinction is not made in relation to costs between issues upon which a plaintiff has succeeded and those on which it has failed unless those on which it has failed are clearly dominant. That was not the case with the present claim. AAP drew attention to what Ward J (as her Honour then was) said in McLaughlin v Dungowan Manly Pty Limited [2010] NSWSC 306 that a discretion to apportion costs is one to be exercised only in the most exceptional of circumstances.
AAP submitted that the loss of opportunity claim was simply part of the claim for loss of profits that it might have earned if there had been a further supply agreement with Rehau. The discovery was concerned with the purchases that Rehau had made from other suppliers in relation generally to the loss of profits claimed.
[4]
(a) Calderbank letter
In my opinion, it was not unreasonable for AAP to have rejected the offer contained in the Calderbank letter of 5 November 2015. There are a number of reasons for this conclusion.
First, the offer to purchase the finished goods was a conditional offer which required AAP to engage with Rehau's Chinese supplier to undertake pressure testing on the finished goods. Thereafter, AAP was required to provide a written warranty that the finished goods were approved for gas application. In circumstances where, under the Supply Agreement, Rehau was bound to purchase those finished goods from AAP, the imposition of those conditions was not reasonable. Although the Supply Agreement required the quality of the articles to meet Rehau's specification and instructions, nothing in the course of dealing between the parties had required a condition or conditions such as was sought to be imposed in the letter.
Secondly, the offer to purchase the scrap material was said to be at the amount of scrap rate to be confirmed on the date on which the material was scrapped. No particular price was offered. It cannot be assumed that the price would be the same, for example, as had been offered to AAP by Southern Cross Metals on 4 August 2015, namely, $3.90 per kilogram plus GST.
AAP submitted that Rehau was not giving anything away in making the offer for the scrap metal, particularly because AAP had already received an offer from Southern Cross Metals on 4 August 2015 to purchase that scrap. The difficulty with that submission is that it appears that the offer from Southern Cross Metals had not been accepted by the time of the Calderbank offer of November 2015. The offer from Southern Cross Metals said that the price was valid up to the close of business on Friday, 7 August 2015 and due to the volatility in the commodity markets the quoted price would be reviewed depending on whether the commodity fluctuated up or down in excess of US$200 per tonne in the LME copper price. There is no evidence as of the date of the Calderbank offer that AAP had a purchaser of the scrap.
Nevertheless, in circumstances where no price was put on the scrap by Rehau in its offer, it cannot be determined how much that aspect of the offer was worth to judge, overall, how much the Calderbank letter was offering and whether it was unreasonable for AAP not to accept it.
Thirdly, the offer in relation to costs was not really an offer of anything that Rehau was not already obliged to pay by virtue of the costs order made by McCallum J.
The only unconditional offer made in the letter was the offer of $50,000. Even if the offer in relation to finished goods had not been conditional it was only worth $99,119 to AAP because the other two amounts ($26,160 and $25,000) were in effect disbursements that Rehau offered to pay. Even if the finished goods offer had been unconditional, therefore, Rehau was only offering to pay overall $149,119. That is significantly lower than I have determined AAP is entitled to recover.
In all of those circumstances, it was not unreasonable for AAP to have rejected the Calderbank offer.
[5]
(b) Rule 42.34
This Rule provides:
42.34 Costs order not to be made in proceedings in Supreme Court unless Court satisfied proceedings in appropriate court
(1) This rule applies if:
(a) in proceedings in the Supreme Court, other than defamation proceedings, a plaintiff has obtained a judgment against the defendant or, if more than one defendant, against all the defendants, in an amount of less than $500,000, and
(b) the plaintiff would, apart from this rule, be entitled to an order for costs against the defendant or defendants.
(2) An order for costs may be made, but will not ordinarily be made, unless the Supreme Court is satisfied that:
(a) for proceedings that could have been commenced in the District Court - the commencement and continuation of the proceedings in the Supreme Court, rather than the District Court, was warranted, or
(b) for proceedings under Part 2 of Chapter 7 of the Industrial Relations Act 1996 - the commencement and continuation of the proceedings in the Supreme Court, rather than the Local Court, was warranted.
In State of New South Wales v Quirk [2012] NSWCA 216 Tobias AJA (with whom Beazley and Hoeben JJA agreed) said:
[169] There does not appear to be any authority as to the application of this rule. The appellant submitted that the present case could easily have been litigated in the District Court and did not require the determination of issues in the Supreme Court either as to the monetary basis of the respondent's claim or as to the complexity of the law. In this respect, actions for malicious prosecution, assault and false imprisonment are, so it was said, frequently heard in the District Court to no prejudice to the parties. Accordingly it was submitted that it was appropriate that the respondent not recover any of his costs of the proceedings.
[170] In the present case the provisions of rule 42.34(1)(a) are obviously satisfied. The respondent will receive a judgment for less than $500,000. It is a matter of contention as to whether the provisions of subpar (b) are satisfied given that the respondent has failed to succeed on his malicious prosecution claim. However, for present purposes, I will assume that he would be entitled to at least some order for costs against the appellant at first instance.
[171] I will therefore concentrate on the provisions of rule 42.34(2). True it is that the present case did not involve any complex legal issues and that the monetary amount to which the respondent would have been entitled had he succeeded on all his claims may not have exceeded the amount of $500,000. However had he so succeeded he may have been entitled to an amount approaching that figure. Importantly, the facts were complex involving as they did two separate incidents involving not insignificant conflicts of evidence. It was not suggested that the case ran for a period longer than it should have which was from 4 April to 21 April 2011 before a highly experienced judge of the Common Law Division of this Court. It was also conducted by experienced senior counsel on both sides. Although it is true that the case could have been litigated in the District Court, in my view the factual issues were sufficiently complex as to warrant the proceedings being commenced and continued in the Supreme Court. It therefore follows that in my view rule 42.34 has no application to the present case.
(emphasis added)
It may be seen that the complexity of issues, whether factual or legal, has been thought to be a relevant consideration for the application of this Rule: see also Milich v The Council of the City of Canterbury (No. 3) [2012] NSWSC 1280. That approach seems to be a reliance on some of the principles associated with the earlier rule under the Supreme Court Rules 1970 (NSW), Pt 52A r 33. That is not to say it is not a relevant consideration under the present Rule as the Court of Appeal in Quirk clearly thought.
Although the case put forward by AAP was a relevantly straightforward one based on the implication of a term into the Supply Agreement and the Further Supply Agreements, the position was not quite so simple because of the relationship between the implication of terms and the proper construction of the contract. As my earlier judgment makes clear, that had implications for the admissibility of evidence of post-contractual conduct. Moreover, there was a decision of the Full Court of the Supreme Court of NSW (Colonial Ammunition Co v Reid (1900) 21 NSWR 338) to which close attention needed to be paid.
None of this is to suggest that judges of the District Court were incapable of dealing with these sorts of issues but the earlier form of the Rules and, it seems from authorities on r 42.34, the complexity of legal or factual matters might warrant proceedings being heard in this Court even where the subject matter was well within the jurisdiction of the District Court.
In the present case AAP will recover a verdict considerably under the jurisdiction of the District Court and considerably under the $500,000 figure referred to in the Rule. It is noted, however, that the Court of Appeal, when making reference to that $500,000 threshold, went on to say:
However, had he so succeeded he may have been entitled to an amount approaching that figure.
Although that approach does not, with respect, appear to be what the Rule is directed to, if that is regarded as a relevant consideration, the same could be said of AAP in the present case. Had AAP succeeded in showing that the exclusivity term had been implied into the Further Supply Agreements, the likelihood is from the evidence of Mr Sarapuu and Mr Vella that AAP would have recovered in excess of $500,000.
In circumstances where the commencement of proceedings in this Court was entirely warranted because of the jurisdictional issue, I consider that the continuation of the proceedings was justified by reason of the matters that I have already identified.
[6]
(c) Proportionality
Section 60 of the Civil Procedure Act provides:
In any proceedings, the practice and procedure of the court should be implemented with the object of resolving the issues between the parties in such a way that the cost to the parties is proportionate to the importance and complexity of the subject-matter in dispute.
AAP submitted that s 60 was directed to the way proceedings are conducted including the directions that the Court might give and case management generally. AAP submitted that the section was not concerned with substantive orders as to costs. I do not agree that there is a fine line between these two matters. In Jones v Sutton [No. 2] [2005] NSWCA 203 the Court of Appeal made reference to the issue of proportionality where defamation proceedings had been brought in the District Court and the plaintiff recovered $5,000 in a case that took in substance seven days to hear. Although the Court of Appeal did not make reference to s 60 it did refer to proportionality at [33] and [53], and it is clear that the principle of proportionality was an appropriate one for consideration. That resulted in that case with no order as to costs being made when an appeal was brought from the District Court to the Court of Appeal.
Rehau submitted that two other things should be taken into account on the question of proportionality. The first was that AAP was only successful in its claim in relation to the Supply Agreement and not in relation to the Further Supply Agreements. Secondly, Rehau submitted that AAP abandoned its claim for lost opportunity damages at the outset of the hearing.
The general rule is that a court would ordinarily award the costs of the proceedings to a successful party without attempting to differentiate between the issues on which the party succeeded and any issues upon which it failed: McLaughlin at [21]. It may be appropriate to order that a successful party be deprived of costs or a portion of the costs if the matters upon which that party is unsuccessful took up a significant part of the trial either by way of evidence or argument: Sabah Yazgi v Permanent Custodians Limited (No 2) [2007] NSWCA 306 at [24].
In the present case, the issue and the evidence in relation to the Supply Agreement and the Further Supply Agreements were largely intertwined. Both parties had dealt in the same way with one another regardless of whether the items concerned fell within the Supply Agreement or under one of the Further Supply Agreements. Certainly, different principles applied to the implication of terms and on issues of construction as my earlier judgment discusses. However, it cannot be said that the issues were so separate that a serious consideration should be given to depriving the Plaintiff of its costs when it succeeded in relation to one agreement but not the others.
As to the abandonment of the loss of opportunity claim, it appears to be the case that the particular cost relating to that concerned discovery of other arrangements that Rehau had made to purchase goods other than from AAP. That was an issue which went not only to loss of opportunity (which in essence here appeared to be an extension of the loss of profits claim) but also needed to be investigated to defend the claim for loss of profits in any event.
Finally, Rehau suggested that it should not have to pay the costs associated with Mr Sarapuu's affidavit of October 2016 and Mr Vella's report of that date. Certainly, that affidavit and report were disallowed at the liability hearing. However, they became significant as far as the damages were concerned as I have discussed earlier in this judgment. I do not think there is any basis for making a specific costs order in relation to them.
None of the matters raised seem to me to suggest that other than the usual order for costs should be made in circumstances where AAP has been successful in obtaining a verdict for a not insubstantial amount of money even though it was considerably less than had first been sought. The proceedings were conducted efficiently and expeditiously over a two day period with a further half day being given to arguing damages and costs. I do not consider there is a lack of proportionality between the costs likely to have been incurred and the ultimate judgment.
[7]
Interest
Rehau submits that where the hearing of the matter listed for May 2016 was adjourned by reason of the illness of counsel for AAP, it was not fair that Rehau should have to pay interest on any damages for the six month period between May and November 2016.
The purpose of ordering interest is to enable a successful party to be properly compensated for the loss it has suffered by being kept out of its money during the relevant period: M.B.P (S.A) Pty Ltd v Gogic (1991) 171 CLR 657 at 663; Haines v Bendall (1991) 172 CLR 60 at 66. Even where there has been long delay interest will ordinarily be awarded for the whole period: Perri v Flavell (No 2) (Court of Appeal, 20 Sep 1995, Unrep). Interest is almost invariably allowed: Falkner v Bourke (1990) 19 NSWLR 574 at 576.
Although there was no moral obloquy in Rehau's behaviour as, for example, where a defendant deliberately delays resolution of proceedings, and the five month delay was brought about by the unfortunate illness of AAP's counsel, AAP was kept out of its money and Rehau had that money during that and the other periods since its repudiation of the Agreement. In my opinion, interest is payable by Rehau for the whole period.
Interest is payable at court rates on $86,903 from 2 June 2014 to judgment (31 August 2017). However, as this represents loss of profits from 2 June 2007 (the start of the limitation period) to 2 June 2014 the total interest must be halved in a manner similar to the approach to interest on past economic loss in personal injury matters. The total amount of interest on this figure is $68,228.97. Interest is, therefore, added in the sum of $34,115.
Interest is payable on $26,458 from 2 June 2014 to 31 August 2017 in an amount of $5,180 and on $83,583 from 27 October 2016 to 31 August 2017 in an amount of $3,927.
The plaintiff is entitled to a judgment for $240,166.
[8]
Conclusion
I make the following orders:
1. Judgment for the Plaintiff in the sum of $240,166.
2. The Defendant is to pay the Plaintiff's costs.
[9]
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Decision last updated: 31 August 2017