Be Financial Pty Ltd as Trustee for Be Financial Operations Trust v Das

G M Drew (Applicant) J D O'Connor (Respondent) Solicitors:

Farrar Lawyers (Applicant) Townsends Business & Corporation Lawyers (Respondent) File Number(s): CA 2012/75103 Decision under appeal Jurisdiction: 9101 Date of Decision: 2011-11-25 00:00:00 Before: McLoughlin DCJ File Number(s): DC 2009/336383

Judgment 1BASTEN JA: The applicant sought leave to appeal from a judgment in the District Court, in which it obtained damages in an amount of $20,000. The applicant asserted that it should have received an award of $93,540, involving an additional amount of $73,540, together with interest. 2The applicant also sought leave to appeal from the failure of the trial judge to award costs in its favour. If it were successful in challenging the assessment of damages it would be likely that a different order would be made as to costs. However, it sought to challenge the costs order in any event. 3As a preliminary proposition the applicant asserted that it was entitled to appeal as of right. That submission should be rejected. At the conclusion of oral argument the Court ordered that the application be dismissed, with the applicant to pay the respondent's costs. The reasons for that order were reserved; my reasons for joining in the order now follow.

(1) Right of appeal 4The application for leave to appeal was being considered separately from the appeal. However, the applicant submitted that, despite having applied for leave to appeal, leave was not in fact necessary in the present case and it had available to it an appeal as of right. It is convenient to address that question first. 5The requirement for leave to appeal depends upon the operation of s 127 of the District Court Act 1973 (NSW) which, so far as presently relevant states: "127 Right of appeal to Supreme Court (1) A party who is dissatisfied with a Judge's or a Judicial Registrar's judgment or order in an action may appeal to the Supreme Court. (2) The following appeals lie only by leave of the Supreme Court: (a) an appeal from an interlocutory judgment or order, (b) an appeal from a judgment or order as to costs only, (c) an appeal from a final judgment or order, other than an appeal: (i) that involves a matter at issue amounting to or of the value of $100,000 or more.... ... (e) an appeal from an order made with the consent of the parties. (3) In any other case, an appeal lies as of right." 6In Dillon v Gosford City Council [2011] NSWCA 328; 284 ALR 619, this Court accepted that leave was not required to challenge a costs order if the appeal otherwise contained bona fide grounds relating to an order other than as to costs: at [53]. That approach was followed in Wood v Balfour [2011] NSWCA 382 at [139] (Macfarlan JA, Giles and Meagher JJA agreeing). However, to establish a right of appeal in the present case, it was necessary for the applicant to go beyond these authorities. No case was identified which stated that leave was not required in respect of an appeal as to costs in circumstances where the proposed appeal against a substantive order lay only by leave. Nevertheless, the applicant submitted that once there was a bona fide appeal in respect of another order, the requirement for leave identified in paragraph (b) was removed, although it was said the order would need to satisfy the monetary threshold in paragraph (c). The applicant stated (without contradiction) that it would, if it obtained an order for costs in its favour in respect of the whole of the proceedings in the District Court, have recovered in excess of $200,000. For present purposes, that assertion may be accepted. 7The applicant supported its contention by three steps. First, it submitted there was a single appeal challenging more than one order. Secondly, the phrase "as to costs only" in paragraph (b) could only refer to the appeal and not the judgment or order appealed from, because costs would always form a separate element of a judgment and usually a separate order, so that it made no sense to speak of a "judgment or order as to costs only". Thirdly, so long as one of the challenged orders was a substantive order and not an order as to costs, it could not be said of the appeal that it was "as to costs only". That conclusion followed, it was submitted, despite the fact that there might be a separate judgment as to costs: whether or not there was a separate judgment as to costs was an arbitrary and irrelevant consideration. 8So far as it goes, the submission may be accepted on the point of construction. However, there is an additional step. Accepting that the phrase "as to costs only" qualifies the notion of an appeal, there is no appeal if there is otherwise no appeal as of right, or pursuant to a grant of leave. As the challenge to the damages order requires leave, the need for leave as to costs will stand in the way of an appeal until leave is given with respect to the damages order. Nor does it follow that a grant of leave with respect of costs would allow a challenge without further leave in respect of the final order under paragraph (c); that is because current practice allows a challenge to a costs order to piggy-back on another appellable order because of the limiting word "only", which is absent from other paragraphs. 9This result is consistent with the current practice as to costs appeals. The primary purpose of the practice is to permit variation of a costs order as a consequential effect of a successful appeal against a substantive order. A limited extension has been accepted so that an independent challenge may be mounted to the costs order. In practical terms, there is limited benefit in requiring leave in order to mount a challenge to a costs order separately from any consequential result flowing from success in respect of a substantive order. As noted in Dillon, to require leave in such circumstances would not facilitate the Court's control of its workload: at [56]. A different approach may have been adopted in other jurisdictions: Arena Management Pty Ltd (Receiver & Manager Appointed) v Campbell Street Theatre Pty Ltd [2011] NSWCA 128; 128 ALR 304 at [129] (Campbell JA). Although the applicant sought to support the correctness of the local approach, the question is not presently relevant. 10On the other hand, the applicant's submission that while each part of the appeal required leave, in conjunction they did not, contradicted the policy underlying the section. That approach would significantly restrict the ability of the Court to control its workload and would readily allow the leave requirement to be subverted. The preferred construction requires each paragraph in s 127(2) to be considered separately. By way of example, paragraph (e) requires leave for an appeal from an order made by consent. It is not unknown for proceedings to be disposed of by consent, but leaving an outstanding issue as to costs. On the applicant's argument, a party which was dissatisfied with the costs order ultimately made by the trial judge might seek to join a challenge to the consent order in order to say that no leave was required in respect of the costs, so long as they were at least $100,000. No doubt the challenge to the consent order would have to be shown to have some arguable basis, but disputes as to whether part of the appeal were purely colourable would not be a desirable result. 11On the preferred construction, the applicant can rest its challenge to the costs order on the outcome of its application for leave to appeal against the assessment of loss. However, until leave is granted in that respect, there is no appeal from any other judgment or order, so that the appeal against the costs order is an appeal "as to costs only" and requires leave. 12An alternative way of looking at the issue, although it was not clear that the applicant put its case on this basis, might be to contend that the amount in issue in respect of the final order was in excess of $100,000, if the amount in issue as to costs were included in the calculation. However, that approach would be inconsistent with long-standing authority that costs are not to be included in assessing the value of the debt or damages: see Harbrett Pty Ltd v Butler [1989] NSWCA 96 (Gleeson CJ, Clarke and Meagher JJA agreeing); Jardin v Metcash Ltd [2011] NSWCA 409; 285 ALR 677 at [28] (Campbell JA, Young JA at [39], and Meagher JA at [62] agreeing) and the cases there referred to. Nevertheless, the applicant did submit that these authorities did not apply in respect of s 127. It asserted that this conclusion followed as a matter of construction because, whereas s 101 of the Supreme Court Act 1970 (NSW), governing appeals from a Division in the Supreme Court, refers to a "final judgment or order in proceedings of the Court, other than an appeal ... that involves a matter at issue amounting to or of the value of $100,000 or more", s 127(2)(c) of the District Court Act does not contain the words "in proceedings of the Court". This construction was said to be supported by other authority, namely Jensen v Ray [2011] NSWCA 247 at [10] (Brereton J, Campbell JA and Sackville AJA agreeing). 13The point of construction, apparently based on comments in Jensen v Ray, is misconceived, as is the reliance on that case. First, the distinction between the wording of the Supreme Court Act, s 101(2)(r)(i) and the District Court Act, s 127(2)(c) is immaterial. The real distinction is between those provisions which make the leave requirement depend upon the matter at issue in the appeal and provisions which made the leave requirement contingent upon the amount of the judgment in the court below, such as the original form of s 35 of the Judiciary Act 1903 (Cth) and s 46 of the Northern Territory Supreme Court Act 1961 discussed in Moller v Roy [1975] HCA 31; 132 CLR 622 at 624. As Brereton J stated in Jensen, in respect of s 127 of the District Court Act, "under this form of the legislation, it is the amount in issue in the appeal - and not the amount of the judgment at first instance - that is relevant": at [10]; see also Hansen v Slattery Transport (NSW) Pty Ltd [2011] NSWCA 193 at [2]. 14It follows that the applicant required leave in respect of both aspects of the proposed appeal.

(2) Challenge to costs order 15It is convenient to deal first with the challenge to the order as to costs. As noted above, to the extent that some variation of the costs order may be appropriate if the challenge to the substantive order is successful, no leave would be required. The present application must therefore be approached on the basis that, even if the judgment as to damages is maintained, the costs order was nevertheless wrong in principle. The orderly disposal of this aspect of the leave application was not assisted by the failure of the applicant to include the separate costs judgment in the District Court in the application book. The judgment was handed up in the course of oral argument. 16On 7 December 2011 McLoughlin DCJ declined to make an order for costs in favour of the applicant, although he gave judgment in favour of the applicant in the sum (including interest) of $24,124.64. 17The applicant (the plaintiff in the court below) having obtained a judgment in its favour submitted that it was entitled to an order on the basis that "costs follow the event", unless the Court otherwise ordered: Uniform Civil Procedure Rules 2005 (NSW) ("the UCPR"), r 42.1. The reasons of the trial judge for otherwise ordering, no doubt reflecting the arguments put to him, commenced by considering submissions by the respondent (the defendant below) that the plaintiff should suffer a different order because it had recovered less than $40,000, thereby justifying proceedings only in the Local Court, and because a Calderbank offer of settlement in an amount of $52,500 inclusive of costs had been made in September 2010. His Honour rejected both of these arguments. He then turned to the critical issue which was that "the plaintiff has been unsuccessful in a number of the issues". He treated the proceedings as involving two separate areas of disputation. The first complaint of the applicant was that such a course was not properly open in the circumstances. To understand this submission it is necessary to identify in a little more detail the nature of the proceedings. 18The defendant had, in previous employment, provided financial advice to clients of Bridges Financial Services Pty Ltd ("Bridges"). When he went to work for the applicant, on 17 September 2007, he took with him a number of Bridges' clients, allegedly in breach of a restraint of competition condition in his employment contract with Bridges. Bridges and the applicant settled on the basis that the applicant would pay Bridges an amount of $91,000. The first part of the claim brought against the defendant was that he was jointly liable for that amount and the applicant was entitled to a contribution of 50% of the amount, namely $45,500. The applicant was unsuccessful in that claim and there has been no challenge to the determination of the trial judge in that respect. 19The second part of the claim below involved an entirely separate allegation arising from the defendant's departure from his employment with the applicant on 12 February 2009. The allegation was that the defendant, on leaving the employment of the applicant, had breached a condition between him and the applicant in restraint of competition for a period of 12 months after termination of his employment. The applicant was successful at trial in establishing liability in that regard. However, the amount of the loss suffered was contentious. The applicant sold its business, including the former clients or customers 'of' the defendant, the transfer being effective from 1 June 2009. The claim for damages appears to have included two elements, namely the loss of trailing commissions in respect of clients who left the applicant's business to remain with the defendant and, secondly, an amount for diminution of the value of the applicant's business resulting from the loss of the same clients. (The heads of loss do not appear to have been independent of each other.) 20There are circumstances where an attempt to separate issues for the purpose of determining whether costs should follow the event may be an erroneous approach. In the present case, the two parts of the claim made by the applicant were readily capable of being treated as separate and largely independent of each other. It cannot be said that it was not open to the trial judge to approach the matter on that basis. 21The second complaint was that if severing aspects of the claims were justifiable, his conclusion that, if the applicant had maintained the first claim alone, the defendant would have been entitled to costs in respect of that claim, was erroneous. That argument accepted that the first argument (challenging severability) might fail and took the matter to the other extreme, namely that each issue within each claim should be separately assessed. On that basis, the applicant asserted that it had succeeded on a number of aspects of its claim, even if it had failed on a critical aspect. However, there was no need for the trial judge to break down the proceedings beyond the division into two parts. At the very least, there was no error of the kind necessary to revisit a discretionary judgment, in the approach that was adopted. 22In respect of the second part of the proceedings, the trial judge noted in his judgment on costs, as he had noted in his principal judgment, that there had been a substantial change in the basis upon which loss and damage were to be assessed between the pleaded case (which relied upon the diminution in the value of the business on sale) and the hearing. The amounts had also varied, the trial judge noting in the principal judgment (at 4) that the plaintiff had claimed that "the damages amount to either $117,554 or $105,854.50 or $61,802, although during submissions it would appear that figure was again significantly reduced". In his costs judgment, the trial judge concluded: "In an attempt to do justice between the parties I would have - if the plaintiff had particularly spelt out in the pleading the alternative claim for damage which was ultimately found - awarded the plaintiff some small proportion of its costs. However because much of the time has been spent and ventilated on dealing with the damage component of the second leg of the plaintiff's claim in which the plaintiff was again unsuccessful, in my view it is appropriate that the Court make no order for costs." 23The invitation proffered to this Court on the costs application in effect to carry out its own assessment of the amount of time spent in dealing with separate issues was unattractive. No doubt an applicant for leave in such circumstances has a difficult task, it not being open to it to take the Court through reams of transcript. Nevertheless, unless the Court can be satisfied that there are reasonable prospects of the applicant receiving a significant order in its favour, because the trial judge has erred in some matter of principle which would attract the intervention on House v The King principles, there can be no justification for a grant of leave. The idea that further costs should be expended in such an exercise, absent a clear indication of error on a matter of principle, should be resisted. 24On the basis that the final order as to damages stands, the applicant has not made good any basis for its proposed challenge to the judge's conclusion that there be no order for the costs of the proceedings in the District Court. Leave with respect to the costs order should be refused.

(3) Challenge to assessment of damages 25With respect to the application for leave to challenge the assessment of damages, the applicant commenced with two factors in its favour. First, it asserted that the amount in issue was $73,500, a figure which might have been increased to a figure in the order of $88,000 with interest to the date of trial. That amount did not fall far short of the $100,000 required for an appeal without leave. 26Secondly, the applicant had an arguable complaint that the trial judge had incorrectly stated the rule for assessment of damages in such a case, based on Hadley v Baxendale (1854) 156 ER 145, and had erred in the application of the second limb of the rule. In other words, it had reasonable prospects of establishing error on a point of law. 27There are, however, countervailing considerations. In relation to the point of law, whether or not the trial judge misstated the principle derived from Hadley v Baxendale, there is no broader issue which requires resolution in this Court: the principle is well established and the only question is its correct application in particular circumstances. Secondly, in relation to the quantum of damages, the fact that the amount sought is close to the amount which would permit an appeal as of right does not mean that such an amount will necessarily be upheld on review of the facts. Nor is the Court in a good position to assess the relevant claims and counterclaims in that regard. Where a restriction on a right of appeal applies, an appellant asserting that a restriction does not apply to its case must file an affidavit setting out the material facts showing that the restriction does not apply: UCPR, r 51.22. That rule does not apply with respect to leave applications where the restriction is conceded, but where a party does seek to rely upon the amount or value in issue it should put some evidence before the Court in support of its assertions. At least if it is contested, the assertion must be supported by evidence. 28The third and fourth countervailing factors are interrelated. They are the nature of the dispute and the costs involved in resolving it. 29Dealing first with the nature of the dispute, the dispute involved an assessment of damages. The case for the applicant at trial was that the loss suffered by it as a result of the contraventions of the restraint of competition should be assessed in accordance with the value placed on the business when the applicant sold it some months after the respondent left its employ. There was a dispute as to whether the actual loss suffered by the applicant under the contract necessarily reflected the loss which was within the reasonable contemplation of the parties at the time the respondent was employed by the applicant. More importantly, assuming that the loss flowing from the breach was properly calculated in this way, there was a factual dispute as to how many clients were lost to the applicant (or the purchaser of the business) as a result of the breach of contract, as opposed to natural attrition and other factors which might lead clients to take their business elsewhere, without solicitation by the respondent. At its heart, the applicant's complaint is that, whilst the trial judge accepted the loss of trailing commission income, he did not accept that the loss also included a diminution in the value of the business calculated by a multiple of the trailing commissions attributable to clients of the business. Further, whilst the applicant sought to identify a group of clients which it treated as "the respondent's clients" it is quite unclear how it identified its former clients whose departure was said to have resulted from the respondent's breach of contract, not being his departure from his employment, but contravention of the restraint of competition condition in his contract. 30The Court was informed by the respondent's counsel, without demur from the applicant's counsel, that the trial extended over seven days which were in turn scattered over a period of months. The applicant, in its written submissions, asserted that its costs of the proceedings in the District Court were $231,224. Assuming the respondent incurred costs of a similar order, it would appear that the amount expended on the proceedings by both parties was approximately three times the maximum amount which the applicant could reasonably have contemplated recovering. In most cases of a commercial nature it might be expected that a rational assessment by the parties of such facts would at some stage have resulted in offers of compromise which might have prevented the incurring of costs totally disproportionate to the amount in dispute. However, as appears from the judgment in respect of costs, that did not happen. 31Further, it is likely that all the arguments run below will continue to be run in this Court. The grounds set out in the draft notice of appeal run to 44 paragraphs, a number of which contain sub-paragraphs. Either this Court would have to make findings of fact and assess damages on a basis which, as the applicant strongly contends, the trial judge did not address, or it will be necessary to remit the matter for a retrial. Neither course is attractive given the amount in issue.

(4) Principles relevant to leave applications 32The principles governing cases such as these have recently been restated in Zelden v Sewell; Henamast Pty Ltd v Sewell [2011] NSWCA 56. As Campbell JA noted (with the agreement of Young JA) at [22]: "It is of some importance to reiterate the principles that were stated in Carolan v AMF Bowling Pty Limited [1995] NSWCA 69, where Sheller JA said that an applicant for leave must demonstrate something more than that the trial judge was arguably wrong in the conclusion arrived at. Cole JA relied on a principle that where small claims are involved, it is important that there be early finality in determination of litigation, otherwise the costs that will be involved are likely to swamp the money sum involved in the dispute." 33In Jaycar Pty Ltd v Lombardo [2011] NSWCA 284 Campbell JA, with the agreement of Young and Meagher JJA, expanded on his summary of Carolan, noting that Kirby P had recognised "that ordinarily it was appropriate to grant leave to appeal only concerning matters that involve issues of principle, questions of general public importance or an injustice which is reasonably clear, in the sense of going beyond [what is] merely arguable": at [46]. 34Kirby P in Carolan set out a number of reasons for the constraint on rights of appeal in such cases. Not all of them have been repeated in later cases. Not all are universally relevant. Thus, the delay in obtaining a hearing in this Court appears to have been greater at that time than is the case presently, although an overly liberal approach to leave applications might well result in an increase in the period between filing and hearing. 35In Coulter v The Queen [1988] HCA 3; 164 CLR 350, dealing with a challenge to a refusal of the South Australian Full Court to grant leave to appeal in a criminal matter, the majority noted that a leave requirement was a preliminary procedure "recognised by the legislature as a means of enabling the court to control in some measure the volume of appellate work requiring its attention": at 356 (Mason CJ, Wilson and Brennan JJ). That statement is clearly applicable to civil, as well as criminal, appellate jurisdiction. 36As the High Court has noted, an application for leave is not a proceeding in the ordinary course of litigation but a preliminary procedure: Collins v The Queen [1975] HCA 60; 133 CLR 120 at 122; Coulter at 356. On the other hand, there is no reason to doubt that s 58 of the Civil Procedure Act 2005 (NSW), requiring a court to act in accordance with "the dictates of justice" when making an order or direction "for the management of proceedings", applies in respect of a leave application. One of the factors to be taken into account pursuant to s 58 is "the degree of injustice that would be suffered by the respective parties as a consequence of any order or direction": s 58(2)(b)(vi). That provision, like s 56, identifying the overriding purpose of the Civil Procedure Act as being to facilitate the just, quick and cheap resolution of the real issues in the dispute, recognises that questions of injustice are relative. Similarly, the requirement that this Court not order a new trial unless it appears that "some substantial wrong or miscarriage" has been occasioned, also reflects a principle of parsimony in requiring that the parties be put to the expense of a second trial: UCPR, r 51.53. 37The idea that injustice may be measured on a scale reflects a number of underlying considerations. First, the ability to assess the existence of an injustice in a preliminary proceeding, such as a leave application, is limited. In assessing the merit of a proposed appeal, the Court may well apply a vague criterion, such as whether the judgment below is attended by "sufficient doubt". Secondly, injustice involves a balancing exercise. The delay and cost of further litigation will constitute a form of injustice to the successful party below, whatever the outcome of the appellate process. Thirdly, the entitlement of the parties to justice is not unconditional, but is dependent upon the resources of the court made available by the government and the appropriate allocation of resources by the parties, which may depend upon their individual assessments of the importance of the issues in dispute. The parties may well make disparate assessments in a particular case. 38The last point is reflected in the terms of s 60 of the Civil Procedure Act: "60 Proportionality of costs 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." 39This direction has an important operation in respect of leave applications involving amounts below the statutory threshold. Where, as in the present case, the costs of the trial are disproportionate to the amount in dispute, the incurring of additional costs, for a potentially uncertain return, will be a factor weighing heavily against a grant of leave. Particularly is that so where there is a real prospect that, if successful, an appeal will not resolve the matter but will require a new trial.

(5) Other procedural issues 40The Court has power to direct that an application for leave and the prospective appeal or cross-appeal be heard concurrently: UCPR, r 51.14. Such a direction is likely where it appears that one of the following factors is satisfied: (a) it is probable that leave would be granted; (b) the material and arguments relevant to the appeal would also be relevant, in large part, on an application for leave alone and there is a good prospect of leave being granted; (c) although there may be real doubt as to the grant of leave, the balance of convenience otherwise favours a concurrent hearing. 41Where a matter is not the subject of a direction for a concurrent hearing, the parties can assume that, on the material available to the Court when the direction was made, none of the factors set out above was perceived to be satisfied. 42The general practice on leave only applications is to limit counsel to 20 minutes each. In most cases, the cost of a leave application should be a small proportion of the cost of a hearing of the appeal. Where a matter is set down for separate hearing of the leave application, it is the responsibility of counsel to ensure that the critical issues are properly raised in the summary of argument and that the relevant material is before the Court. In the present case the only material contained in the application book was the summons seeking leave to appeal, the substantive judgment (though not the costs judgment) in the court below, a draft notice of appeal and the respective summaries of argument. To that extent, the application book complied with r 51.12(2)(a)-(d). However, it did not contain other documents which were necessary for the disposal of the application: r 51.12(2)(e). The applicant's summary of argument was replete with assertions, both as to the evidence below and as to the course of proceedings below, which the Court was unable to evaluate. As a result, the hearing of the leave application took more than twice the time normally allocated. The applicant was accorded an indulgence which might not have been available in ordinary circumstances where several applications are listed for hearing. In the usual course, if an applicant is unable to satisfy the Court that a grant of leave is warranted within the usual period, the application will be refused.

(6) Conclusion 43The application was refused in the present case because: (a) although the reasons of the trial judge suggest that correct legal principle may not have been applied, it was unclear whether this resulted in a miscarriage of justice; (b) to the extent that there was a misapplication of legal principle, the principle itself is not in doubt; (c) the case involved no issue warranting determination by this Court in any broader interest than that of the parties, and (d) the expense of a factual reassessment (or even a new trial) was not warranted by the amount in issue. 44TOBIAS AJA: I have had the advantage of reading in draft the reasons of Basten JA for his joining in the orders of the Court made on 29 May 2012. I am content to adopt those reasons as justifying my joining in those orders.

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: 06 June 2012