2215/07 Jamie Ronald Bonic & 1 Or v Pacific General Securities Ltd & 2 Ors
JUDGMENT
1 HIS HONOUR: After delivery of my reasons in Super 1000 v Pacific General Securities and Bonic v Pacific General Securities [2008] NSWSC 1222; (2008) 221 FLR 427 I ordered that the plaintiffs' claims against the second and third defendants be dismissed. Judgment has been given in favour of the first plaintiff against the first defendant. By consent no order as to costs was made between those parties. I was advised that the second plaintiff, Mr Paul Heathwood has become a bankrupt. No costs order was sought by or against Mr Paul Heathwood or his trustee.
2 The remaining issue concerns costs as between the first plaintiff, Mr Bonic, and the second and third defendants, Super 1000 and Mr McLay.
3 As the plaintiffs' proceedings against those defendants have been dismissed, they seek an order that Mr Bonic pay their costs. Under s 98 of the Civil Procedure Act 2005 (NSW), subject to rules of court, costs are in the discretion of the court. Rule 42.1 of the Uniform Civil Procedure Rules 2005 provides that subject to Pt 42, 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. As the second and third defendants have obtained judgment they are prima facie entitled to their costs.
4 These proceedings were heard together with proceedings 3410/06. It was submitted for Mr Bonic that when regard is had to the outcome of both proceedings, as a matter of substance, he was a successful party and Super 1000 and Mr McLay should be ordered to pay his costs. Alternatively, counsel for Mr Bonic submitted that there should be no order as to costs as between Mr Bonic and those defendants on the grounds that whilst those defendants were successful in the present proceedings it was their wrongful conduct which caused the plaintiffs to bring the proceeding. Alternatively, it was submitted that a costs order should be moderated by reason of Mr Bonic's success on particular issues and the failure of Mr McLay to give evidence in affidavits which was ultimately critical to my conclusion that he and Super 1000 were not liable in tort for intentionally inducing a breach of the debentures and to my conclusion that the fraud exception to indefeasibility was not made out in relation to the April 2004 mortgage (Super 1000 v Pacific General Securities; Bonic v Pacific General Securities [149]-[156], [167]). It was also submitted that if the court were minded to make any costs order against Mr Bonic, the order should exclude costs referable to issues which concern only Mr Paul Heathwood.
5 Although the plaintiffs' claims against the second and third defendants were dismissed, it was submitted for Mr Bonic that in the overall contest between Mr Bonic as a debenture holder and Super 1000 and Mr McLay, he had substantial success. That was so because I found that a debenture was issued to Mr Bonic (at [66]-[70]). I rejected the defendants' argument that the charge created by the debenture was only over assets held on trust for the Wealthy & Wise Residential Property Fund. I found that the debenture charge extended to the property which is the subject of the 2004 mortgage to Super 1000, and that the giving of the mortgage was a breach of the debenture. I found that Mr McLay was liable to pay equitable compensation to Pacific General ("PacGen") and that its chose in action to recover such compensation was property charged to the debenture holders. It follows from my reasoning that, had I found that Super 1000 was liable to account to PacGen for profits it may derive from the 2003 mortgage or the 2004 mortgage, PacGen's right to such an account would be property charged to the debenture holders. The question whether Super 1000 had a personal liability to account for profits was not decided as proceedings between it and PacGen were compromised.
6 These findings did not result in the plaintiffs having any success against Super 1000 and Mr McLay in the 2007 proceedings. My findings that a debenture was issued to Mr Bonic and that the 2004 mortgage to Super 1000 was over property which was the subject of a charge in the debentures did not lead to the conclusion that Super 1000 or Mr McLay were liable in tort for inducing breach of contract or that the mortgage should be set aside. The findings of breach of fiduciary duty by Mr McLay were made in the 2006 proceedings on the cross-claim brought by PacGen. Contrary to the submissions made for Mr Bonic, the 2007 proceedings were not brought to represent the debenture holders as a whole. Such success as the debenture holders might have from the litigation arises from the claims brought by PacGen, coupled with my findings as to the proper construction of the debentures and that a debenture had been issued to Mr Bonic.
7 It is true that Mr Bonic succeeded on some issues, in particular, on the issue of whether a debenture was issued to him in 2002 and on the issue of what, on the proper construction of the debenture, was the property charged by it. But that success did not result in his obtaining any relief in the proceedings he brought.
8 In Reid, Hewitt & Company v Josephs [1918] AC 717, Lord Finlay LC, with whom Lord Parmoor agreed, said (at 733) that:
" The words 'the costs shall follow the event' mean that the costs are to be distributed according to the results of the several issues, while the party who is successful on the whole gets the general costs. "
9 However, later cases have adopted a more flexible approach to determining what is "the event". In Cretazzo v Lombardi (1975) 13 SASR 4, Jacobs J said (at 16):
" ...I would wish to sound a note of cautious disapproval of applications, which are being made with increasing frequency, to apportion costs according only to the success or failure of one party or the other on the various issues of fact or law, which arise in the course of a trial. ... But trials occur daily in which the party, who in the end is wholly or substantially successful, nevertheless fails along the way on particular issues of fact or law. The ultimate ends of justice may not be served if a party is dissuaded by the risk of costs from canvassing all issues, however doubtful, which might be material to the decision of the case. There are, of course, many factors affecting the exercise of the discretion as to costs in each case, including in particular, the severability of the issues, and no two cases are alike. I wish merely to lend no encouragement to any suggestion that a party against whom the judgment goes ought nevertheless to anticipate a favourable exercise of the judicial discretion as to costs in respect of issues upon which he may have succeeded, based merely on his success in those particular issues. "
10 In Waters v PC Henderson (Australia) Pty Ltd [1994] NSWCA 338; (1994) 254 ALR 28 Mahoney JA (at 330-331) approved of a statement in Ritchie that:
" Where the proceedings involve multiple issues the application of the rule that costs follow the event may involve hardship where a party succeeds on some issues and yet fails on others. Particularly is this so where, for example, a defendant succeeds on issues that occupied the bulk of the time taken by the proceedings. Nevertheless unless a particular issue or group of issues is clearly dominant or separable it will ordinarily be appropriate to award the costs of the proceedings to the successful party without attempting to differentiate between those particular issues on which it was successful and those on which it failed. " (see now Ritchie at [42.1.15]).
11 In that case, Priestley JA with whom in this respect Kirby P agreed, indicated a greater willingness to evaluate the outcome of distinct issues in making a costs order. His Honour said (at 331):
" I thought there was considerable force in the submissions for the appellant that it would have been not a particularly difficult task to make a quick evaluation of distinct issues that were before the referee and to make a somewhat more particular costs order than the trial judge thought appropriate. "
Nonetheless, there was no error of principle in the judge taking a global view that the successful party was entitled to costs, although it failed on particular issues.
12 Most recently, in Bostik Australia Pty Ltd v Liddiard (No. 2) [2009] NSWCA 304 the Court of Appeal (Beazley, Ipp and Basten JJA) said (at [38]):
" [38] The principles governing the making of an order as to costs so as to reflect the time taken in dealing with a particular issue in which the successful party in the proceedings or on the appeal did not succeed were reviewed by this court in Elite Protective Personnel Pty Ltd v Salmon (No 2) [2007] NSWCA 373. Those principles may be summarised as follows:
Where there are multiple issues in a case the Court generally does not attempt to differentiate between the issues on which a party was successful and those on which it failed. Unless a particular issue or group of issues is clearly dominant or separable it will ordinarily be appropriate to award the costs of the proceedings to the successful party without attempting to differentiate between those particular issues on which it was successful and those on which it failed: Waters v P C Henderson (Aust) Pty Ltd (Court of Appeal, 6 July 1994, unreported).
In relation to trials it has been said that it may be appropriate to deprive a successful party of costs or a portion of the costs if the matters upon which that party was unsuccessful took up a significant part of the trial, either by way of evidence or argument: Sabah Yazgi v Permanent Custodians Ltd (No 2) [2007] NSWCA 306 at [24]. A similar approach is adopted on appeal.
If the appellant loses on a separate issue argued on the appeal which has increased the time taken in hearing the appeal, then a special order for costs may be appropriate which deprives the appellant of the costs of that issue: Sydney City Council v Geftlick (No 2) [2006] NSWCA 374 at [27].
Whether an order contrary to the general rule that costs follow the event should be made depends on the circumstances of the case viewed against the wide discretionary powers of the court, which powers should be liberally construed: New South Wales v Stanley [2007] NSWCA 330 at [18] per Hislop J (with whom Beazley and Tobias JJA agreed).
A separable issue can relate to 'any disputed question of fact or law' before a court on which a party fails, notwithstanding that they are otherwise successful in terms of the ultimate outcome of the matter: James v Surf Road Nominees Pty Ltd (No 2) [2005] NSWCA 296 at [34].
Where there is a mixed outcome in proceedings, the question of apportionment is very much a matter of discretion and mathematical precision is illusory. The exercise of the discretion depends upon matters of impression and evaluation: James v Surf Road Nominees Pty Ltd (No 2) , citing Dodds Family Investments Pty Ltd v Lane Industries Pty Ltd (1993) 26 IPR 261 at 272 ."
13 The issue of whether a debenture was issued to Mr Bonic in 2002 and the issue of the construction of the debentures were distinct and severable from the other issues in the case. In my view Mr Bonic's success on those issues warrants some adjustment to the prima facie position that because Mr Bonic's claims were dismissed, he should pay Super 1000's costs. I will deal with the extent of the adjustment after considering the other issues raised.
14 One ground upon which a successful defendant may be refused costs is if the defendant has induced the plaintiff to bring the action, without which it probably would not have been brought (Ritter v Godfrey [1920] 2 KB 47 at 53, 56, 60-61, 66; Jennings v Zilahi-Kiss (1972) 2 SASR 493 at 520; Monier Ltd v Metalwork Tiling Co of Aust Ltd (No. 2) (1987) 43 SASR 588 at 590, 592). Conduct which constitutes the alleged cause of action which the plaintiff brings, but on which the plaintiff fails, does not justify withholding an order for costs (Ritter v Godfrey at 60-61, 66; Total & Universal Pty Ltd v Kingsway Property Investments (No. 2) Pty Ltd [2007] NSWSC 581 at [30]). A successful defendant may also be deprived of some or all of his costs if the grounds of defence upon which he succeeds are raised late (e.g. Capolingua v Phylum Pty Ltd (1991) 5 WAR 137; Monier Ltd v Metalwork Tiling Co of Aust Ltd (No. 2)).
15 I do not consider that the second and third defendants should be deprived of all or any of their costs on the first ground, that is, that they brought the litigation on themselves. That submission was advanced on the basis that Mr McLay breached his fiduciary duties to PacGen in the taking of the mortgages to Super 1000, and that Super 1000 was a knowing participant in that breach. My findings on those matters provided the basis for the relief at the suit of PacGen. PacGen's cross-claim was already on foot when Mr Bonic's proceedings were commenced. The fact that PacGen had legitimate claims against the defendants which it was advancing in its own proceedings should not have induced in Mr Bonic's mind a reasonable belief that there was no valid defence to his claim.
16 The second ground has more substance. I rejected the plaintiffs' claim for damages for the tort of inducing breach of contract, and their claim that Super 1000 was guilty of actual fraud which was an exception to indefeasibility, on the basis of evidence advanced by Mr McLay for the first time in cross-examination that on the basis of legal advice he had received, he believed that the mortgages given to Super 1000 were not a breach of the debentures (at [150]-[155], [167]). (I noted that that evidence was not challenged.) It is possible that had that evidence been contained in Mr McLay's affidavit, those causes of action would not have been persisted in. However, I regard that as only a theoretical possibility. There was no evidence to that effect on the costs application. The causes of action to which the evidence was related were but two of the causes of action advanced on behalf of Mr Bonic and Mr Paul Heathwood. On balance I do not think that Mr McLay's failure to give that evidence in his affidavit is a sufficient ground for modifying what is otherwise the appropriate costs order.
17 I was invited to make orders for costs in favour of Mr Bonic in relation to the particular issues upon which he was successful and to limit any costs orders against him to costs concerning the claims of misleading and deceptive conduct and estoppel. I do not think it appropriate to make costs orders in respect of individual issues. Rather, I propose to reduce by a percentage the costs for which Mr Bonic is liable to reflect his success on particular issues. That reduction is necessarily impressionistic. It has regard to the fact that those issues were severable although not dominant, and their overall significance not only to the outcome of this proceeding but to the establishing of the wider rights and liabilities of the parties. The reduction also has regard to the time the issues occupied during the hearing, and, so far as can be discerned from the affidavits, in preparation for the hearing (Short v Crawley (No. 40) [2008] NSWSC 1302 at [33]). I consider that the appropriate adjustment is one-third.
18 A further issue is whether the costs order against Mr Bonic should be limited to the costs of his proceedings and should exclude costs referable to the issues which concerned only Mr Paul Heathwood.
19 I take it that Mr Paul Heathwood's claims and Mr Bonic's claims were joined in the same proceeding pursuant to r 6.19 on the ground that if separate proceedings had been brought by each of them, those proceedings would have given rise to common questions of law and fact, and the relief they claimed arose out of the same transactions or series of transactions. Joining both claims in the one proceeding was administratively convenient and consistent with the parties' obligations under s 56 of the Civil Procedure Act. In the notes to Ritchie's Uniform Civil Procedure NSW (at [6.19.20]) the learned authors say that amongst the factors to be considered by prospective co-plaintiffs in deciding whether to be involved in one set of proceedings is that a solvent plaintiff is at risk if he or she joins with an insolvent plaintiff in speculative proceedings. A solvent plaintiff who joins in the one proceeding with an insolvent plaintiff faces the risk of having to deal with an adverse costs order whether or not the proceeding is given the derogatory epithet of "speculative". But the discretion under s 98(1)(b) is amply wide enough to allocate responsibility for costs on a severable basis between co-plaintiffs so that not all (or both) unsuccessful co-plaintiffs are responsible for the whole of the costs of the proceedings. The risk to a solvent plaintiff who joins with an insolvent plaintiff in a proceeding which is unsuccessful is that he or she may be liable for the whole of the costs. But whether or not that is so will depend upon a proper exercise of discretion under s 98.
20 In Trade Practices Commission v Nicholas Enterprises Pty Ltd (No. 3) (1979) 28 ALR 201, (at 210) the plaintiff was successful against multiple defendants. Fisher J refused to make an order that each defendant be severally liable for a specified portion of the plaintiff's costs and not jointly liable to the plaintiff for the whole of the costs. His Honour said (at 210) that:
" The plaintiff as the successful party is prima facie entitled by way of indemnity to its costs of the action, and if one of the unsuccessful defendants is unable or unwilling to meet its share of the obligation, the misfortune should be that of its 'partner in crime' and not of the plaintiff. "