On 27 October 2015, I delivered judgment ([2015] NSWSC 1578) ("Judgment") in which I held that the Plaintiff, Ms Romona Kraissa, was entitled to damages as against the Defendants, Mr Steve Choukair and Mr Mohamad Choukair, for a breach of contract relating to Hair Industrie Penrith Pty Ltd ("HIP") and that her claim in restitution relating to Hair Industrie Merrylands Pty Ltd ("HIM") failed. I expressed a preliminary view, in paragraph 55 of the Judgment, that:
"In relation to the question of costs, my preliminary view is that Ms Kraissa has been partially successful in the claim; the issue as to restitution as to which she was unsuccessful is a discrete and substantial issue, which took up less than half of the hearing, and a proper order as to costs would be that Messrs Choukair should pay half of Ms Kraissa's costs of the proceedings, as agreed or as assessed."
However, I indicated that I would allow the parties an opportunity to make submissions as to costs.
On 27 October 2015, I directed that the parties bring in agreed Short Minutes of Order to give effect to the judgment, including as to costs, within 14 days and, if there was no agreement between them, including as to costs, that they should submit their respective draft Short Minutes of Order within that time, together with short submissions as to the differences between them, indicating whether an oral hearing was required. Each of the parties has in turn made submissions, and Ms Kraissa also relied on an affidavit of her solicitor, Ms Ballard, dated 10 November 2015 in respect of the question of costs.
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The applicable principles
Section 98 of the Civil Procedure Act 2005 (NSW) relevantly provides that:
"Subject to rules of court and to this or any other Act:
(a) costs are in the discretion of the court; and
(b) the court has full power to determine by whom, to whom and to what extent costs are to be paid, and
(c) the court may order that costs are to be awarded on the ordinary basis or on an indemnity basis."
Rule 42.1 of the Uniform Civil Procedure Rules 2005 (NSW) in turn provides that, where the Court makes an order as to costs, the Court is to order that costs follow the event unless it appears to the Court that some other order should be made as to the whole or any part of the costs.
It is, of course, well-established that costs are awarded to compensate a successful party for the expense of being put to the necessity of litigation and the discretion to order costs must be exercised judicially and not against the successful party except for some reason connected with the proceedings: Milne v Attorney-General (Tasmania) (1956) 95 CLR 460 at 477; Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72 at 97-98 per McHugh J, at 120-123 per Kirby J. In Hughes v Western Australian Cricket Association (Inc) (1986) 8 ATPR 40-748 at 48,136, Toohey J in turn observed that:
"Ordinarily, costs follow the event and a successful litigant receives his costs in the absence of special circumstances justifying some other order. …
Where a litigant has succeeded only upon a portion of his claim, the circumstances may make it reasonable that he bear the expense of litigating that portion upon which he has failed.
A successful party who has failed on certain issues may not only be deprived of the costs of those issues but may be ordered as well to pay the other party's costs of them. In this sense, 'issue' does not mean a precise issue in the technical pleading sense but any disputed question of fact or of law. …" [case citations omitted]
The authorities also recognise that a costs order in favour of a successful party can be modified to reflect its failure on particular issues even if the successful party did not act unreasonably in raising those issues, and it may be appropriate to deprive a successful party of costs or a portion of its costs if the matters upon which it was unsuccessful took up a significant part of a trial, either by way of evidence or argument, and an issue by issue approach may be adopted if it will allow a fairer result than giving a party all of its costs: Short v Crawley (No 40) [2008] NSWSC 1302 at [32]-[33]; Monie v Commonwealth of Australia (No 2) [2008] NSWCA 15 at [64]; Bostik Australia Pty Ltd v Liddiard (No 2) [2009] NSWCA 304 at [38]; Perochinsky v Kirschner (No 2) [2013] NSWSC 837 at [5], [13]-[16]; Doppstadt Australia Pty Ltd v Lovick & Son Developments Pty Ltd (No 2) [2014] NSWCA 219 at [17].
In Bostik Australia Pty Ltd v Liddiard (No 2) above at [38], the Court of Appeal in turn summarised 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 proceedings or on an appeal did not succeed, and observed (omitting several citations):
"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 ….
● 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 ... A similar approach is adopted on appeal …
● 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 ….
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Issues as to the conduct of the proceedings
Ms Kraissa seeks an order that the Messrs Choukair pay two-thirds of her costs on the ordinary basis. She submits that such an order would be a fair acknowledgement of the extent of relief she obtained from the Judgment; would take account of the manner in which the Messrs Choukair conducted their defence through the proceedings; and would be in accordance with the proper exercise of the Court's discretion under s 98 of the Civil Procedure Act 2005 and the general rule that costs follow the event provided in UCPR r 42.1.
Ms Kraissa draws attention to the principle that costs orders are compensatory and a successful party has a reasonable expectation of costs being awarded against the unsuccessful party, absent any disentitling conduct on its part. It should be noted, however, as I had noted in expressing the preliminary view in my Judgment, that Ms Kraissa was successful in respect of part only of her claim. Ms Kraissa acknowledges that, as I have noted above, the entitlement to costs of a party which has enjoyed substantial success may be potentially modified having regard to the issues on which it was wholly or partially unsuccessful. However, she submits that her failure to recover damages in some aspects of her case does not necessarily lead to a modification or reduction in a costs order that would otherwise be made in her favour. While that proposition is correct, it nonetheless seems to me that any costs order made in Ms Kraissa's favour must properly recognise that she failed in a significant part of her case.
Ms Kraissa submits that the Messrs Choukair should be ordered to pay two-thirds of her costs, rather than one-half of her costs, as contemplated by the preliminary view expressed in the Judgment. She submits that she obtained substantial success in the proceedings, although acknowledging that she neither recovered the amount of damages that she claimed nor succeeded in her claim for restitution in respect of HIM. She also points out, with substantial force, that the conduct of the proceedings by the Messrs Choukair prior to, and to some extent during the hearing, will have significantly increased the costs of the proceedings. Ms Kraissa points out, and I accept, that there were many occasions on which the former legal representatives of the Messrs Choukair (who had been replaced by new legal representatives at the time of the hearing) had failed to appear at directions hearings and on which the Messrs Choukair had failed to comply with directions, and I accept that this both delayed the preparation of the proceedings and increased their costs. Ms Kraissa also points out that the Messrs Choukair did not serve their evidence until three weeks prior to the hearing and I also accept that that would have made it more difficult for her to prepare for the hearing in an orderly way. Ms Kraissa also points out that an unsuccessful no case application was made by the Messrs Choukair in the course of the hearing.
Ms Kraissa also submits that the hearing time devoted to the claim in respect of HIM was limited and was "significantly less" than 50%. It does not seem to me that, given the extent of overlap between the matters in issue in the claims, it is possible to reach that conclusion, although I do accept, as noted in the Judgment, that it is likely that less than 50% of the hearing time was devoted to that issue.
On the other hand, the Messrs Choukair submit that Ms Kraissa should pay their costs thrown away by reason by reason of her abandonment of her claims under the Corporations Act 2001 (Cth). They note that UCPR 42.6 creates a presumption that a party who amends pleadings without leave must pay the costs occasioned by the amendment, and points out that costs are also ordinarily payable where that amendment is with leave. The Messrs Choukair submit that the claims under the Corporations Act were always doomed against HIM, as Ms Kraissa was never a director or shareholder of that company. It does not seem to me that the Court should proceed on that basis, where that was a substantive issue in dispute in the proceedings, which has not ultimately had to be determined as events have developed.
The Messrs Choukair also submit that the proceedings were doomed against HIP from 29 September 2014, as that company was deregistered before the Statement of Claim was filed in the proceedings on 8 October 2014, and Ms Kraissa did not seek to reinstate HIP. However, the Messrs Choukair's reliance on the deregistration of HIP requires qualification to recognise that the proceedings had in fact been commenced by Ms Kraissa several months before that deregistration, by Originating Process which sought relief in respect of, inter alia, oppression in respect of HIP. It seems to me that, with that qualification, the matters raised by the Messrs Choukair in that respect are properly taken into account in respect of an overall order as to the costs of the proceedings, rather than by any separate order for costs thrown away by reason that Ms Kraissa did not press the claims under the Corporations Act.
The Messrs Choukair also submit that no costs order should be made in favour of Ms Kraissa by reason of UCPR 42.34. That rule provides that:
"(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 the commencement and continuation of the proceedings in the Supreme Court, rather than the District Court, was warranted."
In the event, Ms Kraissa recovered substantially less than $500,000 in respect of her claim and that rule applies. The Messrs Choukair submit, and I accept, that an order for costs would not ordinarily be made in Ms Kraissa's favour, unless the Court is satisfied that the commencement and continuation of the proceedings in this Court was warranted. Ms Kraissa submits that the commencement and continuation of the proceedings in this Court was warranted, where they were commenced in this Court seeking relief under the Corporations Act that could only be ordered by this Court or by the Federal Court of Australia, although that relief was ultimately not pressed given developments, including the deregistration of HIP after the proceedings had commenced.
I am satisfied that the proceedings were properly commenced and continued by Ms Kraissa in this Court, where the proceedings sought relief under the Corporations Act which was only available in this Court or in the Federal Court of Australia, at the time that they were commenced. It seems to me that the continuance of the proceedings in this Court was justified, given the significant difficulties which Ms Kraissa faced at the interlocutory stages by reason of the Messrs Choukair's non-appearances and non-compliance with Court orders, which would have made it more difficult for her to identify the real issues in dispute and also warranted a higher degree of case management than would ordinarily be necessary.
If the Messrs Choukair's submissions as to the claims under the Corporations Act and UCPR 42.34 were not accepted, as they have not been, the Messrs Choukair support the preliminary view that I had expressed in the Judgment that they should pay half of Ms Kraissa's costs as agreed or as assessed.
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Offers made by the parties
The Messrs Choukair submit that, by reason of Calderbank offers they had made on 18 or at least 24 August 2015, all costs incurred by the Messrs Choukair after that point should be paid by Ms Kraissa on an indemnity basis.
Mr Clark, who appeared for the Messrs Choukair, referred to well-established principles relevant to determining whether it was reasonable for a party to reject a Calderbank offer, which include the stage of the proceeding at which the offer was received, the time allowed to consider the offer, the extent of the compromise offered and other matters: Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) [2005] VSCA 298 at [25]. The fact that a plaintiff ultimately achieves a worse result than he or she would have achieved if he or she had accepted a Calderbank offer does not itself establish that the defendant should be awarded indemnity costs, unless it can be said that it was unreasonable for the plaintiff not to accept that offer, so as to warrant a departure from the general rule as to costs: Nu Line Construction Group Pty Ltd v Fowler (aka Grippaudo) [2012] NSWSC 816 at [9]-[15]. Perisher Blue Pty Ltd v Nair-Smith (No 2) [2015] NSWCA 268 at [14], [16]. In Lawrence v Gunner; Gunner v Lawrence [2015] NSWSC 1229 at [26], Stevenson J similarly observed that:
"If a Calderbank offer is made, but not accepted, the court's discretion to make a special order is enlivened. The court's discretion is an open one, but is commonly enlivened if (a) the party that made the offer achieves a better result than the amount offered, (b) the offer was a genuine offer of compromise, and (c) it was unreasonable of the offeree not to accept: for example Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 at [7]-[8]."
Mr Clark draws attention to a first Calderbank offer made by the Messrs Choukair on 26 May 2015, which was substantially less than the result achieved by Ms Kraissa in the proceedings and has no impact on the question of costs. The Messrs Choukair's second Calderbank offer was made a week before the commencement of the hearing, on 18 August 2015, and was open for acceptance for a week, until the end of the first day of the trial, and was in the amount of $50,000 inclusive of costs. It seems to me likely that that offer is also less favourable to Ms Kraissa than the result she has achieved, so far as she will recover a significant part of her costs of the proceedings by that result. In any event, the lateness of the offer and the fact that it was inclusive of the substantial costs that Ms Kraissa would have incurred by that date, seems to me that it was not unreasonable for Ms Kraissa to reject that offer.
The Messrs Choukair also rely on a third Calderbank offer made on 24 August 2015, the day before the commencement of the hearing, by which they offered to pay Ms Kraissa the amount of $70,000 within 28 days after signing a deed of settlement and release, on the basis that the proceedings be dismissed and each party pay their own costs. It seems to me to have been entirely reasonable for Ms Kraissa not to accept that offer, which had the fundamental difficulties that the date of any payment under it would be uncertain, where there was potential for the parties to fail to agree the terms of a deed of settlement and release; it provided that each party would pay their own costs, and Ms Kraissa's costs would by that point have been substantial and would ordinarily be recoverable, in whole or in part, if she was successful in the proceedings; and Ms Kraissa would be left to commence further proceedings, or at least bring a further application in these proceedings, if the Messrs Choukair then failed to make the relevant payment when it was due. In any event, it seems to me that that offer was made so late that it was not unreasonable for Ms Kraissa not to accept it.
In these circumstances, it does not seem to me that the Calderbank offers made by the Messrs Choukair warrant any costs order in their favour or any adjustment to a costs order that would otherwise be made in Ms Kraissa's favour.
Ms Kraissa in turn relies on Ms Ballard's affidavit which refers to several offers made by Ms Kraissa in the course of a Court ordered mediation between the parties, which would be the subject of without prejudice privilege, and I have had no regard to her evidence as to those offers. Ms Kraissa also submits that she made an offer of compromise, after mediation, and made an open offer in Court at the commencement of the hearing. While that proposition is correct, the result which Ms Kraissa achieved was less favourable than the position contemplated by those offers which do not assist her in respect of the question of costs.
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Conclusion as to costs and orders
As I noted above, where there is a mixed outcome in proceedings, the question of apportionment is a matter of discretion, depending on matters of impression and evaluation, and mathematical precision is illusory. On balance, and having regard to the matters raised by the parties in their further submissions and the matters noted above, it seems to me that it would have been open to the Court to order that the Messrs Choukair pay Ms Kraissa's costs of the proceedings up to and including the commencement of the hearing on 25 August 2015 and pay one-half of Ms Kraissa's costs of the hearing after that date, to recognise the extent to which Ms Kraissa will have incurred additional, and wasted, costs by reason of the manner in which the Messrs Choukair conducted the pre-trial stages of the proceedings. However, neither party contended for that course.
On balance, having regard to the extent of Ms Kraissa's success and failure in the proceedings, the Messrs Choukair's conduct of the pre-trial stages of the proceedings and Ms Kraissa's abandonment of the Corporations Act claims, it seems to me that the proper order for costs is between that for which Ms Kraissa now contends, and the preliminary view that I expressed in the Judgment and which the Messrs Choukair support (where I have not accepted their primary submissions), namely that the Messrs Choukair pay 60% of Ms Kraissa's costs of the proceedings, as agreed or as assessed.
The parties have agreed the appropriate form of orders for damages and interest under s 101 of the Civil Procedure Act and I also make orders in that form.
Accordingly, I make the following orders:
The Third and Fourth Defendants pay the Plaintiff:
(a) An amount of $41,121.12 in damages; and
(b) Interest on those damages pursuant to s 101 of the Civil Procedure Act 2005 (NSW).
The Third and Fourth Defendants pay 60% of the Plaintiff's costs of the proceedings, as agreed or as assessed.
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Decision last updated: 21 December 2015