Charltons CJC Pty Ltd v Fitzgerald

Supreme Court of NSW|2014-05-02|Before: Pembroke J, As McHugh J

Judgment 1This is a costs application in which both the plaintiff and the defendants seek special orders as to costs. It calls for re-iteration of the practical and policy importance of the usual order as to costs. And it exemplifies the need to discourage unnecessary costs applications. As McHugh J said in Oshlack v Richmond River Council [1998] HCA 11 at [68]: Large scale disregard of the principle of the usual order as to costs would inevitably lead to an increase in litigation with an increased, and often unnecessary, burden on the scare resources of the publicly funded system of justice.

History of Proceedings 2The plaintiff commenced these proceedings on 6 September 2012. On 19 October 2012 I made an order for expedition. A hearing on liability took place on 9 and 10 April 2013. The hearing had been listed to commence on Monday, 8 April 2013 but was unable to start at the allotted time because of a personal issue affecting Senior Counsel for the plaintiff. That hearing resulted in a judgment on the principal aspect of liability on 24 April 2013. There was then a further hearing and a further judgment on 2 August 2013 identifying the precise extent of the breaches by the defendants. 3Those two hearings were followed by a damages hearing before another Judge in September 2013. His Honour gave judgment on damages on 18 December 2013. The judgment sum was $303,335 together with interest against all defendants. As at the date when the Judge gave judgment for $303,335 he was unaware that on 3 April, prior to the first liability hearing, the plaintiff had delivered offers of compromise to the defendants. There were four separate offers. One of those offers was made to each of the defendants jointly and severally. It stated that the plaintiff offered to settle by way of compromise all of its claims against them on terms which included that they agree jointly and severally to pay to the plaintiff $300,000. There was thus a small difference between the amount of the offer of compromise made to all of the defendants and the amount of the judgment.

Interests of Justice 4I should say at the outset that, as a matter of policy, the interests of justice as between the parties, and the interests of the efficient administration of justice, including for the Court and for other litigants, mean that a myopic approach to costs applications should be deprecated. Tendentious costs applications that seek to qualify, vary or overly refine the general rule should be discouraged. 5The general rule is that the costs of the proceedings assessed on the ordinary basis should follow the event. Unless the circumstances are exceptional, it is not in the interests of justice for the parties and the Court to be required to engage in a further, sometimes protracted, hearing on costs after all issues of liability and damages have been determined. The practical result of such costs applications is that court time is taken up, other litigants are denied the opportunity of having that court time, more cost and expense is incurred by the parties, and the only ones who benefit are the lawyers. 6In this case the legal representatives of the plaintiff have pursued his claim against the defendants with a relentless determination. Ultimately, no doubt after much expense, the plaintiff was vindicated but only for a relatively modest amount, especially having regard to the costs that must have been incurred. This further contested hearing has only served to prolong the process and add to the expense of the litigation. Some proportionality is required. 7The parties have now furnished me with five affidavits and detailed written submissions in order to explicate and advance their respective arguments on costs. They seek to re-open and enliven many issues of detail as to the conduct of the three prior hearings in 2013 - on facts which have long since passed into distant memory. 8Instead of being prepared to accept the usual order in his favour, the plaintiff has sliced and diced the litigation into discrete components. He seeks eight separate costs orders. The defendants, for their part, also descend into the minutiae and seek to avoid the application of the usual order. I do not think that any of this is appropriate.

Indemnity Costs 9Most of the argument was focussed on the plaintiff's claim for an order that the defendants pay his costs on an indemnity basis. Although there were three strands to the argument initially, they effectively devolved into one. I will not spend time considering the arguments as to invalidity and ambiguity other than to say that there is no doubt that the offer of compromise sent to all defendants was invalid under the Rules, having regard to the principles explained in Archer v Archer [2000] NSWCA 315 and Walter Construction Group Ltd v Walker Corp Ltd [2001] NSWSC 359. And as to ambiguity, I see no ambiguity at all in the offer of compromise addressed to all defendants. The real question was reasonableness and discretion. In that regard, the defendants have a legitimate complaint.

Reasonableness 10As I have said, the hearing commenced on 9 April. It was only a hearing on liability. Indeed, it was only a hearing on the primary question of liability rather than on the detail of whether there were particular identifiable breaches for which damages could be identified and assessed. 11Immediately prior to the commencement of the hearing, a great deal was happening in the litigation. Among many other things, on 5 April the plaintiff's solicitors notified the defendants' solicitors that Mr Charlton intended to serve a further affidavit. There were already at least three affidavits by him. Later on 5 April, the defendants served their outline of submissions. Later still on 5 April a further affidavit was received from Mr Charlton. It was in fact the fifth Charlton affidavit. Exhibited to it was a bulky exhibit. That affidavit and exhibit comprised hundreds of pages, many of which were being served by the plaintiff for the first time in the proceedings. When I commenced to hear the case the following week, the defendants, with some justification, complained about this further affidavit. Further still, on 8 April an expert report was received from the plaintiff's solicitors. It required the defendants to conduct an extensive review of the report at short notice. 12At the same time as all of this was happening, the plaintiff's legal representatives and the defendants' legal representatives were working together on the preparation of a number of what they called 'breach tables'. They were designed to form the basis of a range of admissions and concessions by the defendants. These were extensive and carefully prepared documents, for which I was ultimately grateful. 13I am satisfied that by the time the hearing actually commenced on 9 April it was not reasonable to expect the defendants to accept the offer for $300,000 served on 3 April. I reiterate that what I commenced to hear on 8 April was a hearing on liability. The plaintiff's damages had not been quantified nor had they been particularised. He was not in a position to do so. There needed to be two hearings by me and two judgments on liability before the precise breaches which would lead to identifiable amounts of damage could be specified. Nor had the plaintiff elected between his entitlement to an account of profits or his entitlement to damages. The issue had not yet arisen. 14I had been told by Senior Counsel for the plaintiff that if he was successful he did not contend for damages to be assessed in accordance with the contractual formula. However that told the defendants nothing as to how much was claimed. Nor does it matter that the bulky affidavit served on 5 April was said to have been brought about because of the defendants' decision not to call evidence. I do not regard that as necessarily causative but in any event the reason why it happened is not to the point. The question was what was reasonable for the defendants in their position at the time when they faced with the offer of compromise. 15To illustrate the position in which the defendants found themselves, it is startling to observe the exchange between the Court and Senior Counsel for the plaintiff at the damages hearing. At the outset of that hearing His Honour understandably enquired what was the best case on damages for which the plaintiff contended. The unsatisfactory and unsettling response to that simple question was 'I cannot do that until I see the expert's report'. This was 23 September 2013. Yet the nub of the plaintiff's claim for indemnity costs depends upon the proposition that on 3 April 2013, or shortly thereafter, the defendants should have been in a position to assess for themselves whether an offer of $300,000 was reasonable. 16The best that the plaintiff can point to is an affidavit by Mr Charlton sworn on 6 September 2012 in which he said: 'I estimate that the annual gross revenue lost to Charltons from the clients terminating their services and/or retainer of Charltons to be approximately $400,000'. But this was at a very early stage and related only to clients who terminated their services or their retainer. It did not include other aspects of the plaintiff's damages claim. I do not think it was reasonable for the defendants to have to rely upon that broad estimate. 17For those reasons I do not think that the offer of compromise to all defendants dated 3 April 2013 was reasonable having regard to the circumstances in which the parties found themselves at that time and the time within which it was required to be accepted.

Further Arguments 18There were three other aspects to the argument with which I should deal briefly. The defendants contended that they should only pay sixty percent of the plaintiff's costs. It was difficult to be certain about the basis for this submission other than that the defendants did make certain offers of compromise themselves but these offers, which were made between 18 February and 21 March 2013, were for modest amounts relating only to certain shadow clients. That does not seem to me to be enough to reduce the costs to which the plaintiff would otherwise be entitled to sixty percent. 19Reference was also made to some undertakings given by the defendants at the outset of the proceedings or by some of them but that does not seem to me to justify a reduction in the costs to which the plaintiff is entitled. I should point out that I made adverse findings about the probity of the defendants. There were clearly reasonable grounds for the plaintiff being suspicious about their honesty. Those grounds and suspicions later proved to be justified. Indeed there was even some evidence to suggest that certain conduct by the defendant contravened their undertakings. 20For those reasons, not only is not appropriate to reduce the plaintiff's costs entitlement to sixty percent, it is also not appropriate to make a separate order that the plaintiff pay the costs of the initial interlocutory injunction application on an indemnity basis or at all. 21The final matter is that the plaintiff sought, as I mentioned, to have a number of separate costs orders, eight in total, relating to different aspects of the proceedings. I will end where I started, that is that as a matter of policy, costs arguments should be limited, if they are necessary at all. In most cases it should be sufficient for the Judge to give his decision and to make an order for costs which follow the event. The plaintiff has succeeded. He should have his costs according to the usual order. As a matter of discretion, I am not prepared to award indemnity costs. And I will not disturb the costs orders that were made along the way. Those orders were made because it was appropriate at the time in the particular circumstances to make those orders. In some cases it may be appropriate to vacate earlier interlocutory orders, but not in this case.

Orders 22For those reasons, I make the following orders: (a)The defendants should pay the plaintiff's costs of the proceedings on the ordinary basis subject to all existing costs orders. (b)The parties should pay their own costs of the hearing before me today. oOo 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 May 2014

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