Costs
22When allowance is made for the unpaid outgoings since May 2011, the amount for which I have found Dee-Tech liable is substantially less than the amount of outgoings claimed by Neddam Holdings. In the first s 133E notice dated 26 October 2010 Neddam Holdings asserted that Dee-Tech was liable to pay $62,190.56 on account of outgoings as at 2 September 2010. This was the claim maintained before me. The sum claimed did not include interest. On the basis of my findings the amount Dee-Tech owed for outgoings as at 2 September 2010 was $26,891.29. That is, less than half the amount claimed.
23Neddam Holdings submitted that because it was successful in obtaining part of the amounts claimed, costs should follow the event. It also claimed those costs on the indemnity basis. The claim for costs on the indemnity basis was based in part upon a Calderbank offer made on 19 October 2010 and in part on the terms of clause 4.10.2 or 4.10.3 of the lease.
24Dee-Tech submitted that there should be no order as to the costs of the account.
25I will first deal with the question of costs of the account without regard to the terms of the offer of 19 October 2010 or the terms of the lease.
26Neddam Holdings submitted that although it had not obtained all that it sought on the account, it had been substantially successful. It submitted that the issues on which it failed were not "clearly dominant" and in any event, relatively minimal costs were incurred in respect of such items. It submitted that the dominant issue on the taking of the account was whether Dee-Tech was obliged to pay 44.6 per cent of the water charges for water supplied through the common meter. It succeeded on this question. It complained that Dee-Tech had withdrawn an earlier concession on this issue. Neddam Holdings also submitted that the position taken by Dee-Tech at different times that it was not liable to make any payments for outgoings showed a lack of commerciality. It noted that Dee-Tech had disputed any present liability to pay outgoings by reason of its arguments based on the Retail Leases Act 1994, but failed in respect of that issue.
27It is true that the issues on the taking of the account on which Neddam Holdings failed were not "clearly dominant". They were nonetheless separate from the other issues on the taking of the account. There was a separate issue in respect of each type of charge. Success or failure on each type of charge had its own separate monetary consequence. Under s 98 of the Civil Procedure Act subject to rules of Court, costs are in the discretion of the court. Rule 42.1 of the Uniform Civil Procedure Rules 2005 provides:
"42.1 General rule that costs follow the event
Subject to this Part, 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."
28In Reid, Hewitt & Company v Josephs [1918] AC 717, Lord Finlay LC, with whom Lord Parmoor agreed, said (at 733) that:
"... [T]he 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."
29However, 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."
30In 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]).
31In 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.
32In 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."
33A costs order in favour of a successful party can be moderated to reflect its failure on particular issues, even if the successful party did not act unreasonably in raising or defending those issues (Permanent Trustee Australia Limited v FAI General Insurance Co Limited (Supreme Court of New South Wales, Hodgson CJ in Eq, 3 June 1998, unreported, BC9802305) at [10-[11]; Short v Crawley (No. 40) [2008] NSWSC 1302 at [32]; Corbett Court Pty Ltd v Quasar Constructions (NSW) Pty Ltd [2008] NSWSC 1423 at [25]-[32]).
34In Bowen Investments Pty Ltd v Tabcorp Holdings Limited (No. 2) [2008] FCAFC 107 Finkelstein and Gordon JJ observed that fairness dictates how the discretion as to costs should be exercised. If an issue by issue approach will produce a result that is fairer than giving the successful party all of his or her costs, notwithstanding his or her failure on particular issues, then the issue by issue approach should be applied.
35I do not accept that the dominant issue on the taking of the account was whether Dee-Tech was obliged to pay 44.6 per cent of the water charges for water supplied through the common meter. That was only one of the issues. It involved only questions of construction of the lease. It was not more or less dominant than any other issue, for example, whether Dee-Tech was liable for 100 per cent of sewerage charges in respect of water supplied through the separate meters.
36The fact that Neddam Holdings failed on many of the issues should be taken into account in exercising the discretion as to costs. This is not a case such as one referred to by Jacobs J in Cretazzo v Lombardi in the passage quoted above where a party has been wholly or substantially successful, notwithstanding that it failed along the way on particular issues. The lack of success on issues is reflected in Neddam Holdings' having been only partially successful in its claim as to what was due.
37It does not follow that there should be no order as to costs. Dee-Tech effectively forced Neddam Holdings to sue for outstanding outgoings by denying liability to make any payment in respect of outgoings in 2005 and denying liability on the other issues on which it failed. Its failure to pay any contribution to outgoings since May 2011 demonstrates an intransigence which is evident in its earlier dealings. Its conduct of the account was dilatory. It took objections to Neddam Holdings' statement of account that the Registrar rightly characterised as merely technical. If these were the only considerations involved, the appropriate order would be that Dee-Tech pay half of Neddam Holdings' costs. But the costs were significantly increased by the separate issue raised by a late amendment by Dee-Tech in which it relied on the Retail Leases Act. That significantly increased costs in terms of research and legal argument, both written and oral. There was also a need for additional evidence relating to which usage of the premises was dominant. Dee-Tech's failure on that issue should have costs consequences. Accordingly I concluded that subject to the effect of the Calderbank offer of 19 October 2010 and the terms of the lease, the appropriate costs order is that Dee-Tech pay two-thirds of Neddam Holdings' costs of the taking of the account.
38The offer of 19 October 2010 was in the following terms:
"We refer to the directions made by Associate Judge Hallen last week for the parties to confer with a view to reaching agreement to resolve this dispute.
Our client has calculated that it is owed at least $60,000.00 by your client as tenant for outgoings from 1 January 2005.
In the spirit of compromise, and in order to avoid substantial legal costs which will be incurred if the Associate Judge is required to take accounts, our client as landlord is prepared to accept the sum of $40,000.00 inclusive of any GST in full and final satisfaction of any obligation owed by your client for the payment of outgoings up to and including 30 September 2010.
The offer contained in this letter is made in accordance with the principles established in the decision of Calderbank v Calderbank. Our client reserves the right to tender this letter to support a request for the payment of indemnity costs in the event that this offer is rejected and our client obtains a better result in Court.
This offer remains open for acceptance up to 11:00am Wednesday 20 October 2010."
39The offer made no reference to Neddam Holdings' claim for interest. Probably the solicitors had given no thought to the question of interest, otherwise it would have been expressly dealt with. On my findings, at the time the offer was made, Dee-Tech owed $30,312.89 by way of contribution to outgoings, and $10,355.20 for interest. If the offer is to be construed as including a compromise of Neddam Holdings' claim for interest, then Neddam Holdings has done slightly better than the offer. If the offer does not include a compromise of Neddam Holdings' claim to interest, it has not done better than the offer.
40Dee-Tech's failure to accept the offer was not unreasonable. The first reason is that the offer was ambiguous. It is unclear whether the claim for interest would also have been compromised had the offer been accepted. Secondly, even if the offer is to be properly construed as including such a compromise, acceptance of the offer would not have avoided the need for a hearing on the matters in issue between the parties as to what amounts Dee-Tech was liable to pay towards outgoings. The offer was made in anticipation of a hearing then expected to take place before Hallen AsJ. His Honour had ordered the parties to meet to see if they could negotiate a resolution of their dispute. The underlying dispute would not have been resolved by acceptance of the offer. Neddam Holdings would have continued to claim more than I have found it was entitled to be paid and Dee-Tech would have continued to claim that it was liable to pay less than I have found it is liable to pay. Whilst the costs of the then imminent hearing would have been averted, costs of another hearing on the same matters would have been incurred, unless there was some further resolution. The only way in which future costs would have been avoided would have been by the parties settling their points of difference. The offer did not address those points of difference.
41The non-acceptance of the offer does not affect my conclusion as to the appropriate costs order to be made.
42Clauses 4.10.2 and 4.10.3 of the lease provide:
"4.10 The Lessee must pay on demand to the Lessor or as the Lessor directs:
...
4.10.2 the reasonable costs payable or incurred by the Lessor for remedying a default by the Lessee;
4.10.3 the Lessor's reasonable legal costs relating to a default by the Lessee."
43Clause 4.10.2 is not relevant. Neddam Holdings did not remedy Dee-Tech's default. But Neddam Holdings is entitled by clause 4.10.3 to its reasonable legal costs relating to Dee-Tech's default in paying the moneys due for outgoings, GST on outgoings, and interest.
44Clause 4.10.3 does not justify the making of a costs order on the indemnity basis. Where parties have contracted that costs be paid on a particular basis, it will usually be proper that the statutory discretion as to costs be exercised so as to approximate as closely as possible the parties' contract (Gomba Holdings UK Limited & Ors v Minories Finance Limited & Ors (No. 2) [1993] Ch 171 at 194; Kyabram Property Investments Pty Ltd & Anor v Murray & Anor [2005] NSWCA 87 at [12]; Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service (No. 2) [2011] NSWCA 171 at [36]). Under the current legislation (s 98 of the Civil Procedure Act and Pt 42 of the Uniform Civil Procedure Rules) costs the subject of an order under s 98 are to be assessed on one of two bases, either the ordinary basis or the indemnity basis.
45If costs are assessed on the ordinary basis, a costs assessor is to determine whether or not it was reasonable to carry out the work to which the costs relate, whether or not the work was carried out in a reasonable manner, and what is a fair and reasonable amount of costs for the work concerned (Legal Profession Act 2004, s 364(1)). That is what would be required in a determination of what reasonable legal costs were incurred by the lessor relating to a default by the lessee.
46If costs were ordered to be assessed on the indemnity basis, the lessor would be entitled to all its costs, other than those that appeared to have been unreasonably incurred, or appeared to be of unreasonable amount (r 42.5(b)). If costs were ordered on the indemnity basis and the costs assessor was in doubt as to whether a particular item of charge was reasonable, he or she would be obliged to allow it. However, under clause 4.10.3 of the lease, the lessor would be entitled only to those costs which were reasonable, not those costs which might be reasonable. It would not be in accordance with the lease to cast on the lessee the burden of proving that a charge was unreasonable. In other words, whilst contractual provisions may have the effect that costs should be ordered on the indemnity basis rather than the ordinary basis, whether that is so depends upon the terms of the particular contract. In the case of the present lease, an order for costs on the ordinary basis is in accordance with the contractual term.
47Counsel for Neddam Holdings referred to Macquarie International Health Clinic Pty Ltd v South Sydney West Area Health Service (No. 2) where the lease required the tenant to pay reasonable costs, but costs were ordered on the indemnity basis. However, in that case the lease went on to say that the costs were to be paid on a solicitor and own client basis. It was for this reason that the Court of Appeal ordered costs on the indemnity basis. Those words are not present in this case.
48Nor does clause 4.10.3 require any modification to my assessment of the proportion of costs that Dee-Tech should pay. Under that clause Neddam Holdings is entitled to its reasonable costs relating to Dee-Tech's default. The costs incurred on the taking of the account related not only to Dee-Tech's default, but also to its claim that Dee-Tech was liable for other amounts for which I have found Dee-Tech was not liable. In my assessment, only two-thirds of Neddam Holdings' costs of the taking of the account related to Dee-Tech's default.
49A further minor issue of costs arose from the order of the Court of Appeal that the balance of the claims for relief in the statement of claim be remitted to the Equity Division. Such claims included claims for mesne profits or damages. None of the claims was pressed. It is unlikely that any costs were incurred. The merits of the unpursued claims were never investigated. There should be no other order as to costs.
50It was for these reasons that I ordered Dee-Tech to pay two-thirds of the costs of the account on the ordinary basis.