By a Share Sale Agreement dated 1 July 2014 (the SSA), the plaintiff, Dylan Mann & Co Pty Ltd as trustee for the Mann Family Trust (Dylan Mann), sold 95 per cent of the shares in a company known as iPraxis Pty Limited (iPraxis) to the defendant, Tiejag Limited as trustee for the Skeihy Khoury Family Trust (Tiejag).
The purchase price was payable in three tranches: an initial sum of $475,000 payable at the time of sale together with two further payments due on 31 July 2015 and 31 July 2016 respectively. Those two further payments were calculated by reference to the net profits of iPraxis for the immediately preceding year. "Net Profit" was defined in the SSA as "the amount as shown in the statement of financial position for the Company to be prepared in accordance with the Accounting Standards".
In these proceedings, Dylan Mann sued to recover $277,651.58 in respect of the second payment and $170,500 in respect of the third payment, making a total of $448,151.58 plus interest. It also claimed its legal costs of the proceedings under an indemnity given in cl 7.2 of the SSA. That clause provides:
The Buyer indemnifies the Seller and the Seller's Guarantor [Mr Mann/Second Cross-Defendant] against, and must pay to the Seller and the Seller's Guarantor on demand an amount equal to, the losses, damages, costs, expenses, charges and other liabilities (including legal and professional fees) directly incurred or suffered by any of the Seller or the Seller's Guarantor arising out of or in connection with a failure by the Buyer to pay the Purchase Price (including but not limited to any interest payable to the Buyer in respect of any payment not made when due under this agreement.
The amount claimed by Dylan Mann in the proceedings was not quantified until shortly before the hearing, when Dylan Mann served an expert accounting report from Ms Fiona Bateman which, among other things, expressed the opinion that the financial statements of iPraxis for 2015 and 2016 were not prepared in accordance with the Accounting Standards.
Tiejag resisted the claim on two broad bases. First, it claimed that the financial statements of iPraxis showed that the net profit for the relevant financial years was nil and that consequently, at most it was only liable to pay the minimum amount due in respect of the second and third payments due under the SSA, which was $125,166.72 in respect of each payment, making a total of $250,333.44 plus interest.
Second, Tiejag claimed that Dylan Mann had breached certain warranties in the SSA and that it was entitled to set-off the damages it had suffered as a consequence of those breaches of warranty against the remaining purchase price. Based on broadly the same facts, it advanced an alternative claim that Dylan Mann had engaged in misleading and deceptive conduct in contravention of s 18 of the Australian Consumer Law and that it was entitled to set-off the damages it suffered as a consequence of that conduct against the balance of the purchase price, with the result that it owed nothing.
In a judgment I delivered on 31 August 2018 (see Dylan Mann & Co Pty Ltd as trustee for the Mann Family Trust v Tiejag Pty Limited as trustee for the Skeihy Khoury Family Trust [2018] NSWSC 1334), I concluded that the defendant succeeded in its first case, but failed on its second, with the result that Dylan Mann was entitled to judgment in its favour in the sum of $250,333.44 plus interest. The only outstanding question is costs.
Dylan Mann claims the whole of the costs of the proceedings on an indemnity basis relying on cl 7.2 of the SSA. Tiejag, on the other hand, submits that Dylan Mann should only be entitled to recover its costs on the ordinary basis and that those costs should be discounted to take account of the fact that Dylan Mann failed in its claim that it was entitled to recover more than the minimum amounts payable in respect of the second and third payments due under the SSA.
[2]
Relevant principles
Costs are in the discretion of the Court: Civil Procedure Act 2005 (NSW), s 98. The general principle is 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: Uniform Civil Procedure Rules 2005 (NSW) (UCPR), r 42.1. Unless the Court orders otherwise, costs are assessed on an ordinary basis: UCPR r 42.2.
It may be appropriate for the court to depart from these general principles and deprive a successful party of its costs or order that it pay the other party's costs in relation to an issue on which it was unsuccessful and which was clearly dominant or severable: Griffith v Australian Broadcasting Corporation (No 2) [2011] NSWCA 145 at [15] per Hodgson JA citing Monie v Commonwealth of Australia (No 2) [2008] NSWCA 15 at [64]; Waters v P C Henderson (Australia) Pty Ltd (1994) 254 ALR 328; [1994] NSWCA 338. See also Turkmani v Visvalingam (No 2) [2009] NSWCA 279 at [9]-[13] per Hodgson JA (with whom Beazley and McColl JJA agreed); James v Surf Road Nominees Pty Ltd (No 2) [2005] NSWCA 296 at [31]-[33] per Beazley, Tobias and McColl JJA. The "issue" need not involve a separate claim. It can relate to any disputed question of fact or law: James v Surf Road Nominees Pty Ltd (No 2) [2005] NSWCA 296 at [34]
A court may also be prepared to depart from these general principles where there is an agreement between the parties that provides for the payment of costs on a different basis: see Kyabram Property Investments Pty Limited v Murray [2005] NSWCA 87; Leda Holdings Pty Ltd v Oraka Pty Ltd [1999] FCA 444.
[3]
Consideration
Leaving cl 7.2 of the SSA aside for the moment, in my opinion, the appropriate order in relation to costs is that Tiejag pay Dylan Mann 80 per cent of Dylan Mann's costs of the proceedings.
Dylan Mann was successful in the proceedings because it obtained a judgment in its favour which had been resisted by Tiejag. However, it was not wholly successful. It advanced a case that the financial statements of iPraxis were not prepared in accordance with the Accounting Standards and led expert evidence in relation to that issue. Tiejag called expert evidence in response. That aspect of Dylan Mann's claim failed. It was clearly separable and occupied a significant part of the hearing. Dylan Mann should not be entitled to recover those costs of the proceedings. It is reasonable to assess those costs as 20 per cent of the total costs of the proceedings.
In my opinion, cl 7.2 does not provide for a different result. I do not think that the costs incurred in connection with the claim for more than the minimum amount payable under the SSA in respect of the second and third payments could be said to be costs "directly incurred or suffered by [Dylan Mann] arising out of or in connection with a failure by [Tiejag] to pay the Purchase Price". They arose out of a claim for more than the purchase price that was due based on a case that was not accepted by the Court.
Moreover, in contrast to the clauses considered in Kyabram and Leda Holdings, cl 7.2 does not expressly provide for the payment of costs on an indemnity basis. In the absence of a term expressly providing for the payment of costs on that basis, I do not think that the Court should depart from the normal rule.
[4]
Order
It follows that the order of the Court is that the defendant pay 80 per cent of the plaintiff's costs of the proceedings (including the cross-claim filed on 23 November 2015).
[5]
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: 11 October 2018
Parties
Applicant/Plaintiff:
Dylan Mann & Co Pty Ltd as trustee for the Mann Family Trust
Respondent/Defendant:
Tiejag Pty Limited as trustee for the Skeihy Khoury Family Trust
Legislation Cited (3)
Australian Consumer Law Civil Procedure Act 2005(NSW)