Eastlings Pty Ltd v Calidu Import Export Pty Ltd

Supreme Court of NSW|2021-05-05|Before: Ward CJ

Judgment

HER HONOUR: On 1 April 2021, I handed down judgment in these proceedings (Eastlings Pty Ltd v Calidu Import Export Pty Ltd (No 2) [2021] NSWSC 316) (the principal judgment), finding for the plaintiff (Eastlings) as against the second and third defendants (Joe and Grace Merlo) on Eastlings' claims for breach of the covenant contained in a Restraint Deed by virtue of the importation, in or about August 2014 and April 2015, of wine from Portugal for on-sale and the exportation of alcohol in 2015 (the Breach of Covenant claims), in the amount of $67,594.49 plus interest (from the date of the relevant breaches). I dismissed the remainder of Eastlings' claims, which were claims for damages for alleged misleading or deceptive conduct relating to alleged representations or omissions made during the course of negotiations in the marketing by Joe and Grace of their liquor wholesale business for sale to Eastlings (the Misleading or Deceptive Conduct claims).
Eastlings had sought to be heard on costs if it were to be successful in the proceedings. Ultimately, it succeeded on only a limited part of the claim. However, given that it had earlier flagged its wish to be heard on costs, when the principal judgment was published I made directions for the filing of submissions as to costs, with a view to determining the issue of costs on the papers, if possible.
Both parties filed written submissions on costs. Each then sought an opportunity to reply to the other's submissions. As a result there have been submissions and reply submissions by both sides in relation to costs. These are my reasons for the costs orders I now propose to make. In these reasons, for convenience, I will adopt the same definitions and abbreviations as used in the principal judgment (and I refer to the individuals by their first names, again without intending any disrespect).

Summary

In summary, the respective parties' positions as to costs are as follows. Eastlings seeks orders that Joe and Grace pay its costs of the whole of the proceeding (which commenced by summons in 2015) up to and including the filing of the statement of claim on 7 July 2017 and, thereafter, of a proportion (it suggests 30-40% would be appropriate) of the proceeding from 7 July 2017 onwards; and that Eastlings otherwise pay the defendants' costs of the proceeding. The defendants, on the other hand, seek an order that Eastlings pay their costs of the whole of the proceeding (as agreed or as assessed) or, alternatively, that Eastlings should be ordered to pay 85% of the defendants' costs, as agreed or as assessed. The defendants further say that the moneys paid by Eastlings into court as security for their costs should remain in court pending the final determination of costs.

Background

The background to the dispute is set out in the principal judgment and need not be repeated here. However, it is relevant (not least because some of the costs submissions focus on this) to note the way in which the respective claims were introduced into the proceeding.
Eastlings commenced the proceeding by summons on 1 May 2015, seeking to enforce restraints imposed by the 24 May 2013 Restraint Deed. The summons sought the provision of an affidavit of transactions and sought damages or an account of profits from the first to third defendants (Joe, Grace, and their company, Calidu). At this stage, the Breach of Covenant claims was the only claim made by Eastlings in the proceeding but it was not confined (as ultimately proved to be the case) to the particular instances of importation and exportation the subject of the findings made in the principal judgment.
On 8 May 2015, one week after the proceeding was commenced, undertakings were given by the first to third defendants, on a without admission basis (and subject to the usual undertaking by Eastlings as to damages) to comply with all covenants in the Restraint Deed and a further undertaking was given by them to the Court "not to engage in the selling of alcohol (including acting as consultant with other retailers and wholesalers) in New South Wales and Queensland until 24 May 2016".
An affidavit sworn by Joe on 20 May 2015 was filed in which he deposed to the importation of three containers of "cheap wine" and as to the gross profit from that import. He deposed that this represented the only importations undertaken by him after the sale of the liquor wholesale business. (The defendants note that there was ultimately no challenge to that evidence.)
In the course of preparation of the matter for hearing, documents were produced by Paul's Customs, Calidu's customs agent, in answer to a subpoena issued by Eastlings. Having reviewed those documents, Eastlings (which already, as the evidence emerged at the hearing, harboured submissions as to illegal importation of alcohol by the defendants) identified a number of anomalies in the shipping and customs documentation.
The matter was set down for hearing to commence on 7 August 2017. At that stage, the Breach of Covenant claims remained the only claims in the proceeding. On 7 July 2017, Eastlings filed its statement of claim, raising for the first time the Misleading or Deceptive Conduct claims. By orders made on 19 July 2017, the hearing scheduled for 7 August 2017 was vacated (at Eastlings' request). Eastlings was ordered to pay the defendants' costs thrown away by reason of the vacation of the hearing date.
The hearing ultimately ran for 8 days, with two half days on 20 and 21 July 2020 and the remainder of the hearing commencing on 15 September 2020. It is accepted by both parties that, by the time of the hearing, the primary focus of the proceeding was on the Misleading or Deceptive Conduct claims (as noted in the principal judgment) (albeit that much of the lay evidence, other than that of the protagonists on both sides, was devoted to the Breach of Covenant claims). The expert evidence focussed on issues relevant only to the Misleading or Deceptive Conduct claims.

Eastlings' submissions

Eastlings says that it has been wholly successful on its Breach of Covenant claims (that being the only case advanced by it from the commencement of the proceedings on 1 May 2015 until it applied to introduce the Misleading or Deceptive Conduct claims resulting in the statement of claim being filed on 7 July 2017). Invoking r 42.1 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR), it says that the starting point for costs would therefore be that it is entitled to its full costs, having received a monetary judgment in its favour.
However, Eastlings accepts that a costs order in favour of a successful party may be adjusted to reflect that party's failure on particular issues (even though the successful party did not act unreasonably in raising or defending those issues), referring to various authorities that have considered the position where there is a mixed result in proceedings (as to which see below). It is in those circumstances that it seeks the costs orders indicated above (as reflective, it argues, on the success enjoyed by it on various of the issues in the proceeding).
Eastlings says that the Breach of Covenant claims, on which it was successful, was clearly separable from the Misleading or Deceptive Conduct claims; the former being the only cause of action until the filing of the statement of claim on 7 July 2017. Thus, it says that it should have its costs of that claim.
As to what proportion of the later part of the proceeding was dedicated to the Breach of Covenant claims, Eastlings says that this is a matter of impression. However, it argues that, other than the lay evidence of Grace and Joe, the bulk of the lay evidence (and the equivalent hearing time for those witnesses) was taken up with the Breach of Covenant claims.
As to the Misleading or Deceptive Conduct claims, Eastlings says that its case on these claims raised a number of issues: the underlying factual assertions; the expert analysis as to anomalies in the imported shipments; causation; and quantum. Eastlings says that, although ultimately unsuccessful on its Misleading or Deceptive Conduct claims against all defendants, Eastlings was accepted on the issues of causation and damages; and it submits that the "event" for the purposes of the rule that generally costs follow the event is therefore fairly described as "mixed".
As adverted to above, Eastlings argues that it succeeded on two of the four issues involved in the Misleading or Deceptive Conduct claims (the dominant case from the date of the filing of the statement of claim); namely, causation (a legal issue) and quantum (which it says was confined to two experts who largely agreed). Eastlings argues that, on a purely arithmetical basis, this would have the result that it would receive its costs by an overwhelming margin (reflecting what it says is the narrow margin by which it lost the case). However, Eastlings accepts that this would not reflect the intent of the rule that costs generally follow the event.
What Eastlings submits in those circumstances is that its success on the Breach of Covenant claims and the two issues on the Misleading or Deceptive Conduct claims should reflect less than 50% of the whole case from the date of filing of the statement of claim, in order to recognise the success of the defendants overall on the dominant issue. While it accepts that this is necessarily impressionistic, Eastlings submits an appropriate range would be for it to receive 30-40% of the costs from the date of filing the statement of claim (with the defendants otherwise to have their costs of the remaining proportion). It is said that that amount recognises not only the appropriate starting point and the "narrow margin" by which it says it lost the case on the Misleading or Deceptive Conduct claims, but also fairly reflects the true position of success or otherwise in the litigation.

Defendants' submissions

As noted above, the defendants' primary submission as to costs is that they should have their costs of the whole of the proceeding (without allowance for Eastlings' costs of the Breach of Covenant claims). This is based, in essence on the perceived disproportion between the time occupied (and, I would infer, expense incurred) in relation to the respective claims.
The defendants point to the fact that Eastlings' claim for damages for the Misleading or Deceptive Conduct claims, which they successfully defended, was in the order of $1.9 million plus interest; whereas Eastlings' Breach of Covenant claims (on which Eastlings succeeded in obtaining judgment) was for $67,594.49 plus interest. Thus, the defendants say that Eastlings succeeded in obtaining only a small proportion of the relief it had claimed in the proceeding (obtaining judgment in a sum which they calculate at being around 2.7-3.5% of the relief claimed for the Misleading or Deceptive Conduct claims - the difference in percentages, as I understand it, relating to the difference between the pleaded damages claim for the alleged misleading or deceptive conduct and the relief ultimately sought on those claims; though nothing here turns on the precise percentage).
In that regard, the defendants accept that there was "mixed success" in the proceeding (as I had indicated in the principal judgment at [506]).
The defendants (as did Eastlings) point to the authorities which consider the approach to costs where there are multiple issues in a case. They point to the procedural history of the making of the respective claims (summarised above). They say that (as noted in the principal judgment), the conduct the subject of the Breach of Covenant claims was not broadly in dispute; rather, the real issues were the proper construction of the Restraint Deed and whether it had been breached based on the admitted conduct and whether Angus had otherwise consented to the relevant transactions held to be in breach.
As to the Breach of Covenant claims, the defendants say: first, that the issue was dealt with by Eastlings in less than two pages of its 25 pages of closing written submissions (and in approximately two pages of the defendants' 21 pages of closing written submissions); and, second, that the oral evidence of the lay witnesses who gave evidence on the Breach of Covenant claims (Angus, Joe, Grace, Angela Valore, Joseph Bavaro, Anthony Parisi and Pedro Vidal) occupied approximately 52 pages of transcript out of the approximately 480 pages of transcript of oral evidence. (I do not here set out the detailed analysis of the transcript in this respect.) While eschewing arithmetical precision, it is said by the defendants that the hearing of the Breach of Covenant claims occupied no more than 12% of the hearing time in the proceeding.
The defendants accept that the Misleading or Deceptive Conduct claims were discrete and separate from the Breach of Covenant claims. However, it is submitted that, given that the former claims were the primary issue in the case and having regard to the relatively minor nature of the Breach of Covenant claims, Eastlings should be ordered to pay the defendants' costs of the whole of the proceeding and that no allowance in respect of the Breach of Covenant claims (on which Eastlings succeeded) is necessary in order to do justice in the matter in relation to costs.
Alternatively, having regard to the respective value of the claims and the time spent in respect of such claims, the defendants say that any reduction in such costs should be no more than 15% of the defendants' costs.

Defendants' reply submissions

Responding to the submission made for Eastlings that Joe and Grace should pay Eastlings' costs of the whole of the proceedings up to the filing of the statement of claim on 7 July 2017 and 30-40% of its costs thereafter, the defendants say that this is contrary to both principle and policy.
The defendants invoke in this context r 42.34 of the UCPR, which applies to Supreme Court proceedings where a plaintiff has obtained a judgment of less than $500,000 and would, apart from the rule, be entitled to costs; and which provides, in such circumstances, that ordinarily there would be no such costs order unless the commencement and continuation of the proceedings in the Supreme Court rather than the District Court was warranted.
The defendants say that once the undertakings were given on 8 May 2015 (and until the filing of the statement of claim raising the Misleading or Deceptive Conduct claims on 7 July 2017), the proceeding could and should have been brought or continued in the District Court (which has power to order equitable relief for money or damages up to its jurisdictional limit under s 134(1)(h) of the District Court Act 1973 (NSW)). It is said that there was no basis for continuing the proceedings in the Supreme Court once the above undertakings were given.
The defendants say that Eastlings' submission that it receives its costs of the proceedings until 7 July 2017 is contrary to r 42.34 of the UCPR and the clear underlying policy of that rule (that being to preserve an appropriate degree of proportionality between the costs of the proceedings and the amount in issue - see as recognised in Ritchie's Uniform Civil Procedure NSW at [42.34.5], and citing s 60 of the Civil Procedure Act 2005 (NSW) in this regard).
The defendants say that the disproportionality of Eastlings' judgment as against its decision to continue the proceeding in the Supreme Court, at least until 7 July 2017, is such that no costs should be awarded.
It is said that Eastlings' claim for costs is also contrary to the general rule that costs follow the event (r 42.1 of the UCPR), where the event is the practical result (citing Windsurfing International Inc v Petit (1987) AIPC 90-441). It is said that the proportionality of the Breach of Covenant claims to the Misleading or Deceptive Conduct claims after 7 July 2017 is such that Eastlings should not receive any costs of the proceeding.

Eastlings' reply submissions

The defendants' reply submissions provoked complaint by Eastlings that this was an attempt "to reconstruct history". Eastlings emphasises, in this regard, that the undertakings provided by the defendants to the Court were made on a without admission basis and subject to the usual undertaking as to damages proffered by Eastlings. It is said that this necessitated Eastlings proving the breach the subject of the injunction sought (so as not to trigger the undertaking as to damages, which it is noted was provided to this Court - not to the District Court). Eastlings says that, by virtue of the relief initially sought, the proceeding could not have been commenced in the District Court; and that, once commenced, the continuation of the proceeding in this Court was warranted unless and until the release of the obligations under the undertakings.
Eastlings notes that it was at all times open to the defendants to admit breach, thus removing the need to prove the basis for the injunction sought which underpinned the undertaking and thereby relinquishing Eastlings from its undertaking to this Court , but that the defendants did not do so.
Eastlings also places emphasis on the fact that the matter was of sufficient complexity so as to warrant being conducted in this Court over eight days. It is noted that much of the lay evidence only concerned the Breach of Covenant claims; that discovery was extensive; and that the Court Book ultimately exceeded eight volumes. It is noted that every matter was contested; that it involved calling witnesses across the globe; and required consideration of complex areas of law and a close examination of evidential matters "traversing some history and nuance in an environment of distrust" resulting in a judgment of some length. Eastlings thus cavils with the proposition that even the continuation of the Breach of Covenant claims in the Supreme Court was not warranted.
Finally, Eastlings argues that the defendants' argument fails to take into account that, but for two matters (a reference to the two issues on which Eastlings accepts that it failed - the factual assertions and the expert evidence other than as to quantum), Eastlings would also have succeeded on the Misleading or Deceptive Conduct claims (which it is said undoubtedly would have driven the value of the judgment well past the jurisdictional basis for the rule).
Accordingly, Eastlings presses for the costs orders sought by it.

Determination

The relevant principles on costs applications are well known and were not here in dispute. They were summarised by me recently in Bassett v Cameron (No 2) [2021] NSWSC 419 and can be briefly re-stated here as follows.
There is a broad discretion as to costs (s 98 of the Civil Procedure Act; Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11). That discretion must be exercised judicially and with regard to the overriding statutory purpose mandated by s 56 of the Civil Procedure Act.
The usual order is that costs follow the event (r 42.1 of the UCPR); unless it is considered that some other order ought to be made (see Purnell v Tindale (No. 2) [2020] NSWSC 1047 at [12] per Henry J; Commonwealth of Australia v Gretton [2008] NSWCA 117 at [38] per Beazley JA, as Her Excellency then was (with whom Mason P agreed)).
Ordinarily, where there are multiple issues in proceedings, one does not differentiate between the issues on which a party succeeded and those in which the party did not succeed, unless a particular issue or group of issues is clearly dominant or separable (see Waters v PC Henderson (Australia) Pty Ltd (1994) 254 ALR 328; [1994] NSWCA 338 at 330-331 per Mahoney JA; and Yazgi v Permanent Custodians Ltd (No 2) [2007] NSWCA 306 (Yazgi v Permanent Custodians) at [24] per Beazley JA, as Her Excellency then was, Ipp and Tobias JJA). The apportionment of costs between different issues in proceedings may be appropriate, for example, where: there is a separate issue involving a disputed question of fact or law and the determination of that issue takes additional time in preparation and in argument (see Ryde Developments v Property Investors Alliance (No 2) [2018] NSWCA 40 at [7] referring to Bostik Australia Pty Ltd v Liddiard (No 2) [2009] NSWCA 304 (Bostik v Liddiard) at [38] per Beazley JA, as Her Excellency then was, lpp and Basten JJA).
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 (see as referred to above, Yazgi v Permanent Custodians at [24]; Bostik v Liddiard at [38]; and see Pages Properly Investments Pty Ltd v Boros [2020] NSWSC 1474 at [13]-[14] per Black J; Short v Crawley (No 40) [2008] NSWSC 1302 (Short v Crawley) at [31]-[33] per White J, as his Honour then was). In Short v Crawley, White J noted (at [31]) the caveat by Jacobs J in Cretazzo v Lombardi (1975) 13 SASR 4 at 16, referring to the "note of cautious disapproval" sounded by his Honour of applications to apportion costs according 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.
Where there is a mixed outcome in proceedings, the question of apportionment is a matter of discretion based on impression and evaluation as mathematical precision is illusory (see James v Surf Road Nominees Pty Ltd (No 2) [2005] NSWCA 296 at [36], which in turn cited Dodds Family Investments Pty Ltd v Lane Industries Pty Ltd (1993) 26 IPR 261 at 272; Bostik v Liddiard at [38]).
See also the summary of principles set out in Elite Protective Personnel Pty Ltd v Salmon (No 2) [2007] NSWCA 373, which included reference to Sydney City Council v Geftlick (No 2) [2006] NSWCA 374 at [27], where it was recognised that a special order for costs depriving the appellant of the costs of argument on a separate issue which increased the time taken in hearing the appeal may be appropriate; and to New South Wales v Stanley [2007] NSWCA 330 at [18] where Hislop J (with whom Beazley JA, as Her Excellency then was, and Tobias JA agreed) noted that 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.
In the present case, as was recognised by both sides, there were two clearly severable sets of claims - the Breach of Covenant claims and the Misleading or Deceptive Conduct claims; and the outcome was different as between the two. Eastlings succeeded on the former (albeit narrowed from the scope of the claims originally the subject of relief in the summons - since at that stage it was clearly contemplated that the breaches of covenant may have been more extensive) and failed on the latter.
I do not accept that it can fairly be said that Eastlings succeeded in any meaningful way on the Misleading or Deceptive Conduct claims (or, conversely, that it failed by only a "narrow margin"). True it is that, in obiter, I observed that, had I been persuaded as to the alleged misleading or deceptive conduct then I would have been satisfied as to causation of loss and as to the quantum of that loss. However, the obiter findings on those issues did not sound in any success for Eastlings. It remains wholly unsuccessful on the Misleading or Deceptive Conduct claims. Nor was the time spent in argument on those issues in my opinion such that some special order as to costs should be made.
In terms of what is the relevant event, as I have noted in other cases (including in Galati v Deans (No 3) [2018] NSWSC 1861), a helpful approach to assessing the success or otherwise of the parties was suggested by the English Court of Appeal in Roache v News Group Newspapers Ltd [1998] EMLR 161 at 168-169. There, the question as to who was to be seen as the successful party "in the event" was posed as being a question as to "who, as a matter of substance and reality, has won? Has the plaintiff won anything of value which he could not have won without fighting the action through to a finish? Has the defendant substantially denied the plaintiff the prize which the plaintiff fought the action to win?" Applied to the Misleading or Deceptive Conduct claims, that analysis points squarely to an order for costs in the defendants' favour for that aspect of the case.
In this regard, I also note that the Misleading or Deceptive Conduct claims involved the making of very serious allegations against the defendants. On one view, it might have been argued that their costs of successfully defending those very serious allegations should be borne by Eastlings on an indemnity basis. No such order has here been sought. I simply raise this because it seems to me to be inconsistent with the practical result of the case that the defendants should now be deprived of an order for costs in their favour in respect of the defence of the Misleading or Deceptive Conduct claims.
That said, I am not persuaded that Eastlings should be deprived of its costs of the Breach of Covenant claims on which it did succeed, whether by reference to the issue of proportionality in general or by the invocation of r 42.34 of the UCPR. As to the latter, I am satisfied that the commencement of the proceeding in this Court was warranted having regard to the nature of the relief sought; and that its continuation was warranted having regard to the undertakings that had been proffered to this Court (and by which the respective parties proffering those undertakings were bound).
Finally, while there would otherwise have been much to commend a blended costs order to take into account not only the difference in success on the respective claims but also the time involved in the hearing, I am not persuaded that it is appropriate in the present case because I am not satisfied that I can confidently assume that the proportion of time spent on the respective issues in the hearing reflects that proportion of the costs incurred in preparation for the hearing in respect of the two sets of issues. However, for the benefit of any ultimate costs assessment, my perception is that roughly 80% of the hearing was attributable to the Misleading or Deceptive Conduct claims and 20% to the Breach of Covenant claims.
Finally, the costs orders now to be made do not disturb any existing costs orders.

Orders

For the above reasons I make the following orders: 1. Order the second and third defendants to pay the plaintiff's costs of the Breach of Covenant claims. 2. Order the plaintiff to pay the second to fourth defendants' costs of the Misleading or Deceptive Conduct claims. 3. Liberty to apply on reasonable notice in relation to the moneys presently held in court as security for the defendants' costs of the proceeding in accordance with orders made on 30 July 2019.

Amendments 24 January 2022 - Amendment to Order 2. 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: 24 January 2022

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