Eden Productions Pty Ltd v Southern Star Group

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST

50022/00 EDEN PRODUCTIONS PTY LTD v SOUTHERN STAR ENTERTAINMENT PTY LTD AND ANOR (No. 3) JUDGMENT 1 On 17 December 2002 I published my reasons for judgment in this matter. On 23 May 2003 I delivered further reasons on the appropriate means by which the quantum of damages was to be ascertained. The parties agreed that, as at 13 June 2003, the plaintiff was entitled to judgment in the sum of $1,078,089. I entered judgment accordingly, reserving the question of costs, short submissions with respect to which, supplementing written submissions, were made on that day. 2 The plaintiff submitted that it was substantially successful, would not have received such a payment but for its success in the proceedings, had no alternative but to commence the proceedings and I should adopt the ordinary course that costs follow the event. It was submitted that each party should bear its own costs of the cross-claim because the major success was with respect to a cross-claim added by amendment on 7 November 2002, a claim for mistaken over-payment. 3 Under the Supreme Court Act 1970, s 76(1) costs are, subject to the Act and the Rules, in the discretion of the Court which has full power to determine by whom and to what extent they are to be paid. The Supreme Court Rules 1970, Pt 52A r11 provide that if an order for costs is made, the Court shall order that the costs follow the event except where it appears that some other order should be made. Rule 6(2)(a) provides that the Court may order that a person shall be entitled to a proportion of the assessed costs. 4 The defendants submitted that costs should be awarded in accordance with the comparative success of the parties. 5 The defendants commenced proceedings in the District Court on 1 March 2000 claiming repayment of $225,000, an advance against the plaintiff's share of profits for a year. On 7 March 2000, the plaintiff filed a summons in this Court claiming over $10 million under 16 heads of claim. On 24 March 2000, the District Court proceedings were transferred to this Court and consolidated with the proceedings before it. The District Court pleading was treated as a cross-claim. Both parties amended their pleadings before trial. In final form, the proceedings involved 25 heads of claim, 23 made by the plaintiff and 2 made by the defendants. One of the plaintiff's claims mirrored one of the cross-claims. 6 The defendants were successful on both cross-claims. Of the 23 heads of claim by the plaintiff, 14 were lost (other than an admitted amount in claim 3), four were abandoned (other than an admitted amount in claim 5), claim 11 was admitted and 4 were won (although the plaintiff was not completely successful on claims 10 and 16). 7 The defendants submitted that of the four heads of claim on which the plaintiff was successful, claim 2 was the only one of substantial evidentiary dispute. Claims 1 and 16 were largely questions of construction, while claim 10 was the subject of little evidence. 8 When the matter came on for trial, Mr Hammerschlag SC, who with Mr Coleman appeared for the plaintiff, outlined the heads of claim in total at $5,323,797 plus interest. There were, in addition, a number of unquantified claims as, for example, for breach of fiduciary duty. The figure, exclusive of interest, in which the plaintiff was successful was $859,999, 16% of what was claimed. 9 This figure includes the effect of the defendants' success on their cross-claim. Since the plaintiff's proceedings were in the nature of a claim for an account of what was due to the plaintiff year by year, I held that the amounts the subject of the cross-claim should be brought into those annual calculations by way of equitable set-off, or under the Supreme Court Act 1970, s 91, or by way of a Court of equity moulding its order to suit the case. 10 In their written submissions, the defendants made a number of calculations of the relative successes of the parties. For example, statements, transcript and written submissions were analysed and it was submitted that the quantity of each related to the claims upon which the plaintiff was successful varied between 11% and 25%. A similar exercise with respect to the cross-claim, yielded figures between 74% and 89% in the defendants' favour. 11 The defendants also submitted that the plaintiff had rights of access to the accounts, books, records and documents of the defendants relevant to the calculation of the plaintiff's share of net profits, a right it was submitted the plaintiff exercised only once notwithstanding an offer by the defendants to meet with the plaintiff's accountants for the purpose of resolving any misunderstanding as to the accounts. It was submitted that had this course of action been adopted, legal costs occasioned by amendments and abandonment of claims might well have been avoided. 12 The defendants analysed the nature of the amendments made by the plaintiff to its pleading, submitting that they were substantial both in raising new issues and in abandoning substantial portions of claims. 13 I inquired of counsel whether I should deal with the costs of the cross-claim separately from the costs of the claim. Mr Wood, who with Mr Kerr appeared for the defendants, submitted that in light of the way in which I had ordered the cross-claim amounts be brought into the annual calculations of net profits, I should treat costs of the proceedings as a whole rather than deal discretely with the costs of the claim and the costs of the cross-claim. I agree with that submission. 14 The defendants submitted that the plaintiff should be awarded 25% of its costs of both proceedings and the defendants should be awarded 75% their costs of both proceedings. 15 The plaintiff responded to these submissions by pointing out that an award of 75% of the defendants' costs of both proceedings denied the plaintiff's success in obtaining a substantial judgment even after account had been taken of the reductions occasioned by the successful cross-claim. Further, the plaintiff pointed out that claim 1 and claim 2, on which it was successful, were major claims. 16 It was submitted that the Court should be careful of the notion of seeking to split up the case into successful and unsuccessful components. It was submitted that the heads of claim were not discrete but, rather, aspects of the plaintiff's entitlement to a share of net profits and the proper construction of the agreements. The nature of the proceedings was for damages for failure properly to account for the plaintiff's share of profits, it was submitted, and the heads of claim were in the nature of individual items of damage rather than discrete claims 17 Reference was made to MacKinnon v Petersen (unreported, 19 April 1989, SC(NSW), Cole J) in which his Honour refused to depart from the usual order as to costs of a building dispute referred to arbitration. In arriving at this conclusion his Honour said: "It is clear that the general rule is that costs follow the event. A judge must, in each instance, consider whether there are circumstances justifying a departure from this rule. In litigation involving the construction industry, it is common for there to be a sum claimed which is comprised of a multitude of smaller sums. Each constituent ingredient normally requires some separate consideration at the hearing to a limited extent. Frequently, reasons of a judge or arbitrator isolate a separate finding in respect of the constituent claims. However, in truth, the matter in dispute between a proprietor and a contractor is the ultimate sum due from one to the other. Particularly is that so at the conclusion of a construction contract." 18 The plaintiff submitted that a similar approach should be adopted in the instant circumstances. It was submitted that the plaintiff could have pleaded an overall claim for damages comprised of a number of accounting issues and it should not be penalised for presenting its pleading in a convenient and accessible form to expose each of the ingredients of that claim. 19 The plaintiff pointed out that in order to prosecute its claim, it had first to analyse a substantial amount of complex accounting material. In the context of profits being generated but losses being reported, the plaintiff sought access to the accounts, books and records of the defendants. It was submitted that there was considerable dispute as to the nature of the documents to which the plaintiff was entitled to inspection and no provision for photocopying or subsequent review was made available. The defendants having commenced proceedings in the District Court, there was no alternative, the plaintiff submitted, but for it to commence proceedings in this Court. 20 The plaintiff submitted that it ought not to be criticised for the amendment and abandonment of heads of claim. The defendants held all the information, including eventual explanation of matters that were not apparent or disclosed in the reports provided to the plaintiff. As such information was revealed during the process of discovery, it was submitted that the plaintiff acted responsibly in amending or abandoning its heads of claim. Had that information been made available to the plaintiff, initially, costs associated with the heads of claim in question might not have been incurred. 21 As to the mathematical exercises undertaken by the defendants, the plaintiff points out that there is no necessary correlation between the quantity of transcript, statement and written submission and the costs incurred by the parties in presenting and meeting the heads of claim. 22 The plaintiff further submitted that it was entitled to the costs in respect of claims admitted by the defendants up to the dates of that admission. Those costs should be taken into account in an ultimate order as to costs. 23 The costs of the hearing on 23 May 2003 were the subject of separate submissions by the parties. 24 The plaintiff submitted that as a result of that hearing, it secured a further $54,143 above the amount contended for by the defendants under my first reasons for judgment and it ought to have the costs of that hearing. Alternatively, it was submitted that the hearing was necessary to a proper determination of quantum and ought to be regarded as part of the costs of the proceedings and any overly mathematical attempt to divine comparative successes from that hearing should be avoided. 25 The defendants pointed out that of the six matters of principle determined at the hearing, the plaintiff was successful on only one and the Court should take the defendants' success into consideration when making a final order as to costs. In the alternative, it was submitted the defendants were entitled to the costs for the period from 5 February 2003 to 23 May 2003. 26 It has been said that the principles relating to costs are easily stated, but their application to the facts of a particular case, is not always easy (Hughes v Western Australian Cricket Association Inc (1986) 48 ATPR 40-748 at 48,136. 27 If a party fails on some issues, the circumstances may make it reasonable that it be deprived of the costs of those issues or even be ordered to pay the other party's costs of those issues. But as Giles J said in NRMA Ltd v Morgan (No 3) [1999] NSWSC 768 at par 24, parties should not be dissuaded by the risk of costs from canvassing all issues which might be material to the decision in the case, and unless a particular issue or group of issues is clearly dominant or separable from the balance of the proceedings, it would ordinarily be appropriate to award the costs of the proceedings to the successful party without attempting to differentiate between the issues on which it was successful and those on which it failed. 28 In Hughes, Toohey J said that an issue in the costs sense did not mean a precise issue in the technical pleading sense but any disputed question of fact or of law (see also Cretazzo v Lombardi (1975) 13 SASR 4 at 12). 29 The defence referred to Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (No 3) (1998) 30 ACSR 20 where Young J said that where there were multiple issues it was appropriate for the Court to assess the costs on each issue or make a reduction in the costs which the successful party obtained because of that party's losses on separate issues. While varying the proportion of the costs awarded, the Court of Appeal did not depart from those observations ((2001) 37 ACSR 672 at 707, 775, 798-799). 30 A useful summary of the observations of various courts on this topic is to be found in Barrett J's judgment in LMI Australasia Pty Ltd v Baulderstone Hornibrook Pty Ltd (No 2) [2002] NSWSC 72 at par 31 to par 42. In that case his Honour concluded at par 46 that the two claims before him were so separate and dissociated, they should be treated, for costs purposes, as if they had been the subject of separate trials. That is not the case in the instant circumstances. 31 The plaintiff submitted that claim 1 and claim 2 were the dominant heads of claim and it ought to have a general order for costs. I reject that submission. While the claims were significant - they accounted for $1,167,975 of the claimed total of $5,323,797 - there were 21 other heads of claim in 19 of which the plaintiff was unsuccessful. 32 In Waters v P C Henderson (Australia) Pty Ltd (unreported, 6 July 1994, CA(NSW)) Mahoney JA, with whom the other members of the Court agreed, adopted the proposition that where proceedings involved multiple issues, the application of the rule that costs follow the event might involve hardship where a party succeeded on some issues and yet failed on others. Particularly was this so where, for example, a defendant succeeded on issues that occupied the bulk of the time taken by the proceedings. Nevertheless, unless a particular issue or group of issues was clearly dominant or separable, it would 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. 33 The plaintiff referred me to Ronnoc Finance Ltd v Spectrum Network Systems Ltd (unreported, 19 November 1997, SC(NSW), Santow J) in which his Honour, having referred to the passage from Waters referred to above, said that while the disjunctive "or" was used in speaking of dominant or separable issues, it was difficult to conceive of a court awarding costs on a particular issue against the otherwise successful party where that issue was not separable, though dominant. His Honour pointed out that such a result would invite an arbitrary division of responsibility for costs, beyond a degree of rough approximation that might be justified in order to avoid yet more costs in overly precise dissection. 34 In my view, however, that consideration does not arise in this case because I am of the view that the issues, while not dominant, were separable. The plaintiff raised separate issues in its pleading, the case was opened by Mr Hammerschlag with respect to separate heads of claim, evidence was adduced identifying separate heads of claim, submissions were made on that basis and my first reasons for judgment were written on that basis. In view of the success of the defendants with respect to many of those separable issues, it would be unfair to make a general order as to costs in favour of the plaintiff. 35 In Dodds Family Investments Pty Ltd v Lane Industries Pty Ltd (1993) 26 IPR 261 at 272 a Full Court of the Federal Court said that where there is a mixed outcome in proceedings, the question of apportionment is very much a matter of discretion. Mathematical precision is illusory and the exercise of discretion will often depend upon matters of impression and evaluation. 36 I do not propose to make a separate order for the costs of the hearing on 23 May 2003. I take account of the submissions on both sides in determining an order for costs of the proceedings in general. 37 I agree with the plaintiff that an order that it pay a percentage of the defendants' costs belies the substantial judgment entered in favour of it after taking account of the reductions due to the defendants' successful prosecution of their cross-claims. 38 In my view, an appropriate order is one that requires the defendants to pay a proportion of the plaintiff's costs of the proceedings. Bearing in mind the mathematical percentages derived from the material referred to above, but tempering them with my impression and evaluation of the other submissions, the degree of preparation that was obvious in the presentations by both sides at trial and my recollection of the conduct of the proceedings, I order the defendants to pay one third of the plaintiff's costs of the claim and cross-claim. **********

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