Fagenblat v FGT Custodians Pty Ltd

Supreme Court of Victoria|2004-06-18|Before: HABERSBERGER J

PRACTICE AND PROCEDURE - Costs - Second trial after defendant's successful appeal against judgment at first trial - Costs of first trial not dealt with by Court of Appeal - Offer of compromise made before first trial - Judgment at second trial no less favourable than offer of compromise - What order should be made in respect of costs of first trial - Rule 26.08 of Chapter 1 of the Supreme Court Rules.

On 3 June 2004 I published my reasons for deciding that the plaintiff was entitled to be paid $210,000 in respect of the value of his interest in the goodwill of the partnership, Feingold Partners Pty Ltd, as at 30 June 2000. This meant that there would be judgment for the plaintiff in the sum of $339,797, consisting of the plaintiff's agreed share in the assets of the partnership of $129,797, plus the $210,000.

On 4 June 2004 I heard argument on the questions of interest and costs. The parties had agreed that the amount of interest payable as at that day was $146,369.63, with interest continuing to accrue at $104.73 per day. The rounded amount of interest as at the date of the publication of these reasons is $147,835.

On the question of costs, Mr Robins of counsel, who appeared on behalf of the plaintiff, drew my attention to an offer of compromise served by the plaintiff on 31 August 2001 in which the plaintiff offered to accept "the sum of $277,500 by way of compromise of the plaintiff's claim and of the defendant's counterclaim." For the purposes of the comparison required by r.26.08(2) of Chapter 1 of the Supreme Court Rules, interest relating to the period after the day the offer of compromise was served is to be disregarded (r.26.08(5)). The agreed calculations showed that the judgment obtained by the plaintiff was, as at the date of the offer of compromise, equivalent to $371,597, including $31,800 for interest. The offer of compromise therefore represented 74.6% of this amount or a discount of 25.4% or $94,097 in favour of the defendant. There was no argument, therefore, that the judgment was not "no less favourable" to the plaintiff than the terms of his offer or that it was not an offer of a genuine compromise.[1]

Accordingly, the plaintiff sought an order that the defendant pay the plaintiff's costs of the proceeding, including reserved costs and the costs of the first trial before Pagone J, such costs to be taxed on a party and party basis up to and including 31 August 2001 and thereafter taxed on an indemnity basis.

Mr Glick SC, who appeared on behalf of the defendant, accepted that costs should follow the event and that indemnity costs were applicable to the second trial before me by virtue of the plaintiff's offer of compromise. However, he submitted that the Court should otherwise order, within the meaning of r.26.08(2), by ordering that the costs of the first trial, except for the costs of defending the counterclaim, should lie where they fell, and that the defendant should pay the plaintiff's costs of defending the counterclaim in the first trial on a party and party basis. (The appeal against the dismissal of the counterclaim was abandoned.)

At the request of the parties, directions were made giving them the opportunity to supplement their initial oral submissions on 4 June 2004 with written submissions. Each party took up that opportunity by filing written submissions in accordance with my directions.

It seems to me that following the written submissions two issues remain to be determined on the question of costs. First, what order should be made in respect of the first trial, except for the plaintiff's costs of defending the counterclaim. Secondly, on what basis the costs of the counterclaim should be ordered to be paid by the defendant.

Mr Glick submitted that the starting point for consideration of the first issue was that the Court of Appeal made no order disposing of or dealing with the costs of the first trial. He distinguished this case from the normal order which, according to Williams, Civil Procedure - Victoria, was usually made by the Court of Appeal in relation to the costs of a first trial:

"Where there is a new trial, the costs of the first trial, should, as a general rule, be made to abide the event of the second ..."[2]

It was significant, Mr Glick submitted, that the normal order was not made by the Court of Appeal in this case.

In the circumstances, Mr Glick submitted that the costs of the first trial were in my discretion. He referred to another passage from Williams:

"If the appellate court omits to order that the costs of the first trial should follow the event of the second, the judge at the second trial may so deal with those costs ..."[3]

The basis of Mr Glick's submission that the costs of the hearing of the claim in the first trial should lie where they fell was that the Court of Appeal had held that the first trial miscarried because the plaintiff's evidence was misconceived and the plaintiff's experts proceeded on incorrect assumptions. As I said in my judgment[4]:

"Having decided that the figures relied upon by the trial Judge could not otherwise be justified, Ormiston JA considered whether a substituted judgment could be given in favour of Mr Fagenblat, and determined that it could not. His Honour said that the difficulty arose "entirely from the unsatisfactory nature of the expert evidence." This was because the plaintiff's valuers, Mr Borsky and Mr Geoffrey Sincock, did not put forward alternative calculations or valuations based on an assumption other than that Mr Fagenblat would remain with the practice as a consultant/employee for some time. His Honour said that: 'Except in general terms and in the course of cross-examination, they did not consider what value should be placed on the respondent's share on the basis that he was at liberty to set up practice on his own and the partnership was at risk of losing some proportion of its business thereby'."[5]

Mr Glick submitted that it would be unfair to make the defendant pay for what was essentially a failure by the plaintiff to adduce both appropriate and sufficient evidence at the first trial.

Alternatively, it was submitted that if the defendant was to be ordered to pay the costs of the hearing of the claim at the first trial then it should only be on a party and party basis.

Mr Robins submitted that the general rule was that where a retrial is ordered, unless there were special circumstances warranting departure from the general rule, the costs of the first hearing should abide the result of a retrial and referred to the following decisions of the Full Court or Court of Appeal: Malpas v Malpas[6]; Stewart v McKinley[7]; Brownlie v Overend[8]; and Markovic v Ford Motor Company of Australia Ltd[9]. However, what was actually said in Stewart v McKinley was that where there is a new trial the costs of the first trial should as a general rule, "be made to abide the event of the second"[10] [emphasis added]. That is, by an order of the Court of Appeal. This wording was repeated in Brownlie v Overend[11].

Mr Robins recognised that the Court of Appeal in this case had not made any order concerning the costs of the first trial. He agreed with the defendant's counsel that this meant that such costs were left in the discretion of the judge at the second trial.[12] Mr Robins submitted that my discretion should nevertheless be exercised judicially in accordance with the general rule that, absent special circumstances, the costs of the first trial should follow the result of the retrial.

Mr Robins submitted that the defendant had not identified any genuine special circumstances sufficient to warrant departure from the general rule. He argued that neither the plaintiff nor the defendant was solely responsible for the inability of the Court of Appeal to resolve the valuation issue on a final basis once it was decided not to uphold the trial judge's approach. That is, he submitted, neither the plaintiff nor the defendant was solely responsible for what the Court of Appeal held to be the erroneous approach of the trial judge to the valuation issue. In support of his contention that the defendant was at fault he referred to the criticisms made by Ormiston JA of the evidence of the defendant's valuer, Mr Lipson.[13]

I do not accept Mr Robins' argument on this point. As Mr Glick pointed out, if the plaintiff had not made out his case by presenting appropriate and sufficient evidence his claim could have been dismissed. Instead, the Court of Appeal ordered a retrial. In my opinion, if anyone was responsible for the need for a second trial, it was therefore the plaintiff, not the defendant. Thus, it is possible, in my opinion, that the general rule might not apply because the plaintiff's unsatisfactory evidence at the first trial could be regarded as constituting special circumstances warranting departure from the general rule.

However, I do not need to decide that issue because I accept Mr Robins' alternative submission as to why the plaintiff should be entitled to the costs of the hearing of the claim at the first trial. Mr Robins referred to the consent order made by me on 20 June 2003 that "the evidence adduced at the first trial ... by all witnesses, other than expert witnesses, shall stand as the evidence of such witnesses at the retrial", and to the fact that the Appeal Book containing the transcript and exhibits from the first trial formed the bulk of the Court Book used at the second trial. In addition, Mr Robins drew attention to the numerous references by Mr Kenfield, the defendant's expert at the second trial, to the views of Mr Borsky, which were to be found in the evidence at the first trial. Mr Borsky, who was a member of the firm of accountants which had acted for the practice for many years, was the plaintiff's principal expert at the first trial.

Mr Robins submitted that, in circumstances where the use of the evidence at the first trial had minimised the duration and costs of the second trial in the manner set out above, it would be an odd result for the successful plaintiff to be now deprived of his costs of procuring that very evidence. As stated, I agree with this submission. I am persuaded that notwithstanding the Court of Appeal's criticisms of the plaintiff's evidence at the first trial, which were highlighted by Mr Glick, the plaintiff should be entitled to the costs of the hearing of the claim at the first trial.

In my opinion, once I have decided that the plaintiff should have these costs, there is really no reason why they should not be ordered to be taxed on an indemnity basis. The offer of compromise can be relied on in respect of both the first and the second trial.[14] Further, if the offer of compromise had been accepted, as it now turns out it should have been, there would have been no need for the first trial (or the second trial) to have taken place. In the circumstances, nothing said by Mr Glick persuaded me that I should otherwise order, within the meaning of r.26.08(2), and deprive the plaintiff of his entitlement to indemnity costs from the day after his offer of compromise.

The second issue of costs can be dealt with very briefly. Mr Glick advanced no reason for denying the plaintiff indemnity costs in respect of his successful defence of the counterclaim in the first trial and, in my opinion, there is none. For the reasons given in the preceding paragraph, the costs of the counterclaim should be ordered to be paid on an indemnity basis from the day after the offer of compromise.

The order of the Court will therefore be as follows:

1. Judgment for the plaintiff in the sum of $339,797 together with interest pursuant to statute in the sum of $147,835.

2. Order that the defendant pay the plaintiff's costs of the proceeding, including reserved costs and the costs of the first trial before the Honourable Justice Pagone, such costs to be taxed on a party and party basis up to and including 31 August 2001 and thereafter taxed on an indemnity basis.

[1] Enerka Apex Belting Pty Ltd v Vickers Systems Pty Ltd (No. 2) [2002] VSC 409

[3] Williams, Civil Procedure - Victoria para. 64.24.25, p.5,717

[10] [1885] VicLawRp 149; (1885) 11 VLR 802 at 809 per Williams, Holroyd and Cope JJ

[11] [1979] VicRp 28; [1979] VR 283 at 287-288 per Young CJ, Starke and Fullagar JJ

[12] Wojcic v Incorporated Nominal Defendant (No. 2) [1968] VicRp 68; [1968] VR 533 at 534-535; Knudsen v Kara Kar Holdings Pty Ltd (No. 2) [2000] NSWSC 943; (2000) 52 NSWLR 254 at 259

[14] Ettingshausen v Australian Consolidated Press Ltd (1995) 38 NSWLR 404 at 410

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Cases Cited (3)