Flynn v PPK Mining Equipment Pty Ltd

Costs judgment

1. In addressing the issue of costs, the primary judge identified eight issues which needed to be determined at trial. The primary judge found that only 4 of those issues were determined in favour of the applicants. The eighth issue was damages, which was determined by the order quoted at [3] above, but in respect of which the primary judge found that an important issue of timing was concluded against the applicants.
2. Further, the primary judge stated that this was a "classic case in which the costs of the trial should be apportioned" because roughly 80% of the trial was occupied by the issues on which the applicants did not succeed: PJ at [34].
3. The primary judge recorded that while the applicants were granted a remedy consisting of $500,000 worth of PPK shares, they had initially sought damages of $72 million, which became "about $8 or $9 million" in opening at the trial and between $4.4 million and $6.4 million in closing submissions. The primary judge observed that if the applicants had sought $500,000 at the outset, the proceedings could have been resolved in the District Court.
4. Taking all of these matters into account, the primary judge ordered the applicants to pay 50% of the respondents' costs of the first instance proceedings on a party-party basis from commencement of the proceedings until 2 November 2023.
5. The reason that 2 November 2023 was chosen as the end date for that order was that on 2 November 2023 a "Calderbank" offer was made by the respondents offering to pay $2 million for both damages and costs of the proceedings. The primary judge assumed, favourably to the applicants, that they obtained a total of $1.663 million in shares and costs as a result of the proceedings. The primary judge observed that this figure likely significantly overstated the applicants' total recovery as the costs of the proceedings were most likely far less. Even on that favourable assumption, however, accepting the Calderbank offer would have provided the applicants a better outcome than they ultimately achieved.
6. Her Honour found that when the offer was made, the applicants were well able to consider the merits of their damages claim and the generosity (or otherwise) of the offer before them. Her Honour found that at the time the offer was made, the most likely result was that the applicants would obtain $500,000 in PPK shares as stated in the Share Purchase Agreement. The component of the offer related to the costs of the trial, the appeal and the application for special leave was thus likely worth $1.5 million. The primary judge held that the failure to accept the offer was unreasonable.
7. The primary judge made the following orders: 1. Order the [respondents] to pay 50% of the [applicants'] costs of these proceedings on a party and party basis from commencement of the proceedings until 2 November 2023. 2. Order the [applicants] to pay the [respondents'] costs of these proceedings on an indemnity basis from 2 November 2023 onwards.

Leave to appeal

1. In the draft notice of appeal, the applicants seek leave to appeal from part of the primary judge's decision. None of the grounds of the draft notice of appeal challenge the primary judge's finding with respect to the Calderbank offer. This application for leave to appeal is limited to challenging the order that the respondents pay 50% of the applicants' costs of the proceedings on a party-party basis from commencement of the proceedings until 2 November 2023. The applicants assert that her Honour should have ordered that the respondents pay 100% of the applicants' costs for this period.
2. Leave is required to appeal against a judgment given or order made as to costs only: Supreme Court Act 1970 (NSW) s 101(2)(c). Leave will ordinarily only be granted when the proposed appeal raises an issue of principle, a question of public importance, or seeks to address a reasonably clear injustice going beyond something that is merely arguable: Be Financial Pty Ltd as Trustee for Be Financial Operations Trust v Das [2012] NSWCA 164 at [32]-[38]; Secretary, Department of Family and Community Services v Smith (2017) 95 NSWLR 597; [2017] NSWCA 206 at [28].
3. Dalma Formwork (Australia) Pty Ltd & Anor v Maricic (No 3) [2008] NSWCA 29, a case referred to by both parties, dealt with the effects of an offer of compromise during a transitional period involving the commencement of the Uniform Civil Procedure Rules. In granting leave to appeal, Basten JA emphasised that in a case about the power to award costs being inherently discretionary, it will always be necessary for the applicant for leave to establish an error of the kind described in House v The King (1936) 55 CLR 499 at 505. Of course, a misapplication of principle may amount to a House v The King error.
4. CJZ Pty Ltd v Giant Dwarf Pty Ltd; CJZ Pty Ltd v Morrow [2023] NSWCA 135, another case referred to by both parties, stands for the uncontroversial proposition that establishing House v The King error requires the Court to be satisfied that the judge acted upon a wrong principle, took into account extraneous or irrelevant matters, mistook the facts, failed to take into account a material consideration, or where upon the facts the outcome is unreasonable or plainly unjust. No different approach should be taken here.
5. In McInnes v Rheem Australia Pty Ltd [2021] NSWCA 89, Gleeson JA stated (Bell P and Payne JA agreeing) that "costs fall within the category of matters of practice and procedure and hence there is the 'added restraint' and 'particular caution' which an appellate court should exercise in reviewing a judgment on such matters: Re Will of F B Gilbert (dec'd) (1946) 46 SR (NSW) 318 at 323 (Jordan CJ); Wentworth v Rogers (No 3) (1986) 6 NSWLR 642 at 644 (Kirby P), 651-652 (Priestley JA, Glass JA agreeing)".
6. Trial judges are generally best placed to weigh up the interests involved in awarding costs: John Anthony Arena Pty Ltd v Franpina Developments Pty Ltd [2022] NSWCA 139 at [18] (Kirk JA, Macfarlan JA agreeing). This principle is underlined in the present case where the question of costs of the trial was specifically remitted to the primary judge by this Court.
7. The applicants' draft notice of appeal contained the following 4 grounds: 1. Her Honour erred in only awarding 50% of the plaintiff's costs up to 2 November 2023. 2. Her Honour erred in finding that the plaintiff was only successful on three of the eight issues in the proceedings and that was a proper basis to limit the costs awarded to the plaintiff. 3. Her Honour erred in finding that the plaintiff was only successful on 20% of the issues at trial. 4. Her Honour erred in her assessment of the remedy obtained by the plaintiffs in circumstances where her Honour considered the potential amount claimable given the fluctuation in share price based on the timing of the award and not against the refusal by the defendant to any relief.

Proposed ground 1

1. Proposed ground 1 is a general complaint about the primary judge's order 1. The applicants submitted that "as a matter of principle", "while a successful party may be deprived of costs, either in party or in whole for misconduct in litigation, generally it would not be appropriate to deprive a successful party of costs of claims or defences which were not unreasonably maintained, even if not made good": Michael Hill Jeweller (Australia) Pty Ltd v Gispac Pty Ltd (No 2) [2024] NSWCA 274 at [22]. It was submitted that her Honour misapplied this principle.
2. This proposed ground does not raise an issue of principle, a question of public importance, or address a reasonably clear injustice going beyond something that is merely arguable. Her Honour addressed the correct legal test, by reference to Ryde Developments Pty Ltd v The Property Investors Alliance Pty Ltd (No 2) [2018] NSWCA 40 where this Court stated: [6] Section 98 of the Civil Procedure Act 2005 (NSW) confers on the Court a wide discretion with respect to costs. Under rule 42.1 of the Uniform Civil Procedure Rules 2005 (NSW) the general rule is that the Court is to order that costs follow the event. The "event" may be characterised in more than one way. Generally the "event" refers to the result of the claim or counterclaim, as the case may be, and may be understood as referring to the practical result of a particular claim: Doppstadt Australia Pty Ltd v Lovick & Sons Developments Pty Ltd (No 2) [2014] NSWCA 219 at [15] per Ward, Emmett and Gleeson JJA. Where there has been a mixed outcome in the proceedings, and it is appropriate to entertain the process of apportioning costs as between different issues in the proceedings, in general such an exercise will be carried out on a relatively broad brush basis, and largely as a matter of impression and evaluation by the Court: Doppstadt at [19]; James v Surf Road Nominees Pty Ltd (No 2) [2005] NSWCA 296 at [36]; Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (No 3) (1998) 30 ACSR 20 at 22.
3. The relevant principles for the determination of costs on an issue-by-issue basis were stated in Bostik Australia Pty Ltd v Liddiard (No 2) [2009] NSWCA 304 (Beazley, Ipp and Basten JJA). In summary, in relation to trials (which is the present case) 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 Limited (No 2) [2007] NSWCA 306 at [24].
4. If the appellant loses on a separate issue which has increased the time taken in the hearing, then a special order for costs may be appropriate. 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].
5. 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.
6. In Michael Hill (No 2), this Court recently explained: [20] The phrase "dominant or separable" should not be applied as if it were a statutory test. It involves two concepts, each of which should be treated flexibly. Most cases will involve multiple issues and one expects a judgment to be structured accordingly. A number of issues may arise from a common factual basis, so that it is difficult to disentangle them. Further, disentanglement may work at different levels. One issue may be entirely separate from others, and thus truly separable. On the other hand, it may not be possible to state a fraction of the time taken in preparation, or presentation at trial, of that issue. For that purpose, it may not be sufficiently dominant to warrant separate treatment in relation to costs.
7. We do not accept that the primary judge misunderstood or misapplied the difference between an "event" and a "dominant or separable" issue. The primary judge analysed the various contentious issues in an entirely orthodox way, in conformity with the authorities, including Michael Hill (No 2). Her Honour was in the best position to conduct this exercise. No issue of principle, question of public importance, or reasonably clear injustice going beyond something that is merely arguable has been identified by the applicants.
8. Leave should be refused on proposed ground 1.

Proposed ground 2

1. The applicants argued that the primary judge's approach of broadly describing eight issues was incorrect. The applicants submitted that her Honour was required to identify the "verdicts on the issues", citing Keith Bray Pty Ltd v Hamburg-Amerikanische [1970] 3 NSWR 226 at 227. The applicants argued that in order to establish their case, they needed to establish the following four "verdicts on the issues": 1. that the Share Purchase Agreement was varied in accordance with the position pleaded by the applicants; 2. that the Exlec Business revenue was greater than $1 million; 3. that the applicants were not precluded from relief by reason of the expert determination provisions; and 4. the timing and nature of the relief sought.
2. The "verdicts on the issues" complaint may be dealt with shortly. Keith Bray Pty Ltd v Hamburg-Amerikanische was a case about the breadth of the costs discretion conferred by the long ago repealed r 28 of the Commercial Causes Rules 1965 in the context of what are commonly known as "Bullock" or "Sanderson" orders, named after the English cases Bullock v London General Omnibus Co [1907] 1 KB 264 and Sanderson v Blyth Theatre Co [1903] 2 KB 533.
3. In Keith Bray, an order in the nature of a Bullock order was made. The "verdicts" referred to by MacFarlan J were "verdicts and judgments" and not "verdicts" on particular issues. The verdicts referred to were: 1. for the plaintiff against the first defendant; 2. for the second defendant; and 3. for the third defendant.
4. The debate in Keith Bray was whether the unsuccessful first defendant was obliged to pay the costs of the second and third defendants either directly or by re-imbursing the plaintiff after the plaintiff had paid those costs. Keith Bray has little, if anything, to do with the present question.
5. As to the remaining complaints in ground 2, the applicants argued that they were successful on the four issues that they identified. The applicants acknowledge, however, that there were two items claimed under the business revenue issue on which the plaintiffs were unsuccessful. They also acknowledge that they failed on the timing of relief and date of breach, such that the value of their claim was much lower. In the alternative, the applicants submitted that, of the eight issues identified by the primary judge, they had succeeded on five, and not four, as her Honour had found.
6. We reject the contention that the primary judge erred in determining what constitutes an "event" in the proceedings that "gives rise to an entitlement to costs". We do not accept that the primary judge was demonstrated to have failed to properly consider the interrelatedness of the claims and requirements of construction of the share purchase agreement to each of the claims. We do not discern any error in the way the primary judge identified the eight separate issues or determined success on those issues, including on the issue of damages. Certainly, her Honour was in the best position to make a judgment identifying the issues and measuring success in relation to those issues. No issue of principle, question of public importance, or reasonably clear injustice going beyond something that is merely arguable has been identified by the applicants.
7. Leave should be refused on proposed ground 2.

Proposed ground 3

1. Proposed ground 3 complains about the primary judge's finding that the applicants were only successful on 20% of the issues at trial. The applicants described the award as "punitive" and stated that an error in the House v The King sense has occurred. The applicants submitted that her Honour's finding at [34] that "roughly 80% of the trial was occupied by issues on which the plaintiffs did not succeed" is simply wrong and fails to take into consideration the "certificates of recognition" revenue discussed at [32], which "involved probably the largest number of witnesses and documents".
2. Proposed ground 3, while not separately addressed by the applicants in writing, became the principal subject of oral address. The applicants contended that the certificate of recognition issue was essentially "tied" given that Stern JA in the Court of Appeal (unlike the remaining appeal judges, who did not decide) would have ruled in the applicants' favour.
3. The applicants argued that, if there were eight issues and then had only succeeded on four, that there had been nothing inappropriate in bringing the other four issues. Since it was necessary and reasonable to contend these issues, in the applicants' view, the fact that they were decided against the applicants should not disentitle them their costs. Further, the applicants contended that her Honour should not have weighted the issues by time in the proceedings as opposed to their significance in the outcome, in particular because the applicants' blamed the time taken on the number of witnesses called by the respondent.
4. The time taken to address the various issues in the trial is a matter that the primary judge was best placed to determine. It is not correct that the remarks of one Judge of Appeal about an issue, not joined in by the other members of the Court, imply that the applicants enjoyed success on the issue or that the result should be understood as "tied". The primary judge was correct that the applicants failed on the certificate of recognition issue, as they had failed at first instance on the issue and failed on appeal to overturn the primary judge's conclusion about the issue.
5. The issue of the time taken to address the various separable issues must be considered with the "added restraint" and "particular caution" on the part of an appellate court called for in McInnes v Rheem Australia Pty Ltd. The submission that the award of costs was "punitive" cannot be sustained. The decision of the primary judge proceeded in a conventional manner and correctly followed the relevant authorities.
6. No issue of principle, question of public importance, or reasonably clear injustice going beyond something that is merely arguable has been identified by the applicants.
7. Leave should be refused on proposed ground 3.

Proposed ground 4

1. Proposed ground 4 complains about the "assessment of the remedy" obtained by the applicants in circumstances where her Honour considered the potential amount claimable given the fluctuation in share price based on the timing of the award and not against the refusal by the respondents to consent to any relief.
2. The applicants suggested that the primary judge should not have determined their "success" by comparing the relief granted to the relief sought. They suggested that her Honour's approach was in tension with Michael Hill (No 2).
3. Although not clearly identified in the written submissions, it seems that the applicants' real complaint was that her Honour erred in principle by addressing the damages claim on the basis of its value depending on share price fluctuations.
4. We are not persuaded that the primary judge erred in addressing, for the purposes of costs, the value of the claim based on the share price at the award. There is no reason to think that the primary judge misunderstood this issue. As the primary judge said "while the plaintiffs succeeded on damages in the sense that a remedy was granted, it is difficult to view the result as a success given how high the plaintiffs "pitched" their case". The point being made by the primary judge in the paragraph complained of at [36] was that the result obtained by the applicants was "some distance from the plaintiffs' claim" and that by reason of the failure of most aspects of the damages claim, her Honour "struggled to see the result on the issue of damages as one which the plaintiffs succeeded in the true sense of the word". We do not discern any House v The King error in this highly fact dependant conclusion.
5. No issue of principle, question of public importance, or reasonably clear injustice going beyond something that is merely arguable has been identified by the applicants.
6. Leave should be refused on proposed ground 4.

Conclusion

1. The primary judge correctly applied the relevant principles in relation to the award of costs in cases involving separable issues where there was a mixed outcome in proceedings. There is no issue of principle, question of public importance, or reasonably clear injustice going beyond something that is merely arguable.

Orders

1. For the foregoing reasons we make the following orders: 1. Leave to appeal refused. 2. Applicants to pay the respondents' costs of the application for leave to appeal.

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