Galafassi v Kelly

Costs of the appeal 7At [205] of the principal reasons Gleeson JA indicated his view (with the concurrence of Bathurst CJ and Ward JA) that the appellants should pay 65% of the respondent's costs of the appeal. This provisional view was subject to affording the parties the opportunity to make further written submissions on costs, in the event that agreement could not be reached. The parties did not agree and the Court has now received those submissions. 8The appellants are content to accept the costs order proposed at [205] of the principal reasons. They say that such an order would properly reflect the fact that, because the respondent was awarded special condition interest in the amount of $196,225 in the judgment below, the appellants would, in any event, have been forced to appeal the judgment to recover the amount of the overpayment and would have been successful in doing so. 9The respondent says that costs should follow the event. The relevant "event" was characterised as the respondent's success on the substantive dispute as to whether the respondent's termination of the contract was lawful, together with the findings in her favour with respect to three of the four remaining issues. The respondent says that the sole ground upon which the appellants succeeded did not occupy a significant part of the hearing or the appellants' written submissions. 10The respondent contends that the Court should not embark on the task of apportionment at all and the appellants should pay the respondent's costs of the appeal without qualification. 11Alternatively the respondent contends that the appellants should receive no more than the reasonable costs attributable to the issue of special condition interest. The respondent says that those costs could be no more than 5%.

Consideration 12The starting position is s 98 of the Civil Procedure Act 2005 (NSW) which provides that, subject to the rules of court, costs are in the discretion of the Court including, by whom, to whom, and to what extent costs are to be paid. Next, reference should be made to the Uniform Civil Procedure Rules 2005 (NSW) r 42.1 which provides that, if the Court makes any order as to costs, it should be in terms that costs follow the event unless the circumstances justify some other order. 13Here, if one looks at the appeal, there were multiple issues and a number of "events". The appellants were successful in setting aside the award of special condition interest, but were otherwise unsuccessful on all other issues in the appeal The sole issue on which the appellants succeeded did not occupy a significant part of the hearing time and/or of the appellants' written submissions. Nonetheless the appeal was necessary to set aside the judgment below (insofar as it included this amount) and to recover so much of the overpayment which had been made by the appellants to the respondent. For these reasons it would not be appropriate, as the respondent contends, that the appellants be ordered to pay the respondent's costs of the appeal without qualification. Some allowance should be made for the appellants' successful ground of appeal which reduced the judgment by $196,225. 14The question is how the appellants' limited success should be properly reflected in the costs order on appeal. In the circumstances of this appeal it is preferable to make a costs order which is the result of an overall assessment, reflecting the respective successes of the parties on appeal, rather than separate orders directed to specific issues on which one or other of the parties was successful. A global view of the outcome of the proceedings should be taken, rather than a more particular approach in the sense of the amount of time, effort and general lawyer hours spent on the issue on which the appellants succeeded: Waters v P C Henderson (Australia) Pty Ltd [1994] NSWCA 338; 254 ALR 328 at 331 (Priestley JA). 15Taking account of the respondent's overall success on the appeal on the main issue of whether the respondent's termination of the contract was lawful, and its success on three of the four remaining issues, but also the fact that the appellants' success on the special condition interest issue translated into a reduction in the judgment below, we are persuaded that we should depart from the preliminary view expressed at [205] of the principal reasons. The appropriate order in the present case is that the appellants pay 90% of the respondent's costs of the appeal.

Costs in the Court below 16The appellants submit that the costs order in favour of the respondent/plaintiff at trial should be set aside and, in lieu thereof, the defendants should pay 65% of the plaintiff's costs of the trial. 17In support of that position the appellants say that the plaintiff's claim at trial (by including special condition interest) exceeded what the plaintiff was entitled to by a substantial amount. They contend that it was necessary for the defendants to defend the proceedings and, as this Court has found, the primary judge should have upheld their arguments in relation to special condition interest. The proposed costs order is said to properly reflect the partial success which the appellants should have achieved on the issues contested at the trial. 18The respondent says that the costs order below should not be disturbed, as the amount of time occupied by the issue of special condition interest below was inconsequential.

Consideration 19The costs position below must now be assessed as if the result before the primary judge had been as this Court has found. Nonetheless, where an appeal is allowed in respect of a discrete issue, but is otherwise unsuccessful, it does not follow that the same costs result on appeal should follow in the Court below. The present case is a good example. 20It cannot be said that the issue of special condition interest was a dominant or severable issue in the Court below. It was bound up with the issue of land tax, on which the appellants were unsuccessful. Both those issues occupied very little time in the parties' written or oral submissions at trial. No reason has been shown to depart from the general rule that costs follow the event, notwithstanding the mere fact of failure on a particular point by the party enjoying overall success at trial: Tim Barr Pty Ltd v Narui Gold Coast Pty Ltd [2010] NSWSC 1106 at [32] (Barrett J). We are not persuaded that this Court should vary the costs orders below.

Interest on costs 21The respondent seeks an order that the appellants pay interest on the respondent's costs of the appeal pursuant to s 101(4) of the Civil Procedure Act. Section 101 relevantly provides: "... (4) The court may order that interest is to be paid on any amount payable under an order for the payment of costs. (5) Interest under subsection (4) is to be calculated, at the prescribed rate or at such other rate as the court may order, as from: (a) the date or dates on which the costs concerned were paid, or (b) such later date as the court may order." 22The principle upon which the claim for interest on costs is to be determined is that interest is intended to be compensatory, on the basis that the person entitled to costs has been wrongly required to spend money on litigation to enforce established rights: Doppstadt Australia Pty Ltd v Lovick & Son Developments Pty Ltd [2014] NSWCA 158 at [403] (Gleeson JA; Ward and Emmett JJA agreeing), where it was said that: "In the absence of any countervailing discretionary factor, it is appropriate that an order for interest on costs be made to compensate the party having the benefit of a costs order for being out of pocket in respect of the costs it has paid. There is no requirement to establish that the circumstances of the case are out of the ordinary." (See Lahoud v Lahoud [2006] NSWSC 126 at [83], and Drummond & Rosen Pty Ltd v Easey & Ors (No 2) [2009] NSWCA 331 at [4].) 23Nonetheless, the power to award interest on costs is discretionary and some positive case must be made in support of the application: Illawarra Hotel Company Pty Ltd v Walton Construction Pty Ltd (No 2) (Illawarra Hotel) [2013] NSWCA 211; 84 NSWLR 436 at [36] (Meagher, Barrett and Ward JJA). Here there is no suggestion that the appeal proceedings were protracted. The notice of appeal was filed on 25 June 2013. The respondent served its written submissions in November 2013 and the appeal was heard over two days in March of this year. It may be inferred that the bulk of the respondent's costs must necessarily have been incurred very recently in the preparation and hearing of the appeal. In all the circumstances it is not an appropriate case for the awarding of interest on costs. 24The above conclusion makes it unnecessary to consider the respondent's submission that evidence of the costs having been paid is unnecessary, citing the decision of Campbell J (as his Honour then was) in Lahoud v Lahoud at [80]-[81]. It is sufficient to note that the respondent's written submissions did not refer to later authorities in this Court which have considered this issue. 25In Illawarra Hotel at [38], this Court said that "a party who contends that there should be an order for interest on costs must do more than point to the fact that the proceedings were protracted and that it had to outlay moneys on its own costs over a long period". On the other hand in Drummond & Rosen Pty Ltd v Easey & Ors (No 2) at [3]-[4], this Court, differently constituted, said that ordinarily there should be an order for interest on costs. In DSG Holdings Pty Ltd v Hellenic Pty Ltd (No 2) [2014] NSWCA 142 at [5] the apparent conflict in the authorities in this Court was noted but was unnecessary to resolve on the facts. In this case, it is also unnecessary to say anything further as the issue was not fully argued and the absence of evidence of costs having been paid (and when) was not determinative of the application for interest on costs. The respondent has simply failed to make out that this is an appropriate case to so order.

Order 26Accordingly the Court orders that: (1)The respondent repay to the appellants the sum of $74,515.77. (2)The appellants pay 90% of the respondent's costs of the appeal.

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 July 2014