On 26 October 2023, the Court gave judgment in this matter in favour of the plaintiffs in the amount that they had claimed was owing under a share sale agreement dated 24 September 2019 (the SSA) and ordered that the defendant pay the plaintiffs' costs of the proceedings: see Grant Reid Wilson as trustee for G&L Wilson Family Trust v QBT Pty Limited [2023] NSWSC 1255.
By notices of motion filed on 8 November 2023, the plaintiffs and the defendant seek orders setting aside the order in relation to costs.
The plaintiffs, relying on a formal offer of compromise served in accordance with Uniform Civil Procedure Rules 2005 (NSW) (UCPR) r 20.26, seek an order under UCPR r 42.14 that the defendant pay their costs on an indemnity basis from 29 March 2023 (the day after the offer of compromise was made).
The defendant, relying on the fact that the plaintiffs failed on a claim of unconscionable conduct and on a claim that the defendant had breached a term of the SSA which in effect required the parties to cooperate to obtain the consent of a third party to the transfer of control of shares in a company indirectly acquired by the plaintiffs as a result of the SSA.
This judgment is concerned with those issues.
UCPR r 42.1 provides:
Subject to this Part, if the court makes any order as to costs, the court is to order that the costs follow the event unless it appears to the court that some other order should be made as to the whole or any part of the costs.
One case where a Court might make some other order is where an otherwise successful party failed on matters that were either the dominant issue in the case or were clearly separable from the matters on which the party succeeded: see Sze Tu v Lowe (No 2) [2015] NSWCA 91 at [40]-[41] per Gleeson JA (with whom Meagher and Barrett JJA agreed); Elite Protective Personnel Pty Ltd v Salmon (No 2) [2007] NSWCA 373; Bostik Australia Pty Ltd v Liddiard (No 2) [2009] NSWCA 304 at [38].
Grant Reid Wilson atf G&L Wilson Family Trust v QBT Pty Limited [2024] NSWSC 62 | Case summary | Zoe
In the present case, the defendant submits that the questions on which the plaintiffs failed - whether the defendant had engaged in unconscionable conduct or had breached a term of the SSA by failing to obtain third party consent to the change in control or by the way in which it went about seeking that consent - were clearly separable from the question on which the plaintiffs primarily succeeded - namely, whether on the correct construction of the SSA the third party's consent to the change in control was required. The defendant's principal position is that in those circumstances it should have its costs of the claims that failed and that the plaintiffs should have their costs of the claim that succeeded.
The evidence from the solicitor for the defendant is that the bulk of the defendant's costs related to the defence of the claims based on unconscionable conduct and breach of contract. Consequently, the net effect of the orders sought by the defendant is that the plaintiffs are likely to have to bear a proportion of the defendant's costs of the proceedings. In my opinion, that outcome would be unreasonable. It is not suggested that the plaintiffs acted improperly in bringing the claims that they did. They were wholly successful in recovering the amount they claimed. It would be unreasonable if they ended up having to pay part of the defendant's costs of the proceedings in those circumstances.
The question remains whether the plaintiffs' costs should be reduced to take account of the fact that they were unsuccessful in relation to two of their claims. I have concluded that there should be some reduction in costs to reflect that fact.
I accept that a plaintiff who has acted reasonably and has been wholly successful in its claim should generally recover all its costs. But here, the causes of action on which the plaintiffs failed were quite distinct from their principal claim, on which they succeeded. The majority of the parties' costs at least up until the hearing related to the causes of action on which the plaintiffs failed. In those circumstances, it is appropriate that there be some reduction in the plaintiffs' costs.
The plaintiffs submitted that if the Court concluded some reduction was appropriate, then an appropriate percentage would be 30 percent. The defendants submitted a greater percentage was appropriate having regard to the proportion of costs that were referrable to the failed causes of action.
I accept the plaintiffs' submission. As the plaintiffs point out, some of the evidence relevant to the causes of action that failed was relevant to the circumstances surrounding entry into the SSA, which was relevant to the claim that succeeded. Moreover, it is appropriate that any apportionment reflect the fact that the plaintiffs were wholly successful in recovering the amount that they claimed.
There was a further complication in this case arising from the fact that on the second day of the hearing, following questions from the Bench on the first day, the plaintiffs sought to amend their claim to plead that third party consent to the indirect transfer of control of the shares had been given. In my final judgment, I concluded that the amendments should be allowed and that the amended claim should succeed. Relevant to the conclusion that the amendment should be allowed was the extensive factual evidence that the parties had led on the causes of action that failed. I have concluded that this should be regarded as a neutral factor in relation to costs. On the one hand, it might be said that it made the evidence relevant to a claim on which the plaintiff succeeded. On the other hand, it appears to be unfair for the plaintiffs to recover all the costs of preparing that evidence when it was only prepared for the purposes of claims that failed.
That leaves the formal offer compromise.
UCPR r 42.14 provides in relation to an offer of compromise made in accordance with UCPR r 20.26 the following:
Where offer not accepted and judgment no less favourable to plaintiff(cf SCR Part 52A, rule 22; DCR Part 39A, rule 25)
(1) This rule applies if the offer is made by the plaintiff, but not accepted by the defendant, and the plaintiff obtains an order or judgment on the claim no less favourable to the plaintiff than the terms of the offer.
(2) Unless the court orders otherwise, the plaintiff is entitled to an order against the defendant for the plaintiff's costs in respect of the claim:
(a) assessed on the ordinary basis up to the time from which those costs are to be assessed on an indemnity basis under paragraph (b), and
(b) assessed on an indemnity basis:
(i) if the offer was made before the first day of the trial, as from the beginning of the day following the day on which the offer was made, and
(ii) if the offer was made on or after the first day of the trial, as from 11 am on the day following the day on which the offer was made.
It is now common ground that the requirements of UCPR r 42.14 have been satisfied so that the plaintiffs are entitled to an order for indemnity costs from 29 March 2023. The only question is whether that order should apply irrespective of any conclusion in relation to the apportionment of costs or whether the conclusion in relation to the apportionment of costs should also apply to costs incurred after 29 March 2023. On the former approach, the plaintiffs would be entitled to all their costs on an indemnity basis from 29 March 2023. On the latter approach, the plaintiffs would be entitled to 70 percent of their costs on an indemnity basis from 29 March 2023.
In my opinion, the latter approach is the correct one. UCPR r 42.14 does not identify what costs are recoverable but simply sets out the basis on which recoverable costs (whatever they are) are to be assessed. In the present case, I have concluded that the plaintiffs should not recover costs in respect of all the work that they did because a substantial proportion of those costs related to distinct claims that failed. I have chosen a reduction of 30 percent to reflect both the amount of work that was relevant to the claims that failed but also to give appropriate weight to the principle that a wholly successful plaintiff who has acted reasonably should recover its costs of the proceedings. That reasoning applies equally to costs incurred after as well as costs incurred before the offer of compromise was made. UCPR r 42.14 only provides for the recovery of recoverable costs on an indemnity basis. It does not make costs that are otherwise not recoverable recoverable on an indemnity basis.
The plaintiffs have been successful in seeking an order for indemnity costs based on their offer of compromise. The parties have enjoyed mixed success in relation to the question whether there should be some apportionment of costs, although the order I propose to make is consistent with the alternative order proposed by the plaintiffs. It is not practical to separate out the costs of the two motions. In the circumstances, it seems to me appropriate to order that the defendant pay 70 percent of the plaintiffs' costs of the two motions.
Accordingly, the orders of the Court are:
1. Vacate order 6 of the orders entered on 26 October 2023;
2. Subject to order (3), order that the defendant pay 70 percent of the plaintiffs' costs of the proceedings as agreed or assessed on the ordinary basis up to 28 March 2023 and on an indemnity basis on and from 29 March 2023;
3. Order that the defendant pay 70 percent of the plaintiffs' costs of the notices of motion filed on 8 November 2023 as agreed or assessed on the ordinary basis.
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Decision last updated: 07 February 2024