Howards Storage World Pty Ltd v Haviv Holdings Pty Ltd

Federal Court of Australia (Full Court)|2010-02-08|Before: Ms J, Edmonds JJ, Gray J

BACKGROUND TO THE SUBSTANTIVE JUDGMENT 31 The relevant facts are summarised in [2] - [4] of the reasons in the substantive judgment: [2] Howards Storage World is a specialty retailer of household storage items. The franchise agreement, made on 18 July 2002 between Howards Storage World Pty Ltd (HSW) (as franchisor) and Haviv Holdings Pty Limited (Haviv) (as franchisee), related to a Howards Storage World business in a store within the Westfield shopping centre at Burwood (the Burwood store). Paul Aghion is a director of Haviv and negotiated the franchise agreement on Haviv's behalf. Plaza Home-Imports Pty Ltd (Plaza) is a company related to HSW, initially proposed to be the franchisor and subsequently responsible for the supply of products to Haviv under the franchise agreement. Dirk Spence is a director of HSW and Plaza. He is responsible for the day-to-day operations of both companies and negotiated the franchise agreement on their behalf. [3] By the franchise agreement HSW granted to Haviv an exclusive franchise territory for a radius of 5 kilometres around the Burwood store. However, in August 2004 HSW entered into another franchise agreement for a Howards Storage World business in a store within the Rhodes shopping centre (the Rhodes store). The Rhodes store, and indeed the whole of the Rhodes shopping centre, is within the exclusive franchise territory HSW granted to Haviv (the Rhodes store being between 4837 and 4843 metres from the Burwood store). Haviv vacated the Burwood store on 17 August 2007 leaving it to HSW to operate. Haviv and HSW each purported to terminate the franchise agreement in early 2008, some three years after the opening of the Rhodes store in late November 2004. [4] Haviv claimed to have suffered loss and damage by reason of HSW's breach of the franchise agreement (the contract claims). Haviv and Mr Aghion also claimed to have suffered loss and damage by reason of two representations by HSW and Plaza allegedly in breach of the Trade Practices Act 1974 (Cth) concerning: - (i) the true position with respect to Haviv's exclusive franchise territory, and (ii) the lack of any financial benefit to Plaza for the supply of goods to Haviv (the trade practices claims). Haviv and Mr Aghion claimed further that Mr Spence is liable as an accessory of HSW and Plaza with respect to the trade practices claims. 32 The primary judge found that the first appellant ('HSW') had breached the contractual promise of an exclusive franchise territory which it gave the first respondent ('Haviv Holdings') in the franchise agreement by granting the franchise for, and permitting the operation of, the Rhodes store. Her Honour was satisfied that Haviv Holdings suffered loss caused by HSW's breach of the franchise agreement. The claims made by both respondents under the Trade Practices Act 1974 (Cth) ('Trade Practices Act') against all three appellants were not accepted by her Honour.

The Submissions Below 33 Before the primary judge, the respondents submitted that there were no special circumstances justifying the displacement of the ordinary principle that costs follow the event. As for the rejected Trade Practices claims, it was submitted that as these claims were based on the same substratum of facts as the breach of franchise agreement claim, the failure of the claims should not affect the award of costs. The respondents did, however, accept that the two claims abandoned at the hearing (with respect to rebates and GST) should be excluded from any costs order in their favour. 34 The appellants submitted to the primary judge that: (i) Haviv Holdings should pay each of the second and third appellants ('Plaza' and 'Spence' respectively) one third of the appellants' total costs; (ii) the second respondent ('Aghion') should pay the appellants one third of the appellants' total costs; and (iii) as between Haviv Holdings and HSW, each party should pay its own costs or HSW should pay one half of Haviv Holdings' costs. The appellants relied on the 'rule of thumb' as described in Currabubula Holdings Pty Ltd v State Bank of New South Wales [2000] NSWSC 232 at [89] - [95]. From the outset, the primary judge observed that the practical effect of the appellants' submissions was that the appellants would obtain orders entitling them to claim all of their costs from one or other of the respondents: [16]. The appellants were in fact claiming the usual order as to costs in their favour despite the fact that Haviv Holdings succeeded in obtaining a substantial award for damages on its claim for breach of the franchise agreement.

The Primary Judge 35 The relationship between the parties and the causes of action in the present case was outlined in [18] - [24] of her Honour's reasons: [18] I do not have any evidence about the arrangements between the parties and their respective solicitors with respect to their joint or individual liability to pay costs (be it their own costs or that of any opposing party). However, I do know the following matters: - (i) Mr Aghion is a director of Haviv and hence the applicants are related in that sense, and were represented by a single solicitor, (ii) HSW and Plaza are related companies forming part of a group of companies which is managed as a group, (iii) Mr Spence is a director of HSW and Plaza, and (iv) hence, HSW, Plaza and Mr Spence are related in that sense, and were also represented by a single solicitor. Nothing I have said is intended to undermine the fact (emphasised by the respondents) that corporations have separate legal identities. Nevertheless, when dealing with a discretionary issue such as costs, it is relevant to consider the relationships between the parties and whether they share a common interest or not. [19] I also know that: - (i) Mr Aghion negotiated the franchise agreement for Haviv, (ii) Mr Spence negotiated the franchise agreement, first, for Plaza and, second, for HSW, after a corporate restructuring of the group, and (iii) Mr Spence decided to grant the franchise agreement for the Rhodes store in breach of the contractual promise that Haviv would enjoy an exclusive franchise territory within a certain area. [20] The principal causes of action in the proceeding may be described as follows: - (i) Haviv claimed damages against HSW for breach of the provisions of the franchise agreement relating to Haviv's exclusive territory, and (ii) Haviv and Mr Aghion claimed damages from HSW and Plaza for breach of the Trade Practices Act in respect of allegedly misleading and deceptive conduct about Haviv's exclusive franchise territory. [21] Importantly, from the outset of the hearing (and, indeed, from the evidence as filed) it was clear that the quantum of damage claimed by Haviv against HSW for the breach of the franchise agreement was the same as the quantum claimed by Haviv and Mr Aghion against HSW and Plaza for the allegedly misleading and deceptive representations about Haviv's exclusive franchise territory. Further, and as disclosed in [2] of my principal reasons, Plaza was initially proposed to be the franchisor under the franchise agreement and thus all negotiations before the restructure of the group of companies of which Plaza and HSW form part involved Mr Spence on behalf of Plaza. The restructure occurred before the franchise agreement was signed with the result that HSW, not Plaza, was the contracting party to the franchise agreement. [22] The subsidiary causes of action in the proceeding were that: - (i) Haviv and Mr Aghion claimed damages from HSW and Plaza for breach of the Trade Practices Actin respect of alleged misleading and deceptive conduct about Plaza's entitlement to financial benefits from the supply of goods to Haviv under the franchise agreement; these damages, unlike the damages sought under the principal causes of action, were additional damages, and (ii) Haviv and Mr Aghion claimed that Mr Spence was liable as an accessory in respect of all of the claims under the Trade Practices Act. [23] I have characterised the causes of action as "principal' and "subsidiary" based on my evaluation of the importance of the claims in the context of the overall proceeding, the amount and nature of the evidence relevant to the claims, the time taken in the proceeding to deal with the claims, and the nature of the relief sought. This characterisation, I note, generally accords with the way in which I dealt with the claims in my principal reasons. [24] As HSW ultimately admitted the breach of the franchise agreement, the majority of the principal reasons concerned the many issues arising on the evidence and submissions relating to the assessment of damages (at [6]-[87]). While I did not accept all of Haviv's case on damages, I also did not accept HSW's case that Haviv had suffered no or minimal loss. Haviv succeeded in obtaining a substantial order for damages. I dealt with the trade practices claims in [88] - [108] and Mr Spence's accessorial liability in [109] of the principal reasons. Haviv and Mr Aghion failed on all the trade practices claims. 36 At [25] - [29] the primary judge considered the utility and suitability of applying the 'rule of thumb' in the circumstances described above. The present case was not an 'ordinary or straightforward' case in which to apply the rule of thumb as between successful and unsuccessful respondents to ensure the costs were not unfairly borne. Further, her Honour did not accept that the rule had application to the present case which involved multiple applicants, respondents and claims, both as a matter of principle (for the reasons given by Einstein J in Currabubula) and on the facts of the present case: [28] and [29]. 37 Notwithstanding, her Honour recognised that the usual order as to costs, save for the two claims which the respondents abandoned at the start of the proceeding, was also not appropriate: [34]. Such an order would fail to recognise that: (i) the respondents simply abandoned two claims at the start of the hearing (after the appellants incurred costs in meeting those claims); (ii) the respondents succeeded in obtaining an award of damages by reason only of the breach of the franchise agreement claim, and (iii) the respondents failed against Plaza and Spence. 38 In relation to the abandoned claims, her Honour observed that due to the 'proper demands of the community for greater economy and efficiency in the conduct of litigation' (Dodds Family Investments Pty Ltd (formerly Solar Tint Pty Ltd) v Lane Industries Pty Ltd (1993) 26 IPR 261 at 272), the appellants should have the benefit of an order for costs in their favour in relation to these claims: [35]. 39 Her Honour, at [36] - [39], sought to identify whether the two Trade Practices claims pursued by the respondents, which were ultimately rejected, were clearly dominant or separable so as to warrant displacement of the usual order as to costs in the respondents' favour. The evidence for the exclusive territory representation could not be fairly described as dominant or separable in the context of the proceeding as a whole and therefore could not provide a basis for the displacement of the ordinary principle: [37]. 40 The position was not as straightforward in relation to the financial benefits representation. This issue was not clearly dominant in terms of the amount of evidence or the time taken at the hearing. It was, however, clearly separable. As the respondents were unsuccessful with respect to this discrete issue, her Honour was of the opinion that departure from the usual order as to costs was appropriate. In common with the abandoned claims, the respondents should be compensated for their successful defence of this claim: [38]. 41 Subject to the above considerations, her Honour concluded at [40] that the present respondents should have the benefit of an order for costs against HSW. At [41], her Honour concluded it would be impossible for her to attempt to synthesise all of her conclusions and impose a percentage apportionment and that the fairest course was for the orders to be framed by reference to the claims, with the actual apportionment to be left to taxation. 42 The primary judge then made the following orders in relation to costs: 1. Subject to the orders below, the first [appellant] is to pay the [respondents'] costs of the proceeding as agreed or taxed. 2. The [appellants] are to pay any costs incurred by the [respondents] by reason of the adjournment of the hearing on 30 October 2008 as agreed or taxed. 3. The [respondents] are to pay the [appellants'] costs of the proceeding as agreed or taxed insofar only as those costs were incurred in relation to the claims that: (a) the second [appellant] received rebates and other financial benefits from the supply of goods as set out in paragraph 27 of the statement of claim; and (b) the first [respondent] overpaid GST as set out in paragraphs 39 to 46 of the statement of claim. 4. The [respondents] are to pay the costs of the second and third [appellants] as agreed or taxed but only insofar as such costs were incurred solely by reason of the joinder of those parties to the proceeding (and, for the avoidance of doubt, such costs are not to include any costs jointly incurred by the [appellants]).

AMENDED NOTICE OF APPEAL 43 On the hearing of the appeal, the appellants sought leave to file and rely on an amended notice of appeal. The amended notice of appeal contained a further ground of appeal and included minor amendments to the remaining grounds. Leave was not opposed by the respondents and was granted.

GROUNDS OF APPEAL 44 On the hearing of the appeal, the appellants relied on the following grounds: 1. (a) The primary judge, in exercising the discretion as to costs, erred in principle by ordering that HSW pay Aghion's costs of the proceeding; (b) The primary judge, in exercising the discretion as to costs, erred in principle in not ordering that Aghion pay the appellants' costs related to Aghion's claim against the appellants. 2. The primary judge, in exercising the discretion as to costs in accordance with principle, ought to have ordered that the respondents pay Plaza and Spence's costs of the proceeding. 3. The primary judge, in exercising the discretion as to costs in accordance with principle, ought to have: (a) held that the costs payable to Plaza and Spence as contended in the second ground of appeal be determined on the premise that each of the three appellants was proportionately responsible and liable for the appellants' joint costs of mounting the appellants' defences; and (b) ordered that the respondents pay each of Plaza and Spence one third of the appellants' joint costs of the proceedings. 4. The primary judge, in exercising the discretion as to costs in accordance with principle, ought to have ordered that HSW pay Haviv Holdings one third of the total costs of both respondents (such total costs to exclude those disallowed by the primary judge in Order 3). The fifth ground in the amended notice of appeal was not pressed on the hearing of the appeal. 45 The appellants seek the following orders in lieu of the orders made by the primary judge: (1) Haviv Holdings pay Plaza and Spence's costs of the proceedings below. (2) The costs payable pursuant to (1) be, in the case of each of Plaza and Spence, one third of the total costs of the appellants. (3) HSW pay Haviv Holdings' costs of the proceedings below, being one third of the total costs of the respondents. (4) Unless otherwise payable under order (1), the respondents pay the appellants' costs of the proceeding insofar as those costs were incurred in relation to the claims that: (a) Plaza received rebates and other financial benefits from the supply of goods as set out in para 27 of the statement of claim; and (b) Haviv Holdings overpaid GST as set out in paras 39 - 46 of the statement of claim. (5) The total costs referred to in (3), part of which are recoverable by Haviv Holdings from HSW pursuant to (3) above, are not to include the costs of the matters referred to in (4) above. (6) Aghion to pay the appellants' costs exclusively related to Aghion's claim against them.

Appellants' Submissions 46 The appellants submitted that as Aghion failed completely against all three appellants, the primary judge erred in ordering that HSW pay the costs of both Haviv Holdings and Aghion. 'It is a general rule that a wholly successful defendant should receive his costs unless good reason is shown to the contrary': Milne v Attorney General (Tas) (1956) 95 CLR 460 at 477; Ruddock v Vadarlis (No 2) (2001) 115 FCR 229 at [35]. Only in the most extraordinary circumstances would a court order a successful respondent to pay the costs of an unsuccessful applicant. No such circumstances arose in this case and therefore the order made by the primary judge does not conform to the principled exercise of the Court's discretion. The order is unreasonable and plainly unjust: cf, House v R (1936) 55 CLR 499 at 505. 47 The appellants further submitted that Aghion, given the rejection of his claims, should pay the appellants' costs related to his claim against them. Absent a finding of any disentitling conduct on behalf of the appellants, it was an error of law to depart from the usual course that costs follow the event.

Respondents' Submissions 48 The respondents submitted that the appellants' approach is equivalent to the imposition of a rigid rule as to the award of costs without allowance for the individual circumstances of each case. The relevant circumstances in this case were: (i) costs order 1 was in favour of both respondents, not just the second respondent; (ii) the primary judge found that the respondents could be considered as one for the purpose of costs (including those payable by them); (iii) costs order 1 is expressed to be subject to other costs orders; and (iv) even if the second respondent had any separate costs in relation to the remaining Trade Practices claim (the exclusive territory representation claim), they did not warrant separate treatment. Further, in relation to ground 1(b) of the amended notice of appeal, the respondents drew the Court's attention to the primary judge's order that Aghion pay the appellants' costs related to two of his three claims against the appellants (see costs order 3) and that costs order 4 requires both respondents to pay Plaza and Spence's costs insofar as those costs were incurred solely by reason of their joinder. Accordingly, the order accords with the principled exercise of discretion and in all the circumstances does not produce a result that is unreasonable or unjust.

Appellants' Submissions 49 The appellants submitted that the primary judge erred in limiting Plaza and Spence's recovery of costs to those incurred solely by reason of joinder, notwithstanding that all claims by the respondents against Plaza and Spence failed completely. There is no basis in principle for depriving them of their costs and the primary judge's application of the principles in Currabubula was incorrect. Given that the primary judge concluded that 'the question of the quantum of damage … was by far the most significant issue in the proceeding in terms of both evidence and hearing time', it would be factually wrong to conclude that the application of the rule of thumb in the present case, as her Honour did, would 'fly in the teeth of the generally accepted principle … "that a successful party is to be recompensed the liability he has reasonably incurred in defending himself".' The circumstances of the present case cannot be characterised in such a way as to bring the case within the scope of the exception recognised in Korner v H Korner & Co Ltd [1951] Ch 10and Dansk Rekylriffel Syndikat Aktieselskab v Snell [1908] 2 Ch 127. Her Honour, therefore, erred in principle in concluding that Plaza and Spence were not entitled to their proportionate share of costs.

Respondents' Submissions 50 The respondents submitted that it is incorrect to suggest that Plaza and Spence will receive only their costs referable solely to their joinder. Rather, in addition to the costs related to their joinder, Plaza and Spence are to receive their costs of the rebate and financial benefits representations claims: costs order 3 and [35] and [38] - [39] of her Honour's reasons. The primary judge's approach to the costs of the Trade Practices claims was in accordance with the principles pronounced in Dodds Family Investments and Elite Protective Personnel Pty Ltd & Anor v Salmon (No 2) [2007] NSWCA 373. The orders appropriately reflected Haviv Holdings' success on the exclusive territory claim, which was its primary claim. 51 In relation to the third ground of appeal, to the extent that a 'rule of thumb' is to be applied, it is only to be applied in an ordinary and straightforward case and where it would not produce an unjust result: Korner at 17 - 18. It was submitted that the primary judge was correct in her rejection of the application of the 'rule of thumb' to the present case on the basis that it did not achieve a just result and that the present case involved multiple applicants, respondents and claims and was therefore not the kind of ordinary or straightforward case to which it was convenient to apply the rule of thumb. 52 The appellants' approach would see the respondents subsidise HSW's costs of its unsuccessful defence of the claim for breach of contract. Further, insofar as the rule of thumb depends on the presumption that defendants will have several liability for their costs, the primary judge had reason not to adopt such a presumption in this case due to the relationships between the parties.

Appellants' Submissions 53 The appellants submitted that, in accordance with Einstein J's decision in Currabubula at [95], the partially successful applicant is prevented from looking to each of the unsuccessful defendants for more than an equal proportionate share of the costs (not being costs solely referrable to the applicant's case against one or other of the defendants individually). 54 By ordering HSW to pay all of Haviv Holdings' costs, the primary judge has created a situation where HSW is required to pay Haviv Holdings' costs in unsuccessfully pursuing its claim in the quantum of in excess of $7 million against Plaza and Spence. There is nothing in Dansk and Korner to support this conclusion.

Respondents' Submissions 55 The respondents submitted that the extension of the rule of thumb to the apportionment of costs between multiple applicants, as contended for by the appellants in this ground of appeal, should not be accepted by the Court. Even if the rule of thumb can apply to one of multiple applicants, the Court is not bound to apply it in that or any other circumstance: Korner at 17 - 18. 56 To uphold this approach would deprive Haviv Holdings of proper compensation for the cost of vindicating its rights, by reducing the costs it may recover to one third of the costs relating to its successful claim in the proceeding; such an outcome would be unjust. Further, the appellants' approach fails to take into account that each side can properly be treated as a single entity. 57 In addition, the appellants' submission that the primary judge has ordered HSW to pay all of Haviv Holdings' costs ignores the express wording of costs order 1. The order against HSW is expressly subject to the other costs orders. Costs orders 3(a) and (b) may account for more than 40% of the appellants' costs: [38] of her Honour's reasons below.

APPLICABLE LAW 58 Section 43(2) of the Federal Court of Australia Act 1976 (Cth) provides that '[e]xcept as provided by any other Act, the award of costs is in the discretion of the Court or Judge.' Like all discretions it must be exercised judicially and not against the successful party except for some reason connected with the case: Ruddock v Vardalis at 234. 59 In Hughes v Western Australia Cricket Association (1986) ATPR 40-748 at 48,136, Toohey J suggests that three principles as to the exercise of the discretion are evident from the cases: (1) Ordinarily, costs follow the event and a successful litigant receives his costs in the absence of special circumstances justifying some other order. (2) Where a litigant has succeeded only upon a portion of his claim, the circumstances may make it reasonable that he bear the expense of litigating that portion upon which it has failed. (3) A successful party who has failed on certain issues may not only be deprived of the costs of those issues but may be ordered as well to pay the other party's costs of them. In this sense, 'issue' does not mean a precise issue in the technical pleading sense but any disputed question of fact or law. 60 To these considerations, the Court in Dodds added the following observations (at 271 - 272): The propositions enunciated in that case are subject to the further consideration that justice may not be served if parties are dissuaded by the risk of costs from canvassing all issues which might be material to the decision in the case… … Where there is a mixed outcome in proceedings, the question of apportionment is very much a matter of discretion for the trial judge. Mathematical precision is illusory and the exercise of the discretion will often depend upon matters of impression and evaluation. 61 In Oshlack v Richmond River Council (1998) 193 CLR 72, McHugh J, at 97, expanded on the justification for the general principle that costs follow the event: [S]ubject to certain limited exceptions, a successful party in litigation is entitled to an award of costs in its favour. The principle is grounded in reasons of fairness and policy … The primary purpose+-+e of an award of costs is to indemnify the successful party. If the litigation had not been brought, or defended, by the unsuccessful party the successful party would not have incurred the expense which it did. As between the parties, fairness dictates that the unsuccessful party typically bears the liability for the costs of the unsuccessful litigation. As a matter of policy, one beneficial by-product of this compensatory purpose may well be to instil in a party contemplating commencing, or defending, litigation a sober realisation of the potential financial expense involved. Large scale disregard of the principle of the usual order as to costs would inevitably lead to an increase in litigation with an increased, and often unnecessary, burden on the scarce resources of the publicly funded system of justice. These comments were cited with approval by Hayne J in Jeffery & Katauskas Pty Limited v SST Consulting Pty Ltd; Jeffery & Katauskas Pty Limited [2009] HCA 43at [55]. 62 The general rule, that costs follow the event, becomes somewhat complicated where there are multiple applicants or respondents who are variously successful and unsuccessful. In Currabubula, Einstein J recognised that one device that has been developed to overcome these difficulties is the principle of taxation called the 'rule of thumb': [95]. The 'rule of thumb' is that where a solicitor acts for more than one defendant, each defendant (if successful) is entitled to its proportion of the costs jointly incurred and any costs incurred solely on its behalf. At [95] Einstein J observed: These decisions reveal that the concern of the rule of thumb is to achieve substantial justice in the awarding of costs as between a partially successful plaintiff and variously successful and unsuccessful defendants. The rule operates upon the premise that defendants are proportionately responsible and liable for the joint costs involved in mounting the defence. Thus, a successful defendant cannot claim from the plaintiff more than a proportionate share of the joint costs of the action in addition to any costs separately referable to that defendant. Conversely, the partially successful plaintiff is prevented from looking to each of the unsuccessful defendants for more than an equal proportionate share of the costs not solely referrable to the plaintiff's case against one or other of the defendants individually, in addition to the costs which are so referable. In this way, the rule of thumb prevents both the unjust enrichment of the partially successful plaintiff or successful defendant and the casting of an unfair burden on the unsuccessful defendants. Where the premise is falsified or the rule does not achieve its intended effect, it finds no application. 63 Einstein J discussed two situations where the application of the 'rule of thumb' was inappropriate: Korner and Dansk. In Korner, the plaintiff had brought an action against eight defendants, but only succeeded against one. The issue on which the plaintiff was ultimately successful was the primary issue. Wynn-Parry J upheld the decision of the Taxing Master not to apply the rule of thumb because to apportion the costs equally in a situation where the issue on which the plaintiff was successful, was the most substantial issue and was distinct from the issues on which the plaintiff failed against the other defendants, was to apply the rule to achieve an unjust result. In Dansk, a plaintiff succeeded in his action against two defendants, but succeeded against one summarily and succeeded against the other after the trial of the action. Neville J held that in these circumstances it would be unjust to apportion the costs equally, for to do so would be to require the defendant who did not proceed to trial to bear the costs of the trial over which they had no control. Accordingly, Neville J altered the award of costs to require the Taxing Master to determine how much of the costs were incurred for the defendants jointly and how much were attributable to each defendant separately. 64 In Elite Protective Personnel,Beazley, McColl and Basten JJA discussed the apportionment of costs in these terms: [6] Where there are multiple issues in a case the Court generally does not attempt to differentiate between the issues on which the appellant was successful and those on which it failed. Unless a particular issue or group of issues is clearly dominant or separable it will 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: Waters v P C Henderson (Aust) Pty Ltd (Court of Appeal, 6 July 1994, unreported). [7] As the appellants submit, the commencing position is that costs follow the event so that a successful party is entitled to costs. In relation to trials it has been said that 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]). A similar approach is adopted in the Court of Appeal. If the appellant loses on a separate issue argued on the appeal which has increased the time taken in hearing the appeal, then a special order for costs may be appropriate which deprives the appellant of the costs of that issue: Sydney City Council v Geftlick & Ors (No 2) [2006] NSWCA 374 (at [27]).

ANALYSIS 65 The award of costs involves a discretionary, not a mathematical exercise. Review of such a discretionary exercise requires the identification of an error of the kind described in House v R. Dixon, Evatt & McTiernan JJ observed at 504 - 505: The manner in which an appeal against an exercise of discretion should be determined is governed by established principles. It is not enough that the judges composing the appellate court consider that, if they had been in the position of the primary judge, they would have taken a different course. It must appear that some error has been made in exercising the discretion. If the judge acts upon a wrong principle, if he allows extraneous or irrelevant matters to guide or affect him, if he mistakes the facts, if he does not take into account some material consideration, then his determination should be reviewed and the appellate court may exercise its own discretion in substitution for his if it has the materials for doing so. It may not appear how the primary judge has reached the result embodied in his order, but, if upon the facts it is unreasonable or plainly unjust, the appellate court may infer that in some way there has been a failure properly to exercise the discretion which the law reposes in the court of first instance. 66 The primary judge was in the best position to know how the trial ran, how the case was conducted and what might or might not have been any additional costs. The question is not, therefore, whether I would have made different orders as to costs. Rather, for the appeal to be allowed an error must be identified. 67 Her Honour was correct in identifying, at [17], that 'close attention to the circumstances of the individual case, part of which includes an evaluation of the real degrees of success and failure, is required' when awarding costs. An examination of the relationship between the parties is necessary to ensure that cost orders do not bring about a situation where a successful applicant winds up with a costs order against it and an unsuccessful applicant is awarded costs. The primary judge correctly identified that the relationship between the parties was such that the parties could be divided into groups; each side could properly be treated as a single entity. On the hearing of the appeal, the appellants did not challenge her Honour's description of the relationship between the parties. Rather, it was contended that her Honour did not rely on aggregation in awarding costs. I cannot accept this submission. The primary judge's reliance on the aggregation of the parties is evident from [32] of the reasons below: The difficulty with the second aspect of this submission is that it fails to give weight to the applicants' success in obtaining a substantial award of damages. (Emphasis added). Indeed, this is the principal difficulty with the appellants' appeal. Where the appellants sought to separate the parties, her Honour sought to aggregate the parties. This aggregation, which was open on the facts before the primary judge, shaped the way in which her Honour applied the principles described at [58] - [64] above to the present circumstances.

First Ground of Appeal 68 This ground of appeal concerned her Honour's apparent rejection of the principle that costs follow the event in ordering that HSW pay both respondents' costs despite Aghion failing in all of his three claims. Her Honour was perfectly aware of the general principle but for the reasons she gave, formed the opinion that the ordinary principle should not apply in the present circumstances. The effect of this order was not, as Counsel for the appellants' submitted, to give a 'free ride to a co-plaintiff [Aghion] who has failed entirely on matters different to those which his co-plaintiff [Haviv Holdings] succeeded on.' Not only was the first order as to costs made subject to other orders which recognise the necessity of compensating the appellants for abandoned claims but there are circumstances in this case that differentiate this from a simple case in which Aghion sued the three respondents and failed against all three of them. Given the nature of the relationship between the parties outlined at [67] above, an order against one respondent was tantamount to an order against the other. This order was consistent with her Honour's attempt to indemnify the successful party. As McHugh J identified in Oshlack, at 97, such indemnity is the primary purpose of an award of costs.

Second and Third Ground of Appeal 69 The second and third grounds of appeal concern the costs of Plaza and Spence and the applicability of the 'rule of thumb'. As the respondents submitted, the cost orders must be viewed together rather than isolation. When viewed together, it is apparent that Plaza and Spence will receive more than merely the costs referable solely to their joinder. In relation to the Trade Practices claims, I agree with her Honour's observation that the evidence for 'the exclusive territory representations … could not fairly be described as dominant or separable in the context of the proceeding as a whole' and therefore could not provide a basis for the displacement of the ordinary rule: Elite Protective Personnel at [6]. It was appropriate, therefore, that her Honour did not order that there should be any apportionment of costs on the basis that the appellants failed on the exclusive territory representations. 70 As for the applicability of the 'rule of thumb', it is evident from the cases referred to at [62] - [64] above that to the extent that a 'rule of thumb' is to be applied in apportioning costs, it is only to be applied in ordinary and straightforward cases. It is a convenient guide, rather than a rigid device to be applied irrespective of the individual circumstances. Mechanical application of the 'rule' without careful consideration of the individual circumstances could bring about the very injustice the rule is designed to remedy. The primary judge recognised, and I agree, that the present circumstances, with a multiplicity of parties and claims together with the nature of the relationships between the parties, are not the kind of ordinary or straightforward case to which it was convenient and appropriate to apply a 'rule of thumb' in the apportionment of costs.

Fourth Ground of Appeal 71 The appellants' submission on this ground of appeal once again ignored both the reality of the relationship between the parties and the totality of the orders made by her Honour. HSW was not ordered to pay the entire costs of Haviv Holdings. The order is expressly subject to the other costs orders. Indeed, as the respondents submitted, cost orders 3(a) and (b) may account for more than 40% of the appellants' costs: [38]. 72 As for whether the rule of thumb extends to situations involving successful and unsuccessful applications, I agree with the observations of Einstein J in Currabubula at [104] that: 'There is no logical reason why a defendant who is sued by several plaintiffs who are variously successful and unsuccessful should be in a more advantageous position qua joint costs … than would be an unsuccessful defendant sued by one successful plaintiff alone.' 73 Even if the 'rule of thumb' extends to situations involving multiple applicants, it would still be limited to situations where its application fulfils the purpose of the rule. In the present circumstances, the relationship of the parties and multiplicity of claims makes its application inappropriate.

CONCLUSION 74 The primary judge exercised her discretion to award costs in a judicial, principled and well-reasoned manner with reference to the relevant authorities. The appellants have been unable to identify an error in the primary judge's decision to award costs in the manner in which she did. The appellants' approach, if adopted, would unduly fetter the Court's discretion as to costs and produce an unjust result. 75 Accordingly, the appeal must be dismissed. The appellants must pay the respondents' costs of the appeal. I certify that the preceding forty-six (46) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Edmonds.

Trade Practices Act 1974(Cth)

The nature and history of the proceeding 1 The question in this appeal is whether the primary judge was in error in making the orders her Honour made in relation to the costs of the proceeding at first instance. The orders were made because of the peculiar circumstances of the parties to the case and the outcome of the proceeding at first instance. 2 There are three appellants, Howards Storage World Pty Limited ("Howards"), Plaza Home-Imports Pty Limited ("Plaza") and Dirk Spence. Howards and Plaza are related corporations. Mr Spence is a director of both. The respondents to the appeal are Haviv Holdings Pty Limited ("Haviv") and Paul Aghion. Mr Aghion is a director of Haviv. 3 In the proceeding at first instance, Haviv and Mr Aghion were the applicants. They sued in respect of a franchise agreement. In the initial negotiations for the franchise agreement, it was contemplated that Plaza would be the franchisor. When the franchise agreement was finalised, Howards was the franchisor. Plaza was responsible for the supply of products to Haviv under the franchise agreement. Mr Spence negotiated the franchise agreement on behalf of Plaza and Howards. Mr Aghion was the negotiator for Haviv. 4 Central to the proceeding at first instance were allegations that there were representations, or there was agreement, to the effect that Haviv would be the exclusive franchisee in an area within a radius of 5 kms around a particular store of Haviv. Subsequently, Howards granted another franchise within this radius. The causes of action on which Haviv and Mr Aghion relied were misleading and deceptive conduct, in contravention of s 52 of the Trade Practices Act 1974 (Cth) ("the Trade Practices Act"), and breach of contract. The claims made in the application were for declarations, injunctions, the payment of specified sums of money and damages, as well as for interest and costs. 5 On 18 March 2009, the primary judge delivered reasons for judgment, dealing with the substance of the case. Those reasons are published as Haviv Holdings Pty Limited v Howards Storage World Pty Ltd (2009) 254 ALR 273. On that occasion, her Honour adjourned the proceeding for further directions. On 7 May 2009, her Honour made some substantive orders. She granted a declaration that Howards had breached the franchise agreement by granting another franchise on a specified date. She ordered that Howards pay Haviv $591,983 in damages, plus interest. Except for the issue of costs, she dismissed the application otherwise. The effect of these orders, in light of her Honour's earlier reasons, was that Haviv succeeded only in its claim for breach of contract and only against Howards. Howards, Plaza and Mr Spence all succeeded in resisting the claims of Mr Aghion. Plaza and Mr Spence succeeded in resisting the claims of Haviv against them. 6 The question of costs was then argued. On 17 June 2009, the primary judge delivered judgment on that question and made orders. See Haviv Holdings Pty Limited v Howards Storage World Pty Limited (No 2) [2009] FCA 652. Her Honour made three specific orders as to costs. First, Howards, Plaza and Mr Spence were ordered to pay costs incurred by Haviv and Mr Aghion by reason of the adjournment of the hearing of the proceeding on 30 October 2008. Second, Haviv and Mr Aghion were ordered to pay the costs of Howards, Plaza and Mr Spence in so far as those costs were incurred in relation to two specific claims that had been abandoned by Haviv and Mr Aghion. Third, Haviv and Mr Aghion were also ordered to pay the costs of Plaza and Mr Spence, but only in so far as those costs were incurred solely by reason of the joinder of Plaza and Mr Spence to the proceeding. Such costs were not to include any costs jointly incurred by Howards, Plaza and Mr Spence. Subject to those specific orders, her Honour ordered Howards to pay the costs of the proceeding of both Haviv and Mr Aghion. 7 The power of the Court to award costs in a proceeding is conferred by s 43(1) of the Federal Court of Australia Act 1976 (Cth). Section 43(2) provides expressly that "the award of costs is in the discretion of the Court or Judge." This appeal is therefore from the primary judge's exercise of that discretion. It is not for this Full Court to ask itself what order it would, or might, have made in respect of costs. The principles on which an appeal from an exercise of discretion is to be dealt with are well understood. They are set out in a passage in the judgment of Dixon, Evatt and McTiernan JJ in House v The King (1936) 55 CLR 499 at 504-505. That passage has been cited so often that it is unnecessary to set it out in these reasons for judgment.

The issues on appeal 8 The tension in this appeal is between two different ways of approaching the question of costs in the circumstances of the case. The approach for which counsel for Howards, Plaza and Mr Spence contended is to treat the proceeding at first instance as if it were really six separate proceedings. This approach breaks down the proceeding into an action by Haviv against Howards, an action by Haviv against Plaza, an action by Haviv against Mr Spence, an action by Mr Aghion against Howards, an action by Mr Aghion against Plaza and an action by Mr Aghion against Mr Spence. Counsel for Howards, Plaza and Mr Spence then pointed to the fact that only one of these six actions was successful, that of Haviv against Howards. They contended that the ordinary principle, that costs follow the event, should lead to the conclusion that the successful parties should have orders for costs in their favour. They invoked the principles discussed by Einstein J in Currabubula Holdings Pty Ltd v State Bank of New South Wales [2000] NSWSC 232 at [89]-[95], which deal with cases of multiple parties, some successful and others unsuccessful. In particular, they referred to what is called the "rule of thumb", discussed by Einstein J at [95]. As his Honour said, the principle is designed: to achieve substantial justice in the awarding of costs as between a partially successful plaintiff and variously successful and unsuccessful defendants. The rule operates upon the premise that defendants are proportionately responsible for and liable for the joint costs involved in mounting the defence. Thus, a successful defendant cannot claim from the plaintiff more than a proportionate share of the joint costs of the action in addition to any costs separately referable to that defendant. Conversely, the partially successful plaintiff is prevented from looking to each of the unsuccessful defendants for more than an equal proportionate share of the costs not solely referable to the plaintiff's case against one or other of the defendants individually, in addition to the costs which are so referable. In this way, the rule of thumb prevents both the unjust enrichment of the partially successful plaintiff or successful defendant and the casting of an unfair burden on the unsuccessful defendants. Where the premise is falsified or the rule does not achieve its intended effect, it finds no application. 9 Thus, counsel for Howards, Plaza and Mr Spence claimed that all three of their clients should have proportionate costs orders against Mr Aghion, who had been totally unsuccessful against any of the three. In addition, Plaza and Mr Spence should have costs orders against Haviv, which had been unsuccessful against both of them. With respect to costs as between Haviv and Howards, counsel for Howards, Plaza and Mr Spence contended before the primary judge that there should be no order as to costs, because Haviv had succeeded against Howards only in respect of one of its two main causes of action. The argument was bolstered by reference to the fact that there were two separate main causes of action in each of the actions, and by reference to the fact that the amount of damages awarded to Haviv on the single cause of action on which it succeeded involved a very substantial diminution from the amount of damages claimed in the proceeding. 10 The alternative approach, taken by the primary judge and supported by counsel for Haviv and Mr Aghion in this appeal, was to aggregate the parties and the causes of action, so as to view the contest in the primary proceeding as being essentially one between two entities about a single dispute (save for some subsidiary causes of action that are not of concern in this appeal).

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