HP Mercantile Pty Ltd v Dierickx & Ors

Judgment 1HIS HONOUR: On 31 August 2012 I directed entry of judgment for the defendants and ordered that the cross-claim be dismissed. This judgment concerns questions of costs. 2Mr and Mrs Dierickx seek an order that the plaintiff pay their costs of the proceedings incurred after either 5 February 2008, 18 February 2008, 18 June 2008 or 7 October 2008, to be assessed on the indemnity basis. This was on the basis of Calderbank offers or an offer of compromise that was not accepted by H P Mercantile. 3HP Mercantile submits that each party should pay his, her and its own costs of the proceedings. In support of that submission HP Mercantile relies upon the fact that the defendants succeeded on only one issue and that issue was not raised until the filing of a further amended defence on 20 October 2011. It succeeded on the other issues which occupied the bulk of the hearing and preparation. HP Mercantile also submits that it would be appropriate, prima facie, that Mr and Mrs Dierickx pay its costs of the examination of Mr Moody, whose evidence was taken over two days on commission by me in advance of the hearing. All of the evidence of Mr Moody was relevant only to issues upon which Mr and Mrs Dierickx failed. 4Prima facie costs follow the event (Uniform Civil Procedure Rules 2005 (NSW), r 42.1). The relevant event for the purpose of r 42.1 encompasses both the overall outcome of the litigation and the parties' success on particular distinct issues (Reid, Hewitt & Company v Joseph [1918] AC 717 at 733, 742; Waters v PC Henderson (Australia) Pty Ltd [1994] NSWCA 338; (1994) 254 ALR 328 at 330-331 at [5], [6]); Hughes v Western Australian Cricket Association Inc (1986) ATPR 40-748; Ritchie's Uniform Civil Procedure NSW (at 42.1.10); Short v Crawley (No. 40) [2008] NSWSC 1302 at [25]-[33]). 5I will deal first with Mr and Mrs Dierickx's submission that they should have some of their costs assessed on the indemnity basis. They relied upon letters of offer that were expressed to be without prejudice, save as to costs, made on 5 February, 18 February, and 18 June 2008, and on an offer of compromise dated 7 October 2008. 6On 5 February 2008 they offered a sum of $23,000 in settlement of HP Mercantile's claim on the basis that the parties bear their own costs. On 18 February 2008 that offer was increased to $30,000. On 18 June 2008 the offer was repeated and the defendants sent a letter detailing issues in the proceedings and seeking to analyse the relative strengths and weaknesses of each party's position. That letter and the earlier correspondence did not canvass the issue upon which the defendants ultimately succeeded. 7Failure to accept a Calderbank type offer may result in an order for indemnity costs if the failure to accept the offer was unreasonable and the offeror obtains a better outcome than that offered. The Calderbank offers were genuine offers of settlement and the defendants have bettered the position than that which they offered. However, HP Mercantile's failure to accept the offers was not unreasonable having regard to the issues that were then raised. It succeeded on the issues that were pleaded at the time the settlement offers were made and ventilated in the correspondence. 8On 7 October 2008 the defendants made an offer to compromise the plaintiff's claim on terms that: "1. Verdict for the defendants. 2. Each party to bear their [sic] own costs of the proceedings." 9This offer was in accordance with r 20.26(2). The defendants obtained judgment on the claim as favourable to them as the terms of the offer. Pursuant to r 42.15A, unless the court otherwise orders, the defendants are entitled to an order against the plaintiff for their costs in respect of the claim to be assessed on the indemnity basis from 8 October 2008 and on the ordinary basis up to that time. 10However, there is good reason to make an order to displace the operation of r 42.15A(2), namely, the fact that at the time the offer was made the issue on which Mr and Mrs Dierickx succeeded had not been raised (South Eastern Sydney Area Health Service & Anor v King [2006] NSWCA 2 at [85]). It would not be just to order HP Mercantile to pay indemnity costs from October 2008 on the basis that it failed by reason of an issue not pleaded until October 2011. By October 2011 the time for acceptance of the offer of compromise had long passed. The offer was not repeated. 11Accordingly, if Mr and Mrs Dierickx were entitled to the whole of their costs, I would not order that any of the costs be payable on the indemnity basis. 12Counsel for HP Mercantile submitted that many of the costs incurred arose because Mr and Mrs Dierickx acted unreasonably in raising defences on which they failed. Counsel submitted that it was unreasonable for Mr and Mrs Dierickx to contend that HP Mercantile did not have standing to enforce the loan agreement. Counsel relied on the fact that challenges made in other proceedings to the validity of the assignments had failed. Counsel for HP Mercantile also submitted that the defence based upon the alleged "exit agreement" and the defence based upon the loan being allegedly a without recourse loan, or that a representation was made in the prospectus that it was a without recourse loan, were raised unreasonably. 13With one immaterial qualification, I do not consider that any of the defences raised by Mr and Mrs Dierickx were raised unreasonably. It is true that challenges to the validity of the assignments had been brought by other borrowers in other proceedings and had failed. But, so far as the materials before me revealed, those decisions were made when Mr Purcell gave evidence that there had been an oral acceptance of a written offer for the assignment of the loan. In this case he recanted that evidence. The decisions to which I was referred proceeded on a different factual basis from that litigated in the present case. The grounds upon which I decided that question were not litigated in those decisions. But for an estoppel, Mr and Mrs Dierickx would have succeeded before me in establishing that the assignment was not binding on TROM and TPL because the directors of those companies had not assented to the first assignment, and it was not within the customary authority of a managing director to commit the companies to it. Mr and Mrs Dierickx failed on the question of estoppel, but I do not think they can be said to have acted unreasonably in raising the issue of the validity of the assignments. 14The fact that I did not accept Mr Dierickx's evidence as to the alleged exit agreement, or as to his having concluded from reading the prospectus and associated materials that the loan was a without recourse loan, does not mean that the defendants acted unreasonably in raising those issues. 15I do not think that the defence that on the proper construction of the loan agreement, the loan was without recourse had reasonable prospects of success. But that defence took up very little time at the hearing and would not have increased the costs of preparation of the proceedings to any material extent. 16The examination of Mr Moody does not raise any discrete matter involving costs beyond the fact that his evidence was relevant only to issues upon which the defendants failed. I have rejected the submission of HP Mercantile that the defendants acted unreasonably in pursuing the issues to which the evidence of Messrs Purcell and Moody related. The evidence of Mr Moody was taken at a time when his evidence was relevant to many cases, all of which settled, save for the present. HP Mercantile would have been put to the expense of conducting that examination even if Mr and Mrs Dierickx had not relied upon Mr Moody's evidence. But even if his evidence had been taken in proceedings to which HP Mercantile and Mr and Mrs Dierickx were the only parties, his evidence is in no different position (so far as concerns costs) from the evidence of Mr Purcell. The fact that there were matters adverse to the credit of both Mr Purcell and Mr Moody does not mean that Mr and Mrs Dierickx were acting unreasonably in relying on their evidence. 17Accordingly, the decision as to costs comes down to what should be the consequence of Mr and Mrs Dierickx's having failed on a majority of issues that were severable and distinct from the issue upon which they succeeded, and the fact that that issue was only raised by the amendments to the defence made in October 2011. If the position of the parties was reversed, that is to say, if HP Mercantile had succeeded on only one of the distinct and severable issues, but failed on the others, consistently with the authorities, it would be appropriate to make an order depriving it of a proportion of its costs. The fact that a successful party does not act unreasonably in raising the issues does not preclude a modification of the usual costs order to reflect its failure on particular issues (Permanent Trustee Australia Ltd v FAI General Insurance Co Ltd (Supreme Court of New South Wales, Hodgson CJ in Eq, 3 June 1998, unreported, BC9802305 at [10]-[12]); Griffith v Australian Broadcasting Corporation (No. 2) [2011] NSWCA 145 at [18]; Rosniak v Government Insurance Office (1997) 41 NSWLR 608 at 615). 18In Griffith v Australian Broadcasting Corporation (No. 2), Hodgson JA, with whom McClellan CJ at CL agreed, and with whom Basten JA also agreed on this point, said (at [19]-[20]): "[19] Further, in my opinion, the underlying principles concerning costs identified in Commonwealth v Gretton [2008] NSWCA 117 at [121] and Ohn v Walton (1995) 36 NSWLR 77 at 79 (referred to in Turkmani at [13]) suggest that the application of these principles may not be exactly the same for successful defendants as for successful plaintiffs. In the former case, the defendant has been caused to incur costs in defending a claim which the decision in the case has wholly rejected, and has thus determined should not have brought about the incurring of any costs at all. In those circumstances, it may be considered appropriate that the defendant have costs associated with reasonable defences, even if they ultimately proved to be unsuccessful and severable. In the latter case, the plaintiff has chosen to bring the whole proceedings and thereby to incur costs and cause costs to be incurred which otherwise would not have been incurred; and in those circumstances, it may be seen more readily as appropriate that the plaintiff be liable for the costs of unsuccessful severable claims or issues, even if it was reasonable to include those claims or issues. [20] Most of the cases in which these principles have been considered are cases where a successful plaintiff (or appellant) has not recovered full costs. Two cases which did concern successful defendants (or respondents) give some support to the distinction I have drawn in the previous paragraph: Yazgi v Permanent Custodians Ltd (No 2) [2007] NSWCA 306 at [24]-[25], and Sydney Ferries v Morton (No 2) [2010] NSWCA 238 at [18]. However, this distinction is not necessary for my decision in this case." 19These paragraphs indicate that a different approach may be fair where it is the defendant who has raised distinct, but unsuccessful, defences, but has done so reasonably. This was a considered dictum, but expressed tentatively. His Honour said that the principles "may not be exactly the same for successful defendants as for successful plaintiffs", that "it may be considered appropriate that the defendant have costs associated with reasonable defences" and where the plaintiff is successful "it may be seen more readily as appropriate that the plaintiff be responsible for the costs of unsuccessful severable claims or issues" than if the position of the parties were reversed (emphasis added). 20The distinction between the position of plaintiffs and defendants is, with respect, elusive. Hodgson JA's reasoning is that a successful defendant can say that he should never have been sued, and therefore the plaintiff should pay the costs of reasonable, but unsuccessful, defences, even if they are severable or dominant. But it is not clear why a successful plaintiff who fails on particular severable issues that were nonetheless reasonably raised could not equally say that his claim should have been satisfied without recourse to litigation, that is, should never have been defended, and he should not have been put in the position of having to raise separate issues on which he did not succeed. None of the authorities cited in Griffith expressly supports the distinction drawn by Hodgson JA in the paragraphs quoted above. In Commonwealth of Australia v Gretton [2008] NSWCA 117, Hodgson JA said (at [121]): "In my opinion, underlying both the general rule that costs follow the event, and the qualifications to that rule, is the idea that costs should be paid in a way that is fair, having regard to what the court considers to be the responsibility of each party for the incurring of the costs. Costs follow the event generally because, if a plaintiff wins, the incurring of costs was the defendant's responsibility because the plaintiff was caused to incur costs by the defendant's failure otherwise to accord to the plaintiff that to which the plaintiff was entitled; while if a defendant wins, the defendant was caused to incur costs in resisting a claim for something to which the plaintiff was not entitled: cf Ohn v Walton (1995) 36 NSWLR 77 at 79 per Gleeson CJ. Departures from the general rule that costs follow the event are broadly based on a similar approach." This does not suggest that there should be a different approach for plaintiffs and defendants. 21I would follow a considered dictum of Hodgson JA, with whom the other members of the Court of Appeal agreed, if it stated a definite principle. But the tentativeness with which the proposition was stated means that I am not bound to do so. 22Counsel for HP Mercantile sought to distinguish this passage in Griffith. The ground of distinction advanced for HP Mercantile was the lateness with which the issue was raised. The proceedings were commenced in the Local Court on 28 June 2004. Counsel for HP Mercantile submitted that the facts relating to the "round robin" transaction upon which the defendants succeeded were deposed to in sufficient detail by Mr Myers in his affidavit served on 12 September 2008. Counsel for Mr and Mrs Dierickx did not contend to the contrary and I proceed on that basis. 23It follows that for the first four years of the litigation the defendants were not aware of the facts upon which they ultimately relied. However, they were aware of the facts from about September 2008. The notice of motion seeking leave to amend was filed on 23 September 2011. Is the delay in raising the issue material? It would be if there were any evidence that HP Mercantile would have acted differently had the defence been pleaded earlier. There was no such evidence. I infer from the fact that HP Mercantile continued vigorously to prosecute its claim after the filing of the amended defence that it would have done so had the defence been raised earlier. In Beoco Limited v Alpha Laval Co Limited [1995] QB 137, Stuart-Smith LJ said (at 154): "As a general rule, where a plaintiff makes a late amendment as here, which substantially alters the case the defendant has to meet and without which the action will fail, the defendant is entitled to the costs of the action down to the date of the amendment. There may, of course, be special reasons why this general rule should not be applied. An example of this is to be found in Kaines (U.K.) Ltd. v. Osterreichische Warrenhandelsgesellschaft (formerly C.G.L. Handelsgesellschaft m.b.H.) [1993] 2 Lloyd's Rep. 1, 9, where the judge was satisfied that, even if the amendment had been made earlier, the action would have been vigorously resisted." 24I am satisfied that that is the position in the present case. The case would still have been vigorously prosecuted even if the amendment had been made as soon as the facts on which the amendment was based were known. The lateness of the amendment is not a valid ground of distinction from the principle stated by Hodgson JA in Griffith v Australian Broadcasting Corporation (No. 2). 25Nonetheless, for the reasons given I do not consider that I am bound to conclude that because Mr and Mrs Dierickx are successful defendants they should have all their costs, notwithstanding that they failed on the other severable issues which occupied the greater part of the trial. 26In my view, the essential point underlying the observations of Hodgson JA in Griffith is that it is not necessarily fair to deprive a successful party of its costs because it has failed on particular severable or dominant issues. Failure on such issues opens the way to a different costs order, but it does not necessarily follow that a different costs order will follow. That was the point of the remarks of Jacobs J in Cretazzo v Lombardi (1975) 13 SASR 4 at 16, where his Honour said: "... I would wish to sound a note of cautious disapproval of applications, which are being made with increasing frequency, to apportion costs according only to the success or failure of one party or the other on the various issues of fact or law, which arise in the course of a trial. ... But trials occur daily in which the party, who in the end is wholly or substantially successful, nevertheless fails along the way on particular issues of fact or law. The ultimate ends of justice may not be served if a party is dissuaded by the risk of costs from canvassing all issues, however doubtful, which might be material to the decision of the case. There are, of course, many factors affecting the exercise of the discretion as to costs in each case, including in particular, the severability of the issues, and no two cases are alike. I wish merely to lend no encouragement to any suggestion that a party against whom the judgment goes ought nevertheless to anticipate a favourable exercise of the judicial discretion as to costs in respect of issues upon which he may have succeeded, based merely on his success in those particular issues." 27In Bostik Australia Pty Ltd v Liddiard (No. 2) [2009] NSWCA 304, the Court of Appeal (Beazley, Ipp and Basten JJA) said (at [38]): "[38] The principles governing the making of an order as to costs so as to reflect the time taken in dealing with a particular issue in which the successful party in the proceedings or on the appeal did not succeed were reviewed by this court in Elite Protective Personnel Pty Ltd v Salmon (No 2) [2007] NSWCA 373. Those principles may be summarised as follows: Where there are multiple issues in a case the Court generally does not attempt to differentiate between the issues on which a party 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). 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 Ltd (No 2) [2007] NSWCA 306 at [24]. A similar approach is adopted on 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 (No 2) [2006] NSWCA 374 at [27]. Whether an order contrary to the general rule that costs follow the event should be made depends on the circumstances of the case viewed against the wide discretionary powers of the court, which powers should be liberally construed: New South Wales v Stanley [2007] NSWCA 330 at [18] per Hislop J (with whom Beazley and Tobias JJA agreed). 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]. 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." 28In Bowen Investments Pty Ltd v Tabcorp Holdings Limited (No. 2) [2008] FCAFC 107, Finkelstein and Gordon JJ observed (at [5]) that fairness dictates how the discretion as to costs should be exercised. If an issue by issue approach will produce a result that is fairer than giving the successful party all of his or her costs, notwithstanding his or her failure on particular issues, then the issue by issue approach should be applied. 29The exercise of the costs discretion requires consideration of all of the circumstances of the case. This includes the offers of compromise made by Mr and Mrs Dierickx. Notwithstanding that HP Mercantile did not act unreasonably in rejecting those offers, the offers are nonetheless relevant to the assessment of what costs order is fair (Commonwealth of Australia v Gretton at [120]; PAC Mining Pty Ltd v Esco Corporation (No. 2) [2009] FCAFC 52 at [14]). 30I do not think that the outcome for which either party contended would produce a fair outcome. It would not be fair that there be no order as to costs, because Mr and Mrs Dierickx should not have been sued. They should not have had to incur their costs. They also made reasonable offers to settle the proceedings. 31Nor would it be fair that Mr and Mrs Dierickx receive all of their costs on the ordinary basis where they raised severable issues, albeit reasonably, on which they failed. Those issues took up approximately 80-90 per cent of the time at the hearing and, I infer, costs of preparation, so far as I can judge. 32A middle course is called for. This does not only involve questions of impression and evaluation as to the extent to which particular issues contributed to the costs. It must also take account of the facts that Mr and Mrs Dierickx were the successful parties, they should not have been sued, and they made offers that can now be seen as substantial offers for the settlement of the proceedings. The assessment of what costs order is fair requires the weighing of incommensurables. The assessment is necessarily impressionistic and intuitive. 33Were it not for the substantial settlement offers of February 2008, I would have found that the appropriate costs order was that HP Mercantile pay half of Mr and Mrs Dierickx's costs, to reflect the fact that, although they succeeded, they failed on most of the issues they raised. Having regard to the settlement offers, I think the appropriate order is that HP Mercantile pay two-thirds of Mr and Mrs Dierickx's costs. The reason that the rejection of a Calderbank offer should be unreasonable before it results in an order for indemnity costs is that indemnity costs are generally reserved for a case where the litigant has been delinquent in the conduct of the litigation. That is not a presently relevant factor. The making of substantial settlement offers should be encouraged. Even though the rejection of the offers was reasonable, the making of those offers in an attempt to settle litigation, whose scale was out of proportion to the amount at stake for Mr and Mrs Dierickx, although not for HP Mercantile, warrants an adjustment. 34In my view HP Mercantile should pay two-thirds of Mr and Mrs Dierickx's costs on the ordinary basis. I so order. 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: 26 November 2012