HP Mercantile Pty Ltd v Hartnett

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

Judgment

1. THE COURT: Last year, this Court dismissed an appeal from the decision of the primary judge answering three questions of contractual construction favourably to the respondents: HP Mercantile Pty Ltd v Hartnett [2016] NSWCA 342. The Court ordered the appellant HPM to pay the costs of the respondents as agreed or assessed. HPM now applies under UCPR r 51.4(5) that the respondents not be allowed more than one set of costs. HPM also applies to vary that order so that it provides: "The Appellant to pay the Respondents' costs of the Appeal, such costs to be assessed on the basis that all respondents are to be treated as having been represented by the same counsel and the same solicitors."
2. It is uncontroversial that the primary judge answered separate questions arising out of numerous proceedings, in which HPM had sued more than 100 defendants. His Honour delivered a single judgment, from which HPM brought a single appeal, joining each defendant as a respondent. On appeal, some 68 of the respondents were represented by one firm of solicitors, and some 36 by two sole practitioners (between whom there was a costs sharing arrangement). The former will be referred to as the "Gandhi and Shaw" respondents and the latter as the "Eastoe/Tiernan respondents". In each case, separate senior and junior counsel were briefed, and they in turn advanced separate written and oral submissions when the appeal was heard.

The competence of motion

1. There is a strict time limit for applications under r 36.16 of 14 days: see r 36.16(3A). It is not necessary for present purposes to consider the extent to which there is power to permit a departure from that rule (as to which see Kable v State of New South Wales (No 2) [2012] NSWCA 361 at [9]-[17]). Within the 14 days specified by UCPR r 36.16, the appellant's solicitor attempted to file a notice of motion via the Court's online filing website. For reasons which are not fully clear from the evidence, this could not occur. It is however clear that the notice of motion and supporting affidavit were supplied electronically by email sent at 3.06pm on 22 December 2016 (the 14th day after judgment was delivered) to an employee of the Department of Justice with responsibility for the online portal, and (although in unfiled form) to the solicitors acting for the respondents later that afternoon. The notice of motion and affidavit were filed at the registry the following day. The respondents have filed written submissions opposing the substance of HPM's motion, but take no issue with its timing. In the circumstances, the motion should be taken to be competent.

The parties' evidence and submissions

1. The parties have filed and served affidavits and submissions (the latter are dated 4, 21 and 29 March 2017) in support of and in response to the motion.
2. The factual background insofar as is presently relevant is concise. HPM's appeal was filed on 5 November 2015. By letter dated 6 March 2016, HPM advised, well in advance of the hearing, and in connection with an application for security for costs, that it considered that the respondents "did not require separate representation" and that "objection will be taken to more than one set of costs being allowed between them". The evidence does not disclose any response, nor how the security for costs application was resolved.
3. The respondents' affidavits explain that many investors had been represented by Mr Phillip Clements, solicitor and sole practitioner, who had also himself been an investor and had been sued by HPM. He died on 6 February 2015. Some 13 of his former clients retained Mr Eastoe, who was a sole practitioner and had also been engaged in the litigation prior to Mr Clements' death. Mr Eastoe formed the view that he was unable to take on all of Mr Clements' clients. The majority of those clients became retained by Mr David Shaw.
4. Mr Shaw also deposed to a difference in approach in around May 2015, following an earlier decision of Black J, as to whether applications for summary dismissal should be pursued. Mr Shaw said that the defendants whom he represented did not wish to adopt the same approach as advised by Mr Newlinds SC, who had been retained by Mr Clements and Mr Eastoe. However, he added that at a later directions hearing, all defendants consented to the litigation proceeding, as it ultimately did, by way of separate questions.
5. All parties were content to rely upon principles stated by Woodward J in Statham v Shephard (No 2) (1974) 23 FLR 244 and applied in numerous decisions in this Court, including in Taylor v Owners - Strata Plan No 11564 (No 2) [2013] NSWCA 153 at [6] (McColl, Basten, Hoeben JJA): "In Statham v Shephard (No 2) (1974) 23 FLR 244 at 246, Woodward J stated the general principle that, subject to three provisos, 'the court will not normally allow two sets of costs to defendants where there is no possible conflict of interest between them in the presentation of their cases'. The first proviso reduced the severity of the 'no possible conflict' test, saying that the defendants should make enquiries from the plaintiff if a conflict appeared possible but unlikely. The second proviso was that the defendants might be acting reasonably in remaining at arm's length despite their united opposition to the plaintiff, even, apparently, in the case of 'no possible conflict of interest'. Whether that proviso was added from an abundance of caution and would generally have no operation need not be determined. It was limited by the third proviso which stated that even if the defendants were acting reasonably in maintaining separate representation 'for some time or for some purposes, they may still be deprived of part of their costs if they act unreasonably by duplicating costs on any particular matter or at any particular time'. It might be added that, even if they did not duplicate costs, they would not necessarily obtain separate costs orders if the expense incurred was not one which should reasonably have been borne by the plaintiff."
6. HPM's submissions were straightforward. It submitted that it had put the respondents on notice some two months before the respondents' written submissions had been filed, that the appeal was heard and determined on the basis of a common statement of facts, that the interests of the two groups of respondents were identical, and that there was the absence of any conflict or any possibility of conflict between them.
7. HPM added that it was not to the point if one solicitor felt that he did not have the capacity to act for all respondents. HPM submitted that: "Any of the Respondents were entitled to representation of his or her choice. The Appellant should not, however, bear the burden of the costs associated with that choice in circumstances where multiple representation was not required."
8. The Gandhi and Shaw respondents said that the orders sought were "unacceptably vague and not capable of application on assessment", for which reason alone the motion should be refused. They also submitted that they were entirely justified in having separate representation. They made six submissions: 1. because there were so many respondents, separate representation in two groups was not unreasonable; 2. Mr Eastoe felt himself unable to act for all of the respondents; 3. there were differences in approach between the two groups; 4. the principal concern, so it was said, of the principle was to avoid duplication of costs, and there was no evidence of any duplication; 5. the issues determined were complex and the outcome finely balanced, such that separate submissions "served to assist the Court and were justified", and 6. HPM made no submissions at the hearing as to costs.
9. The Eastoe/Tiernan respondents said that it was entirely reasonable that they continue with their existing solicitor and counsel team, which had acted for some of the respondents for a number of years. They also relied on the complexity of the issues, the concern that there not be duplication of costs, and what was said to be the difficulty in working out the consequences of the order sought by HPM. They said that it would be necessary for the Court to come to "some form of judgment (based on the evidence to hand) as to the respective levels of 'unreasonableness' of each set of respondents", which was something the Court could not do. They also pointed to the arbitrariness of the possible outcomes (depending on whether costs were allocated by reference to number of clients, or equally, or so as to achieve the same recovery per client, or so as to penalise the Eastoe/Tiernan respondents "because it was the choice of the Gandhi/Shaw respondents to obtain new representation").

Decision

1. The starting point is that it is common ground that there was no possibility of conflict on the questions of construction which were the only issues raised on appeal. It was possible and therefore ordinarily appropriate that all respondents be represented by the same legal practitioners. Another way of putting this is that the starting point is that it is reasonable for the unsuccessful appellant to bear only a single set of costs where the issues raised amongst the respondents to the unsuccessful appeal give rise to no possibility of conflict and can therefore be addressed by a single set of legal practitioners.
2. Thus, the ultimate question is not (as the respondents submit) whether they have acted reasonably, nor whether there has been shown to be duplication. The question is whether it is reasonable for the unsuccessful litigant to bear more than one set of costs. This is the point made in the final sentence in the passage from Taylor reproduced above. That in turn reflects the fact that ultimately, as Hodgson JA explained in Commonwealth of Australia v Gretton [2008] NSWCA 117 at [121]: "underlying 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."
3. Accordingly, the question is whether the respondents have demonstrated a sufficient reason for the appellant to be burdened with more than one set of costs. That burden is not discharged merely by pointing to factors which explained their decision to have separate representation.
4. In our view, they have failed to discharge the burden falling upon them. Dealing with the various submissions made: 1. The difference of opinion in relation to a procedural issue prior to the decision of the primary judge is irrelevant; the only issue arising on the motion is the costs of the appeal. The fact that different legal practitioners may present different submissions in relation to the same legal issues, as occurred in the present case, is likewise not to the point. That reflects the nature of written and oral advocacy, and does not bear upon whether more than one set of costs should be borne. 2. The fact that there were more than 100 respondents is not of itself determinative. In the appeal, the investment made by every single client gave rise to the same issue: was the client liable, as a matter of contract, to make payment to HPM? From the perspective of drafting and presenting submissions on appeal, the number of respondents was irrelevant. Although the position might well have been different in the case of litigation at first instance, it has not been shown that the number of clients posed any particular burden in terms of informing clients as to progress of the appeal or of obtaining instructions. It is to be recalled that the question for each client was straightforward: did the client wish to defend the judgment already obtained in that client's favour at first instance? 3. The fact that Mr Eastoe felt unable to act for all the respondents after Mr Clements' death is not to the point. There was no reason why for the purposes of the appeal the respondents could not have agreed to single representation. 4. Contrary to the submissions of both sets of respondents, there was ample evidence of duplication in respect of at least some costs which are presently relevant, namely, the costs of the appeal. There were two sets of written submissions, and appearances on appeal by two sets of solicitors and counsel. The issues being identical, there was and is no reason why they could not have been advanced by the same team of legal practitioners. 5. The fact that the issues were said to be "complex" is not a sufficient reason for HPM to be burdened by multiple orders for costs in this case. Complexity may go to the quantum of costs to be allowed to a legal practitioner. It may also go to whether it is reasonable to retain a more senior legal practitioner. But it does not, at least in a case such as the present, determine the number of sets of costs the unsuccessful appellant must bear. 6. Contrary to the Gandhi and Shaw respondents' submissions, HPM did in fact submit, in writing, at the hearing, that it wished to be heard as to costs and in particular as to UCPR r 51.4(5).
5. To the complaint that there may be an outcome which is "arbitrary", the answer is that the respondents have chosen to proceed on the basis that two sets of costs will be incurred, knowing that an application such as the present might be made in the event that HPM was ordered to pay their costs. The arbitrariness of dividing a single set of costs between two legal teams is a consequence of their choice to have two legal teams. It cannot be right that HPM should bear two sets of costs simply because there is some measure of arbitrariness in allocating one set of costs between two teams of legal practitioners.
6. Finally, we do not accept that as a matter of practice there will be any particular difficulty in working out the costs order. Orders that there be one set of costs are of some antiquity. It is true that they were easier to work out when costs were taxed or to scale, rather than subject to assessment. However, there is no reason why an assessor could not determine what a reasonable amount of costs would be (one course would be to consider whether the actual costs of both legal teams were reasonable, and, if so, those costs could be averaged; we should not be taken to be suggesting that is the only course which could be taken).
7. There is no occasion on this motion to determine how that single set of costs ought to be allocated as a partial indemnity in respect of the costs generated by two sets of legal practitioners. That does not presently arise, and may never arise. It suffices to say that the various possibilities presented by the Eastoe/Tiernan respondents do not of themselves mean that the order sought by HPM should not be made.
8. We would however note that once an amount of costs has been determined by assessment, then it could be enforced in the usual way (ultimately, by the filing of an assessor's certificate giving rise to a deemed judgment in favour of each of the successful respondents). The prima facie result would be that each respondent was entitled to an equal share of the judgment debt. That in turn suggests that the starting point is that the amount of the costs order be shared pro rata amongst the successful respondents. However, we should not be taken to be determining that that is the way, still less that it is the only way, in which the costs should be apportioned. The only point being made is that the respondents' pointing to multiple reasonable ways of apportioning costs is not a sound reason for declining to make the order sought by HPM.
9. Accordingly, order 2 made on 8 December 2016 should be varied in accordance with HPM's motion.
10. There is no reason for costs of the motion not to follow the event. The Gandhi and Shaw respondents submitted to the contrary, but on the incorrect premise that HPM had failed to seek a variation from the usual order as to costs. Such an order was sought in paragraph 30 of HPM's submissions in reply.
11. The Court's orders, in respect of all respondents save for Mr Foletti (who was made bankrupt prior to the appeal being heard) will be:
12. Vary order 2 made on 8 December 2016 so that it reads: "Appellant to pay the costs of the respondents as agreed or as assessed on the basis that the respondents are to be treated as having been represented by the same counsel and the same solicitors, with the intent that the respondents be allowed a single set of costs."
13. Respondents to pay the appellant's costs of the notice of motion dated 22 December 2016.

Amendments 28 February 2023 - [14] - "whether there has shown to be duplication" replaced with "whether there has been shown to be duplication" 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: 28 February 2023