Lieu & Anor v Deng & Anor

Unfair contract - Costs - Calderbank letters - Applicant partially successful in three out of 11 claims - Whether Court should depart from usual order as to costs - Whether applicants should bear costs of litigating claims upon which they failed - Applicants successful due to amendment to its claim made during proceedings - Considerable part of the trial taken up in determining issues upon which applicants failed - Qualification of the presumption that a successful party is entitled to all its costs - Exercise of discretion - Applicants to receive 75 per cent of their costs CATCHWORDS: Costs - Unfair contract - Calderbank letters - Applicant partially successful in three out of 11 claims - Whether Court should depart from usual order as to costs - Whether applicants should bear costs of litigating claims upon which they failed - Applicants successful due to amendment to its claim made during proceedings - Considerable part of the trial taken up in determining issues upon which applicants failed - Qualification of the presumption that a successful party is entitled to all its costs - Exercise of discretion - Applicants to receive 75 per cent of their costs

LEGISLATION CITED: Industrial Relations Act 1996 Industrial Relations Commission Rules 1996

Australian Prudential Regulation Authority v Holloway (2000) 35 ACSR 276 Dodds Family Investments Pty Limited v Lane Industries Pty Limited (1993) 26 IPR 261 CASES CITED: Glen King Marine & Trading Services v Owners of the Ship Armada Ternak (unreported, Federal Court of Australia, Spender J, QG 82 of 1997 and QG 152 of 1997, 17 June 1998) Hughes v Western Australian Cricket Association (Inc.) and Ors (1986) ATPR 40-748 Powerlan Ltd v Squires (No 2) (2007) 162 IR 389

HEARING DATES: Written Submissions: 3 August 2007, 28 February 2008 and 25 March 2008.

APPLICANTS Mr Lieu (in person)

LEGAL REPRESENTATIVES: RESPONDENTS Mr B Cross of counsel Solicitor: K Mardon Parry Carroll

Application pursuant to s 106 of the Industrial Relations Act 1996

1 On 30 March 2007, judgment was given in favour of Paul Lieu and Landmark Enterprises Pty Limited, ("the first and second applicants") in respect of an amended summons for relief under s 106 of the Industrial Relations Act 1996 ("the Act"): Lieu & Anor v Deng & Anor (No 4) [2007] NSWIRComm 72 ("Lieu v Deng (No 4)") 2 Margaret Deng ("the first respondent"), asked that the question of costs be reserved. This judgment deals with that issue. 3 On 30 March 2007, the Court made the following orders: 1. Margaret Deng is to pay Landmark Enterprises Pty Ltd the sum of $82,504.19. 2. Interest shall be payable upon this amount in accordance with in accordance with Sch 5 of the Uniform Civil Procedure Rules 2005. The interest shall be payable from the date of the filing of the summons for relief being 14 October 2004. 3. The applicants are to file and serve Short Minutes of Order within 14 days reflecting the orders proposed in the judgment dealing with the question of interest. 4. An order varying the terms of the Shareholders' Agreement between Landmark Enterprises Pty Ltd and Margaret Deng dated 8 March 1996 and the Sale of Business Agreement between Dengs Investments Pty Ltd and Lieu Investments Pty Ltd dated 8 March 2006 so as to give effect to Landmark Enterprises Pty Ltd priority right to purchase Margaret Deng's shares in Dengs Investments Pty Ltd over Margaret Deng's right to purchase Landmark Enterprises Pty Ltd shares in Dengs Investments Pty Ltd. 4 The parties have been unable to agree on costs in circumstances where the applicants seek the following orders: 1. The first respondent pays all costs incurred by the applicants in relation to the conduct of this case as agreed or assessed, including the costs of the forensic accountant Mr Warwick Dolman, as well as interests, calculated from the time when costs were paid by the applicants. 2. The first respondent pays all costs incurred by the second respondent in relation to the conduct of this case as agreed or assessed, as well as interests. 5 The respondents seek one of the following orders in relation to the question of costs: 1. The applicants pay 50 per cent of the respondents' costs as agreed or assessed; or 2. Pursuant to r 216(6) of the Industrial Relations Commission Rules 1996, the applicants shall be entitled to their costs up to and including 24 April 2003, on a party and party basis, and the respondents shall be entitled to their costs payable by the applicants thereafter on a party and party basis; or 3. Pursuant to r 216(6) of the Industrial Relations Commission Rules 1996, the applicants shall be entitled to their costs up to and including 16 December 2004, on a party and party basis, and the respondents shall be entitled to their costs payable by the applicants thereafter on a party and party basis; or 4. The Court makes no order as to costs and each party shall bear their own costs. 6 The parties were directed to file written submissions in respect of this issue and were content for the question of costs to be determined on those submissions. 7 It is convenient to deal firstly with the orders sought by the respondents who relied on an affidavit of Ms Kelly Mardon, the solicitor for Ms Deng. That affidavit had attached to it two letters in "Calderbank" form dated 24 April 2003 and 16 December 2004 respectively. The first offer sought the orderly transition of the business to Mr Lieu and the vacation of all costs orders. The respondents contend that the first offer insofar as it dealt with remedy, exceeded the result obtained by the applicants at final hearing, particularly in relation to order 4. Although the first respondent accepted that the offer contained a term negativing the issue of costs (r 216(2)) of the Industrial Relations Commission Rules 1996 ("the Rules"), it submitted that the proviso in relation to costs was significant in that it went further than the subject proceedings and was made almost 3½ years prior to the final commencement of the hearing of the proceedings. I shall return to deal with the Calderbank letters later in these reasons. 8 The letter of 16 December 2004 sought to transfer the 51 per cent shareholding in the business held by Ms Deng to Mr Lieu for the sum of $89,515.91 and that there be no order as to costs in respect of these proceedings and two sets of proceedings in the Supreme Court. The first respondents contend that this offer, insofar as it dealt with remedy, exceeded the result obtained by the applicants at final hearing. I shall return to deal with the Calderbank letters later in these reasons. 9 In support of the order that the applicants pay 50 per cent of the respondents' costs, the respondents rely on the following facts and circumstances: (a) the applicants succeeded on only three of 11 separate and distinct claims; and (b) the only substantial ground upon which the applicants were successful related to the repayment of $85,000 to Ms Deng, being a ground not agitated until midway though the hearing of the proceedings, namely, upon the filing of the amended summons for relief on 2 November 2006 served on or about 10 November 2006. Consideration 10 There is no dispute between the parties about the power of the Court to make such order as it, in its discretion, considers appropriate on the application for costs (s 181 of the Act) and Pt 27, Costs, of the Rules, in particular, r 203, r 210 and r 211. The discretion to award costs is one to be exercised judicially in accordance with the relevant general principles. Of particular note, are the provisions of s 181(1) of the Act. It provides: (1) Subject to the rules of the Commission and any other Act or law: (a) the Commission may award costs, and

(b) costs are in the discretion of the Commission, and

(c) the Commission may determine by whom and to what extent costs are to be paid, and

(d) the Commission may order costs to be assessed on the basis set out in Division 11 of Part 3.2 of the Legal Profession Act 2004 or on any other basis. 11 Both parties adopt as expressing the relevant general principles the judgment of Toohey J in Hughes v Western Australian Cricket Association (Inc.) and Ors (1986) ATPR 40-748 where his Honour summarised his understanding of the effect of decisions of both Australian and English courts as follows: 1. Ordinarily, costs follow the event and a successful litigant receives his costs in the absence of special circumstances justifying some other order. Ritter v Godfrey (1920) 2 KB 47.

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 he has failed. Forster v Farquhar (1893) 1 QB 564.

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 of law . Cretazzo v Lombardi (1975) 13 SASR 4 at 12. There is no difficulty in stating the principles; their application to the facts of a particular case is not always easy. Also it is necessary to keep in mind the caveat by Jacobs J. in Cretazzo v Lombardi at 16. His Honour sounded what he described as "a note of cautious disapproval" of applications to apportion costs according 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. His Honour commented:

"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". In the present case it is true that if one took a head count of the causes of action pleaded in the statement of claim, the applicant failed on more than he succeeded, and by some margin. Nevertheless, the applicant succeeded in his primary aim viz. to challenge the operation of r.2:38:1 of the rules of the Cricket Council in so far as the rule operated to preclude him from playing district cricket by reason of his participation in the South African tours. ... In my view it would be unsatisfactory to attempt to apportion issues and leave the fixing of costs of those issues to the taxing officer. That would impose a very great burden on him and upon the parties' legal representatives. I approach the matter on the basis that the applicant succeeded substantially in what he set out to achieve through his application. He failed on some issues in circumstances where, not only should he not have the costs of those issues, but there should be some compensation to the respondents for the time taken in meeting those issues both prior to and at the hearing. In my view justice would be served by awarding the applicant 75% of his costs... 12 The respondents contended that it could not be said that a "headcount" of the claims could not be outlined. It was submitted that the judgment dealt separately in relation to each of the claims advanced and that they were relatively separate and distinct. The respondents further contended they were successful in defeating eight, of what they suggest were ultimately 11 claims brought by the applicants. On one view, the primary issue upon which the applicants succeeded, was the repayment of $85,000 to Ms Deng by Dengs Investments Pty Limited ("the second respondent"). This claim was not made in the first amended summons. It was the applicants' contention that it was not until Ms Deng's bank statements were put to her in cross-examination, that she conceded that money had been transferred out of the Dengs Investments Pty Limited bank account into her own bank account. This led to an amendment of the applicants' claim. See [196] - [206] in Lieu v Deng (No 4). 13 The respondents pointed to a judgment of Justice Mansfield in Australian Prudential Regulation Authority v Holloway (2000) 35 ACSR 276, as dealing with similar considerations of costs to those that arise in this case. Justice Mansfield observed as follows: 43 In exercising my discretion as to costs under s 43 of the Federal Court of Australia Act 1976 (Cth), I have had regard to the general rule that, in the normal course, a successful party should have its costs of the application: Ritter v Godfrey [1920] 2 KB 47; Hughes v Western Australian Cricket Association (Inc) (1986) ATPR 40-748 at 48,136. 44 In this instance, there are a number of matters which justify some departure from that general rule. APRA's contention recognises that some of them may be relevant. The first consideration is that APRA succeeded in establishing contraventions of s 85 of the Act in eighteen only of the thirty-two transactions which it alleged. The second consideration is that, in respect of the contraventions alleged, APRA contended unsuccessfully that s 85 could be contravened by the making of a scheme which results, or is likely to result, in an artificial reduction in the market value ratio of the in-house assets of a regulated superannuation fund and where that artificial reduction was in fact in the historical cost ratio of a regulated superannuation fund, so as to avoid the application of one or more of ss 76-80 of the Act. I found that the `artificial reduction' referred to in s 85(1)(b) of the Act was relevantly confined to an artificial reduction in the market value ratio of the in-house assets of a regulated superannuation fund contrary to s 83 of the Act. Sections 81 and 82, on their terms, did not apply at the time of the impugned conduct. 45 Those two features, in my view, provide some reason to depart from the general rule as to costs: see eg Forster v Farquhar [1893] 1 QB 564. It is not necessarily the case that a successful applicant should be deprived of some or all the costs of the proceeding, or be ordered to pay some costs, where the claim fails in part of where the applicant fails on a particular issue or issues. It is always necessary to consider the justice of the particular circumstances: see Trade Practices Commission v Nicholas Enterprises Pty Ltd (1979) 42 FCR 213; 28 ALR 201 at 206-210 per Fisher J; Cretazzo v Lombardi (1975) 13 SASR 4 at 11-12 per Bray CJ; Cromer v Harry Rickards' Tivoli Theatres Ltd [1921] 13 SASR 325 at 335-338 per Angas Parsons J. Here, the thirty-two contraventions needed to be separately addressed. Ms Tonks' evidence dealt with each of them individually, and in detail, and separate witnesses dealt with each of the transactions although there was some overlap in the case of two or more transactions involving the one regulated superannuation fund. In my judgment, those unsuccessful claims by APRA can and should, in fairness, be treated separately for the purposes of the costs of the proceedings. 14 His Honour concluded that the respondents should pay to the applicants 35 per cent of its costs of and incidental to the application. A similar apportionment was considered by the full Federal Court in Dodds Family Investments Pty Limited v Lane Industries Pty Limited (1993) 26 IPR 261 at 272 which I shall return to later in these reasons. 15 A further issue considered by Justice Mansfield in Holloway was that the respondents submitted that the applicants were only successful due to an amendment to its claim made relatively late in the proceedings: see [48] - [50]. In that matter, His Honour found that there was no discernable prolongation of the trial, and the evidence about the nature of the transactions proved to be essentially the same in any event, but nevertheless found at the conclusion at [50]: ... That factor can be reflected in the weight I give to the failure of APRA to succeed on fourteen of the thirty-two transactions alleged. 16 The respondents point to the applicants' succeeding in its claim for the repayment of $85,000, such claim only being made during the proceedings. I have already set out the circumstances surrounding how this claim came to be made. In my view, it did not lead to use the words of Justice Mansfield to any discernable prolongation of the trial. 17 The applicants, on the other hand, contend that they sought relief from the general unfairness of the arrangements or contracts that allowed the first respondent to effectively do as she pleased with the financial affairs of the second respondent to the detriment of the applicants' interests and that the successful claims achieved this objective conclusively. In Glen King Marine & Trading Services v Owners of the Ship Armada Ternak (unreported, Federal Court of Australia, Spender J, QG 82 of 1997 and QG 152 of 1997, 17 June 1998). Spender J observed: In Australian Conservation Foundation v Forestry Commission (1988) 81 ALR 166 at 169, Burchett J had to consider the case of a successful defendant who had failed in respect of some issues. His Honour said: 'It does not necessarily follow that the costs orders otherwise appropriate should be affected. A party against whom an unsustainable claim is prosecuted is not to be forced, at his peril in respect of costs, to abandon every defence he is not sure of maintaining and oppose to his adversary only the barrier of one hopeful argument: he is entitled to raise his earth works at every reasonable point along the path of assault. At the same time, if he multiplies issues unreasonably, he may suffer end costs. Ultimately the question is one of discretion and judgment.' Heerey J in Henderson v Amadio (Supra) at 9, offered the view: "In my respectful opinion, the same reasoning applies to an unsuccessful plaintiff who fails on some issues. To extend Burchett J's military meaphor, the plaintiff is not to be regarded as culpable because he attacked at points of the defendant's fortifications other than the place where success came. He is not to be forced, at his peril, in respect of costs, to abandon every flank attack." 18 The applicants submitted that all 11 "attacks" had a common objective which was the removal of the unfairness of the contracts. The three successful claims effectively resolved the core issue raised in the majority of the claims. The applicants submitted the respondents' "fortifications", namely, the unfairness of the contracts, were destroyed by the orders made in the judgment for the three successful claims. 19 Before determining this issue, I refer to a judgment cited by the respondents as favouring the approach urged by them. In Dodds Family Investments Pty Limited v Lang Industries Pty Limited, the Full Federal Court said at 271 - 272: The propositions enunciated in [Hughes] 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 - Cretazzo v. Lombardi (1975) 13 SASR 4 at 12. In Trade Practices Commission v. Nicholas Enterprises Pty Ltd (1979) 42 FLR 213; 28 ALR 201, Fisher J regarded the discretion to apportion costs as one to be exercised only in the most exceptional circumstances. Nevertheless he accepted that where a considerable part of the trial is taken up in determining issues upon which a party fails, it is a proper exercise of the discretion to reduce the costs allowed to that party. Generally speaking, and notwithstanding the considerations referred to by Toohey J and the other authorities mentioned above, the demands of the community for greater economy and efficiency in the conduct of litigation may properly be reflected in a qualification of the presumption that a successful party is entitled to all its costs... 20 It is also necessary to consider the Calderbank offers prior to exercising my discretion to determine the question of costs. The difficulty I have with these offers is that first, each offer was less than what the applicants ultimately received in the judgment and secondly, each offer contained a term negativing costs. I accept that at the time each offer was made, the summons as it existed did not include the claim relating to $85,000. This is unsurprising as the applicants were not aware such a payment had been made by Dengs Investments Pty Limited to Ms Deng as the respondents had consistently declined to provide the applicants with the financial records of the respondents. I do not therefore, in the circumstances, find that the respondents can rely on these offers. 21 I find in the circumstances of this matter, particularly bearing in mind that the primary issue upon which the applicants succeeded was the repayment of $85,000 to Ms Deng which arose on the sixth day of the trial that the presumption that a successful party is entitled to all its costs should be qualified in this matter. The fact of the matter is that the respondents have been successful in eight out of eleven claims but not overall. However against this is the fact that the evidence in the matter was not led separately in respect of each of the claims which distinguishes this case from Holloway. 22 Recently a majority of the Full Bench (Walton J Vice President and Schmidt J, Wright J President dissenting) in Powerlan Ltd v Squires (No 2) (2007) 162 IR 389 stated at [17]: As the respondent first submitted, the appellants succeeded on some aspects of the appeal and he succeeded on others. Given the outcome achieved by the parties on appeal, it must be accepted that there should be a departure from the ordinary rule, that costs should follow the event and that the departure should be that originally proposed by the respondent, namely an order that each party should bear its own costs of the appeal. That reflects a fair disposition of the costs, given the results of the appeal.

I propose to follow the reasoning of the majority in Powerlan and to be guided by the principles set out in the authorities referred to earlier in these reasons, particularly Dodds Family Investments in determining the question of costs. 23 I consider that in the exercise of my discretion a just result would be that the applicants should have 75 per cent of their costs, as agreed or assessed. The applicants also sought that I order that the first respondent pay the costs of the second respondent. The applicants cannot make such an application in my view and it is accordingly refused. ORDERS 24 The Court makes the following order: The respondents are to pay 75 per cent of the applicants' costs in matter No IRC 2821 of 2001, as agreed, or as assessed in accordance with the Court's Rules.

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