(3) The appropriate costs order
25The plaintiffs sought an order for costs on the ordinary basis. The defendants contest this claim. The defendants really advance arguments in five areas: (1) that the position of Developments and Engineering should be distinguished, and an order for costs made against the unsuccessful Developments; (2) that the plaintiffs' procedural conduct of and lack of success on much of their claim warrants an order for costs in the defendants' favour; (3) that the amount upon which the plaintiffs were successful warrants an order for costs in the defendants' favour under Uniform Civil Procedure Rules 1995 ("UCPR") r 42.34; (4) that the plaintiffs' costs should be capped under Civil Procedure Act s 98(4)(d); and (5) that the plaintiffs should not have interest on their legal costs. The defendants are successful on a number of these contentions. But, for the reasons which follow, a limited order for costs will still be made in the plaintiffs' favour.
26(1) Developments v Engineering. The defendants point out that Developments claimed the difference between the purchase price and the salvage value of the Doppstadt AK430K. They argued: that this case that Developments put has now failed; that Developments never advanced sufficient evidence to support such a case; and therefore, that Developments should pay the defendants' costs of its claim, even if Engineering has a costs order made in its favour. But these contentions encounter a number of obstacles.
27First, the defendants' submission on this issue is overly simplistic. The defendants submit that because Developments did not establish on the evidence the difference between the purchase price and the salvage value of the Doppstadt AK430K, there must be a judgment for the defendants against Developments. It is true that the plaintiffs established neither the difference between the purchase price of the Doppstadt AK430K and its actual value at the time of purchase, nor its salvage value. That does not mean there must be a verdict for the defendants against Developments. Mr Lovick controlled both companies, Engineering and Developments. The defendants' misleading conduct caused him to have Developments effect the purchase of the Doppstadt AK430K instead of the Peterson machine and to lease the Doppstadt AK430K to Engineering rather than the Peterson. Whilst it is true that Engineering suffered the loss of income rather than Developments, the Court's findings are sufficient for the Court to infer that Developments was leasing to Engineering an asset of less income-earning potential with the AK430K than it would have with the Peterson, which was eventually acquired in February 2005. I am prepared to infer that this difference in income earning capacity as demonstrated by Engineering's loss is sufficient to infer that Developments suffered a nominal loss such that the defendants should not have a judgment against it.
28Secondly, the defendants' present submission runs counter to the way the case was conducted. As the damages judgment explained, at [14]-[16], on Mr Lovick's side Developments and Engineering were treated, as between them as accounting for the whole beneficial ownership of and rights to income from the AK430K. The defendants did not conduct the case or cross-examine in a way that distinguished the two entities. In particular the defendants did not put a case to suggest that the simple three-step relationship between Developments and Engineering with respect to the two machines would have been different on any scenario: namely (1) Developments acquires the machine, (2) Developments leases the machine to Engineering, and (3) Engineering contracts the machine to third parties. It was not suggested in the defendants' case, for example, that Engineering would not have taken the Peterson on lease from Developments on the same terms as the AK430K. Had such a thing been put, it would presumably have been open to the plaintiffs to contend that Developments might have earned income from the Peterson without leasing it to Engineering. But no attempt was made to separate the two entities in this way, or in any other way, in the contest between the parties.
29Thirdly, even if the defendants were to have judgment against Developments, the costs result would not differ. In the way the case was run on both sides it is impossible to separate out costs incurred in relation to Developments' claim rather than Engineering's claim. Nor can the abandoned causes of action, nor the failed causes of action be readily apportioned to Developments or Engineering. For the purposes of assessing appropriate costs order the two plaintiffs would have to be treated as one unit in practical terms.
30(2) Plaintiffs' conduct of the proceedings. The parties strongly contested the consequences that should follow from the plaintiffs delay in conducting these proceedings. Some of that delay has been outlined in relation to the issue of interests above.
31The overall procedural course of the proceedings has been described in relation to interest costs. But both parties referred the Court to extensive additional materials on the issue of costs. It has only been necessary to refer in these reasons to some of this material, for the purpose of deciding issues of costs.
32The plaintiffs sought orders for costs in their favour, on the basis that costs should follow the event. The defendants contended that the plaintiffs should pay the defendants' costs of the proceedings up to 10 December 2010, by which time all the additional material relating to the plaintiffs' amended case had been served on the defendants. The defendants contended that the plaintiffs abandonment of much of its damages case by the end of the trial justified a costs order in their favour before this date on Beoco Kidd v Alfa Laval Co Ltd [1995] QB 137 at 154 principles. Neither argument is wholly persuasive. And for the following reasons, the Court concludes that the defendants should pay 40% of the plaintiffs' costs of the proceedings.
33The defendants submit that the plaintiffs have succeeded on only a fraction of the amount originally claimed, and that the resulting judgment is well within District Court jurisdiction. The factual basis for the defendants' contention is correct. In their early claim the plaintiffs claimed $1.8 million on a July 2006 calculation of loss, for (i) costs in attempting the repair the AK430K, (ii) downtime costs, and (iii) for lost or reduced profits from missing out on or inefficiently performing land clearing and green waste contracts with the AK430K. The plaintiffs served their amended damages case in damages schedules on 30 November 2010 and 1 December 2010 claiming: $877.938 on the basis of an alleged promise that the AK4304 would have minimum capacity output of 120 m3 per house; and $374,078 for the profit differential between a Peterson and an AK430K purchase for the period February 2004 to February 2005 (the case on which the plaintiffs succeeded); and some other additional incidental expenses in the sum of $448,761.21.
34The plaintiffs made further amendments to their damages claim on 7 December 2010: the output represented in claimed loss was amended up to $932,674; the Peterson-related loss to $477,129; and the additional expenses loss was abandoned. Then with final written submissions the plaintiffs claimed that the evidence supported a Peterson-related claim to damages of $563,765.
35On any measure the plaintiffs have fallen far short of the amount they originally claimed: Before calculation of interest their damages award of $254,468.80 is only approximately 14% of their originally claimed $1.8 million. Leaving aside the various changes made to the plaintiffs' case and their several abandoned causes of action, the defendants have been remarkably successful in defeating most of a very substantial claim for damages against them. This factor itself indicates that a reduction in the plaintiffs' costs may be warranted.
36That marked differential between claim and result is an indicator of wasted costs. A significant part of the plaintiffs' damages evidence (supporting a loss in general contracting income and repair costs) was abandoned, after the defendants had already expended financial resources on meeting it. The defendants rightly complain that they have wasted resources on this abandoned damages case: in October 2010 Engineering issued subpoenas and Notices to Produce to the Defendants for material to support the plaintiffs' then damages claim; the defendants had to read and respond to the plaintiffs' original damages evidence from Mr Lovick (affidavit of 8 September 2009) and Mr Brander (affidavit sworn October 2010); the defendants incurred the costs of expert accounting reports from Mr Gritte (dated 23 February 2010 and 22 November 2010) to respond to the plaintiffs' damages case; and the plaintiffs served folders of documentary material relevant to their ultimately abandoned damages case, as late as November 2010. All of this put the defendants to substantial wasted expense, when the plaintiffs' original damages claims were abandoned. Not all the energy and resources committed to this material was wasted: Engineer's actual trading figures and supporting documents for FY4 and FY03 were still relevant. But much of it was wasted: there was no use any longer for analysis of repair costs or comparable green waste contracting figures. After this wasted expenditure the defendants were then required to rapidly adjust to the plaintiffs' amended case, the compression of which, in preparation has its own tendency to markedly increase costs to a quickly responsive defendant.
37The defendants rightly complain that some adjustment should be made for the cost effects of these changes to the plaintiffs' damages case. The plaintiffs' abandonment of several causes of action can be put to one side for a moment. Its effect should be separately assessed. But the plaintiffs' changed damages case warrants either some costs order in favour of the defendants or a diminution in the costs awarded to the plaintiffs.
38But how is this adjustment best achieved? When the damages case was changed the Court reserved (on 8 December 2010) for later consideration the question of the costs thrown away by reason of the amendments to the plaintiffs' damages case. These costs would include all the argument time on the amendments. In these circumstances, where the effect on the defendants is so great, this is a difficult and costly exercise in itself. It will only delay further costs assessment. A more cost efficient measure of the impact on the defendants is required. But the defendants should have the costs thrown away by the amendments and the Court's orders will take that into account.
39The defendants' answer to this conundrum is to suggest that the plaintiffs pay their costs up to 1 December 2010. But that defendants' suggestion has its own problems. Principally it does not take sufficient account of what happened to the plaintiffs' liability case. The plaintiffs abandoned its causes of action, under the Sales of Goods Act and for breach of collateral warranty. The plaintiffs were successful in establishing that the defendants engaged in misleading conduct about the capability and performance of the AK430K, but unsuccessful in establishing misleading conduct in relation to the machine's output. The defendants say that this outcome should be reflected in a costs order that the defendants only be required to pay 50% of the plaintiffs' costs in relation to liability after 1 December 2010.
40But it is very difficult to quarantine damages evidence from liability evidence for this kind of order to be workable. Moreover, the abandonment of liability aspects of these various causes of action and the loss of some of the misrepresentation claims wasted comparatively little of the defendants' legal resources. The contract claims and the lost misrepresentation claims were embedded in the plaintiffs' evidentiary narrative to which the defendants responded with their own competing narrative. Even if the contract case had never been pleaded the plaintiffs' liability evidence would still very much have presented as it did. Nor would omission of the pleaded representations, which the plaintiffs failed to establish were misleading, have much reduced the volume and burden of liability evidence.
41This disparity between the effects of wasted damages evidence and wasted liability evidence means that it is not suitable to apply, as the defendant urges, that the Court should, the costs approach demonstrated in cases such as Beoco Ltd v Alfa Laval Co Ltd ("Beoco") [1995] QB 137. In Beoco, a case with technical issues such as this one, the plaintiff only succeeded on an amendment made at the commencement of the trial; and, the Court of Appeal awarded the defendant the costs of the action up to the date of the amendment, with the plaintiff to have its costs thereafter. Despite Beoco having some analogies with this case, the Beoco approach would unfairly penalize the plaintiffs, Developments and Engineering, by depriving them of the costs of preparing and presenting prior to trial a liability case on most of which they succeeded. The approach would also be unfair to the defendants who were continuing to extricate themselves from the plaintiffs' abandoned damages case even after 1 December 2010.
42The solution here is to apportion costs. This works efficiently on later costs assessment. The result is necessarily broad brush, but the aim is to overcome the problems presented by the other approaches. Moreover, the authorities accept that apportionment in these circumstances is a matter of impressionistic, discretionary evaluation where mathematical precision is not to be expected: James v Surf Road Nominees Pty Limited (No 2) [2005] NSWCA 296, and Sydney Ferries v Morton (No 2) [2010] NSWCA 238.
43In my view, the appropriate costs order in the circumstances of this case is to order that the defendants pay 40% of the plaintiffs' costs of the proceedings. This order takes into account all the considerations discussed above. It also takes account of the plaintiffs' claim for monies incurred as a result of the discharge of the order for security for costs, such that no separate further order is needed in respect of these expenses.
44But another consideration the defendants raised was the duplication of plaintiffs' costs occasioned by the plaintiffs' changes of solicitors. There has undoubtedly been some such duplication. But it is not taken into account in reaching this 40% apportionment. The extent of such duplication is far less obvious to a trial judge than it will be to a costs assessor, who may well reduce the gross award of costs because of duplication. The 40% order will then apply to the costs figure the assessor reaches after the costs assessor has dealt with the effects of costs duplication.
45(3) The operation of UCPR r 42.34. The defendants argue that the plaintiffs should be deprived of their costs because they received a verdict of less than $500,000. UCPR r 42.34 requires the Court to approach making a costs order on the basis that an order will not ordinarily be made unless the Court is satisfied that the commencement and continuation of the proceedings was warranted in the Supreme Court, rather than in the District Court.
46There is a short answer to this. UCPR r 42.34 was introduced in September 2010, only approximately three months before the hearing. It may apply to the orders now to be made, but the Court should be mindful of the timing of its introduction. An equivalent rule did not exist when proceedings were commenced. By the time the rule was introduced the proceedings were already listed for hearing in the Supreme Court, and transfer to the District Court was then impractical without incurring the costs of other vacated hearing. Moreover, UCPR r 42.34 does not prohibit the making of a costs order in favour of a plaintiff in the Supreme Court where a judgment is less than $500,000; it merely provides that "an order for costs may be made, but will not ordinarily be made unless proceedings in the Supreme Court, rather than the District Court is warranted." Apart from the complexity of these proceedings warranting action in the Supreme Court, the fact that proceedings had been conducted for approximately four years before the rule was introduced take this case outside the ordinary application of the rule in any event.
47(4) Cap on costs. The defendants argue that any costs order in the plaintiffs' favour should be capped. The plaintiffs' costs-related evidence suggests that they are claiming legal costs totalling $636,558.27. The defendants submit that such an amount of costs is disproportionate to the claim made, and is disproportionate to the sum ultimately ordered to be paid. The defendants submit, in the circumstances, that this therefore becomes an appropriate situation for the Court to order the plaintiffs' costs to be capped pursuant to Civil Procedure Act s 98(4)(d), so as to provide that the proportion of any assessed costs to which they are entitled do not exceed a specified amount.
48But the plaintiffs' conduct of the proceedings has already resulted in the Court awarding them only 40% of their costs. These costs orders mean that the plaintiffs will only receive 40% of a claimed $636,558.27. But it would in my view be unjust to cap the plaintiffs' costs beyond what limits have been placed already on the plaintiffs' award. The Courts have been reluctant to impose arbitrary limits on the amount of costs recovered to meet concerns of proportionality of costs after proceedings are concluded, unless Court costs scales exist to warrant the lower recovery, or other misconduct has occurred warranting costs reduction: see for example Sherborne Estate No. 2 [2005] NSWCC 1003, and Rae v Beddison Corporation Pty Limited (No .2) [2009] NSCWC 178.
49 (5) Interest on costs. The plaintiffs submit they are entitled to interest on costs. The relevant principles are clear. There is no requirement to establish any special circumstances in order to justify an order for the payment of interest on costs: Lahoud v Lahoudd [2006] NSWSC 126, per Campbell J and Drummond & Rosen Pty Ltd v Easey (No. 2) [2009] NSWCA 331 at [4], per Macfarlan JA. The defendants were not realistically able to resist the order for interest on costs. So an order is provided for below to award interest on costs. But it will not be clear until a costs assessment takes place just exactly when the plaintiffs paid their legal costs and disbursements. Therefore, the precise dates on which interest on these costs payments should run cannot yet be calculated. This calculation can be dealt with in final orders consequent thereon.