Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service

Court of Appeal (NSW)|2011-06-15|Before: Allsop P, Hodgson JA, Macfarlan JA, Bryson J

Judgment 1ALLSOP P: I agree with Hodgson JA. 2HODGSON JA: On 14 October 2010, this Court gave its judgment on the appeal and cross-appeal in this matter: Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2010] NSWCA 268. The Court has now heard submissions as to the orders for costs it should make pursuant to that judgment, and also in relation to a cross-appeal (or application for leave to cross-appeal) by Area Health seeking costs orders against non-parties. In this judgment, I will use abbreviations used in my judgment on the appeal and cross-appeal. 3The Court received in evidence an affidavit by Simon Philips dated 11 March 2011, he being junior counsel for Macquarie. This affidavit undertook a detailed analysis of the proportion of the judgment of the Court of Appeal and of submissions and of evidence which related to matters on which Macquarie was successful. This affidavit was admitted, although, as the Court observed at the time, its weight as evidence was very limited, in circumstances where the Court could make its own assessment of these matters. The material in that affidavit was also relied on as submissions, as well as evidence. 4Four broad areas were raised for the Court's consideration: (1) Costs at first instance. (2) Costs of the appeal and cross-appeal. (3) Area Health's claim for costs orders against non-parties, namely MHC and Dr Wenkart. (4) Area Health's claim for indemnity costs. 5I will consider these in turn. 6The Court has been provided with very extensive written submissions. I have taken these submissions into account, but I will not attempt to summarise them in this judgment. As I deal with each issue, I will refer to the broad contentions of the parties and to what in my view are the most material considerations bearing on that issue. In a case such as this, a court must make a broad evaluative judgment, which to a considerable extent must be based on impression derived from its own hearing of the case and its own consideration of the evidence and submissions below and submissions on appeal, rather than by detailed references to the contents of particular parts of transcripts, exhibits and submissions.

First instance costs 7The broad contentions advanced by Mr Dubler SC for Macquarie were: (1) The event fought over at first instance was possession, and the claim for damages (and other relief such as restitution) amounted to fallback claims only. (2) One basis on which Area Health sought to defeat Macquarie's claim for possession was that Macquarie had repudiated the leases and therefore could not rely on s 129 of the Conveyancing Act 1919; and this meant that much of the evidence concerning the history of the transactions was relevant to the possession case on which Macquarie succeeded. (3) Macquarie had substantial success on its claim for breach of Area Health's promises of utmost good faith, thereby vindicating its rights in a way significant for the future of the 99 year relationship. (4) Although Area Health succeeded on its cross-claim, Macquarie conceded that if Macquarie regained possession, Area Health was entitled to credit for amounts claimed in the cross-claim. (5) Costs were increased because Area Health had not acted as a model litigant. (6) Costs should follow the event, with no more than a small discount for the cross-claim and matters on which Macquarie did not succeed; so that the Court should order that Area Health pay something like 95 per cent of Macquarie's costs of the proceedings (including the cross-claim). 8The broad contentions advanced by Mr Burton SC for Area Health were: (1) Macquarie obtained relief only on the basis of a construction of s 129 that meant that a s 129 notice had to set out what the lessor required to be done by way of remedying the breach and/or compensation. That issue only involved a tiny part of the costs at first instance, and all other costs could have been avoided if Macquarie had appropriately limited its claim. (2) Much of Macquarie's case on possession was directed to issues on which it failed, notably its challenge to the default notices on the basis of Area Health's breaches of utmost good faith (a challenge abandoned on appeal). (3) Also abandoned on appeal was Macquarie's contention that it was entitled to change its use of the property. (4) The findings of breaches of contract were far less than sought by Macquarie, which claimed that Area Health could not change its plans so as to prejudice co-location; and their comparative insignificance was shown by the fact that what had been claimed was damages and not declarations. (5) The damages claim was doomed to fail because of causation and capacity to perform issues, and Macquarie should bear the vast costs attributable to this claim. (6) Ninety to ninety-five percent of costs were incurred in relation to issues on which Macquarie lost, so Macquarie should pay a substantial part of Area Health's costs. (7) Account should be taken of Macquarie's numerous amendments and changes to the case it sought to make. (8) At least in some respects, the view of the primary judge on costs should prevail unless shown to be wrong on a House v The King (1936) 55 CLR 499 approach. 9One further matter that was the subject of submissions was whether the principle that a successful party may be deprived of costs and may be ordered to pay the other party's costs, in respect of issues lost by the successful party where that issue was clearly dominant or severable, operates more strongly against a successful plaintiff: see Australian Conservation Foundation Inc v Forestry Commission of Tasmania (1988) 81 ALR 166 at 169, Richmond River Council v Oshlack (1996) 39 NSWLR 622 at 637, Hendriks v McGeoch [2008] NSWCA 53 at [104], Griffith v Australian Broadcasting Corporation (No 2) [2011] NSWCA 145 at [19]-[20], [38]-[39]. 10In my opinion, generally this is so. Where a plaintiff's case fails, it may sometimes be appropriate to order the plaintiff to pay the costs of issues unsuccessfully raised by the defendant, even if those issues are severable, so long as the defendant acted reasonably in raising those issues. It is I think less often the case that a defendant would be ordered to pay the costs of severable issues unsuccessfully raised by an otherwise successful plaintiff. However, the requirements of s 56 of the Civil Procedure Act 2005 that parties assist the court to facilitate the just, quick and cheap resolution of the real issues on the proceedings, and take reasonable steps to resolve or narrow the issues in dispute, do apply to defendants as well as plaintiffs; and this is relevant to the exercise of the costs discretion. 11In the present case, there is force in Mr Dubler's submission that, as regards the question of possession, Macquarie was in substance a defendant rather than a plaintiff, because it was defending itself against an extra-curial taking of possession by Area Health. On the other hand, as regards Macquarie's claim for damages, Macquarie was unequivocally a plaintiff. 12In my opinion, the outcome of the appeal was so different from the outcome of the trial that House v The King has no relevant application to the costs orders to be made between the parties. 13I accept Mr Dubler's submission that the "event" at first instance, which prima facie the costs should follow, was Macquarie's obtaining of possession. However, that does not mean that the costs referable to Macquarie's damages claim and other claims should be disregarded. 14When a plaintiff establishes a breach of contract but obtains only nominal damages, this generally justifies an order that the plaintiff pay the defendant's costs, unless the finding of breach amounts to a vindication of rights of some significance: Rockcote Enterprises Pty Limited v FS Architects Pty Limited [2008] NSWCA 39 at [100], and cases there cited. 15In this case, in my opinion, the finding of breach and associated declarations are of some significance, in view of the 99 year relationship, and Area Health's contention that a narrow construction be given to its obligations of utmost good faith. However: (1) Macquarie's actual claim was for damages, not declarations. (2) The claim for damages, although not as deficient as found by the primary judge, faced enormous difficulties in terms of causation and capacity to perform. (3) Macquarie claimed a more extensive construction of Area Health's obligations of utmost good faith than that found by the Court. (4) It is not clear that there will be occasions in the future when the construction obtained will be significant; and even if there are such occasions, the precise application of the provisions may still need to be the subject of litigation. (5) Accordingly, in my opinion, the utility of the findings is far short of sufficient to justify the enormous costs referable to the damages claim. 16Had the damages claim stood alone, I would have ordered Macquarie to pay a substantial proportion of Area Health's costs. 17However, as pointed out by Mr Dubler, the damages claim was a fallback claim to Macquarie's claim for possession. Also, a substantial part of the evidence relating to the damages claim, which Macquarie substantially lost, was also relevant to the possession claim, which Macquarie substantially won. In particular, Area Health relied on an allegation that Macquarie had repudiated the leases, in order to overcome the requirements of s 129, giving rise to an issue that potentially required consideration of a substantial part of the history of the transactions. 18Mr Burton submitted that for repudiation, Area Health relied simply on Macquarie's long delays, and that it was Macquarie that wished to rely on the detail of the history in order to attempt to excuse these long delays, and also to make good a contention that it was entitled to change the use of the hospital land, the contention on which it failed at first instance and abandoned on appeal. 19In my opinion, Area Health did allege a long history of default; and in the circumstances of this case this did require consideration of the circumstances in which delays occurred, in order for the Court to determine whether the delays manifested an intention to repudiate or a repudiatory inability to perform. Ultimately, the Court did not determine whether repudiation had occurred, but held that even repudiation would not, in the circumstances of this case, have avoided the need to comply with s 129. So the issue of repudiation, raised by Area Health, was won by Macquarie, albeit not on the facts but on the basis that it was legally irrelevant. 20This does not mean that Macquarie should get most of its costs at first instance. There was still considerable evidence on the damages claim that was not relevant to repudiation; and in my opinion it remains relevant that the precise issue on which Macquarie succeeded (that, conceding breaches and repudiation, s 129 still invalidated Area Health's recovery of possession) occupied a very small part of the hearing. I also take account of Macquarie's numerous amendments and changes in the way it put its case. Also, despite Macquarie's preparedness, disclosed in its submissions at first instance, to give Area Health credit for items in the cross-claim if Macquarie recovered possession, in my opinion Area Health should be treated as substantially succeeding on its cross-claim (and for reasons I will give later, as being awarded costs of its cross-claim on an indemnity basis). 21I note also that there was one other issue on which some costs were incurred at trial, namely Macquarie's claim on the basis of restitution/ unjust enrichment. That claim failed at first instance; but on appeal it was held to have sufficient substance that, had the possession claim failed, it would have been referred for separate determination. I would however assess that separate and severable costs incurred on this claim were relatively small. 22The principles to be applied are usefully summarised as follows in Bostik Australia Pty Ltd v Liddiard (No 2) [2009] NSWCA 304 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. These principles were applied in City of Canada Bay Council v Bonaccorso Pty Ltd (No 3) [2008] NSWCA 57 at [22] and most recently in Turkmani v Visvalingham (No 2) [2009] NSWCA 279. 23Having regard to these principles and the considerations set out above, in my opinion the appropriate order is that Area Health pay 25 percent of Macquarie's costs of the proceedings (including the cross-claim) at first instance. If the costs on each side are approximately equal, this would leave Area Health paying about 62.5 percent of the totality and Macquarie paying about 37.5 percent of the totality.

Appeal costs 24In relation to the appeal costs, Mr Dubler accepted that in the appeal as argued, Macquarie's primary claim was for damages, and that possession was its fallback claim. However, prior to the hearing of the appeal, Macquarie had sought a separate hearing of the s 129 issue, on the basis that if it succeeded on that issue, it would abandon all other claims; and that application was successfully opposed by Area Health on the ground that the s 129 issue overlapped with other issues, including the repudiation issue (which Area Health asserted involved "most material in the case": Supplementary Blue 39Q). Area Health submitted that, as the appeal was actually run, the issues on which Macquarie failed were severable from the issue on which Macquarie won; but Mr Dubler submitted that this was not so; and that in the light of its previous stance, Area Health should not be permitted to claim this. 25Mr Burton pointed out that Macquarie never sought to confine the appeal to the need for and validity of the s 129 notice, on an assumption of defaults and repudiation; and that if it had done so, the costs of the appeal would have been very substantially less. That was the basis on which Macquarie won the appeal, and other issues were severable, and dominant in terms of the time spent and costs incurred. 26Otherwise, the submissions were similar to those concerning issues and severability and success in relation to the first instance hearing. 27In my opinion, while I do not think Area Health is precluded from now submitting that issues were severable, the costs order on appeal should be somewhat more favourable to Macquarie than that at first instance, because the proportion of the time and costs attributable to issues on which Macquarie can be regarded as having substantially failed were less than at first instance. In my opinion, the appropriate order is that Area Health pay 50 percent of Macquarie's costs of the appeal and cross-appeal. If the costs on each side are approximately equal, this would mean Area Health would be paying 75 percent of the totality and Macquarie 25 percent. 28The question of costs of Macquarie's motion for a separate hearing of the s 129 issue was stood over to the hearing of the appeal. I would include these costs, and also the costs of the costs argument, in the costs of the appeal dealt with as above.

Costs against MHC and Dr Wenkart 29Having regard to my decision as to costs at first instance and costs of the appeal, this does not arise. Any costs payable by Macquarie to Area Health (including any costs payable on an indemnity basis) have been set-off, and therefore notionally paid, in reaching the orders I have proposed. It is also not necessary to consider whether leave to appeal would have been required, this being an issue discrete from those involved in the appeal. 30In any event, I do not think that any ground has been made out to depart from the approach of the primary judge, who otherwise made orders favourable to Area Health. On this particular matter, I am inclined to think that House v The King would apply. 31I note that Area Health did not seek security for costs, its reason being that Macquarie's obligations were guaranteed by MHC. Area Health's failure to seek security for costs and its preparedness to rely on MHC's guarantee were relevant reasons that could justify the primary judge refusing to exercise a discretion to order MHC to pay costs (it being common ground that MHC did not seek in these proceedings to enforce its contractual guarantee rights); and were very strong reasons against making an order against Dr Wenkart.

Indemnity costs 32Area Health claims entitlement to costs on an indemnity basis, relying on clauses in the 1996 documents, notably cl 17.1(b) of the Car Park Lease, which provides as follows: 17.1 In connection with this lease and any document or matter in connection with it, the Managing Tenant must pay promptly: ... (b) the reasonable costs, charges and expenses of the Landlord in connection with the contemplated or actual enforcement, or preservation of any rights under any Transaction Document (including, without limitation, any expenses incurred in retaining any independent consultant or other person to evaluate any matter of concern and its administration costs in connection with those events); ... including in each case, without limitation, legal costs and expenses on a solicitor and own client basis. 33This claim does arise, because I am notionally setting off costs to which Area Health is entitled against costs to which Macquarie is entitled, in arriving at the costs orders. 34Mr Dubler submitted that the clause did not apply, or at least applied only in respect of Area Health's cross-claim. He submitted that, if indemnity costs were to be ordered as a matter of discretion on the basis of a contract, the contract must be "plainly and unambiguously expressed": Kyabram Property Investments Pty Limited v Murray [2005] NSWCA 87 at [12]. He submitted that solicitor and own client costs were different from indemnity costs, particularly in respect of onus of proof: Kumagai Australia Finance v Avarton Limited (NSWSC, Bryson J, 7 June 1991, unreported); and that such costs are in fact closer to party and party costs than to indemnity costs: Bouras v Grandelis [2005] NSWCA 463; (2005) 65 NSWLR 214 at [117], [119] and [125]. 35Mr Burton submitted that the costs of the cross-claim were clearly within cl 17.1, and that the width of the words "in connection with" meant that defence of Macquarie's possession and damages claims was also within the clause. 36In my opinion, solicitor and own client costs are not identical with indemnity costs: in some respects, they could be somewhat more generous and in other respects possibly somewhat less so. However, in my opinion they closely approximate indemnity costs, rather than party and party costs. In my opinion, a provision such as cl 17.1 can justify a discretionary order for indemnity costs. 37In my opinion, cl 17.1 is sufficiently plain to justify an order for indemnity costs in respect of Area Health's cross-claim; but not to justify an order for indemnity costs in respect of Area Health's defence of Macquarie's claims for possession and damages. I do not think that costs incurred in defence of these claims are "in connection with" Area Health's contemplated or actual enforcement or preservation of its rights. It could be said that Area Health's attempts to obtain possession amounted at least to contemplated enforcement of its rights; but at the very least they do not plainly do so, when the Court has determined that Area Health did not have such rights. 38In my opinion, other bases relied on by the primary judge for ordering indemnity costs have been undermined by the decision on appeal. I would hold that Area Health should be treated as having costs on an indemnity basis in relation to its cross-claim, but not otherwise; and that is the basis on which I have set off Area Health's costs entitlement to arrive at my proposed costs orders.

Conclusion 39For those reasons, I propose the following orders: (1) Order that Area Health pay 25 percent of Macquarie's costs of the proceedings (including the cross-claim) at first instance. (2) Order that Area Health pay one-half of Macquarie's costs of the appeal and cross-appeal (including the costs of the application for a separate hearing of the s 129 issue and the costs of the costs argument). 40MACFARLAN JA: I agree with Hodgson JA.

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 June 2011

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