Malabar RSL Sub-Branch Club Pty Ltd v RSL Custodians Pty Ltd

Judgment 1I handed down reasons for judgment in this matter on 25 July 2014, see: Malabar RSL Sub-Branch Club Pty Ltd v RSL Custodians Pty Ltd [2014] NSWSC 1016. I use here the same terminology as was used in those reasons. 2The Custodian failed on the issue of liability for breach of the lease. In the course of the hearing the Custodian admitted that its failure to rectify leaks in the roof of the Club was a breach of the lease. In relation to the car park surface and light poles, I held (at [18]-[19]) that the Custodian had breached the lease by reason of its failure to maintain the car park in a good condition and that the Custodian had failed to establish that the problems with the car park arose from the Club's use of it during the lease period. 3Despite the admissions and findings against the Custodian on the issue of liability, the Club failed entirely in its case on damages for loss of profits. 4At [85] of the judgment I indicated that the Club would be entitled to only nominal damages for the Custodian's breaches of the lease. However, I also noted that the Club had not sought damages on that basis. 5I invited the parties to make written submissions on the appropriate orders to be made and on the issue of costs. I have now received submissions from Mr G Parker SC for the Club, and from Mr C Harris SC for the Custodian. Nominal damages 6Although the Club sought "such further or alternative relief as the Court deems fit" in its Further Amended Statement of Claim filed 17 April 2014 (at para 14(e)), it did not expressly seek alternative relief in the form of nominal damages in closing submissions (either oral or written). 7The Club submits that it succeeded on all of its claims, they being: (a)The roof and car park were structures; (b)The Lease required that these structures be repaired or replaced; (c)The Custodian has not repaired or replaced the structures; and that the Court should award nominal damages. 8The Club submits that the appropriate order where nominal damages are to be award is judgment for the plaintiff in the sum of $100 (State of New South Wales v Stevens [2012] NSWCA 415 ("Stevens")). 9The Custodian reiterates that the Club completely failed in its claim for loss of profits, and that at hearing it did not seek damages on any other basis. 10The Custodian accepts that an award of nominal damages may be appropriate in certain cases, although it submits that nominal damages are not available to the Club in this case. The Custodian accepts that it breached the lease, and it accepts that an "injury" to the Club flowed directly from that breach. However, the Custodian takes the point that the particular "injury" flowing from the breach was not pleaded by the Club, or found by the Court. 11The Custodian's submission is that a breach of contract in itself is not enough to attract an order for nominal damages, and Mr Harris has drawn my attention to the judgment of McColl JA in Stevens at [15]-[17] and [20]: [15] Ogus, The Law of Damages (1973) Butterworths (at 1 - 2) has a somewhat more analytical approach to the concept of damages. He groups the issues a court may have to decide in any action for breach of contract or in tort into those relating to liability and those relating to damages. The former include, relevantly, "whether the breach of contract ... inflicted an injury on the plaintiff's person or property, or gave rise to a purely economic injury". The latter include "the extent of the plaintiff's losses (pecuniary and non-pecuniary) consequent upon [the] injury and whether such losses are recoverable at law and the amount of money to be paid as compensation for the legally recoverable pecuniary and non-pecuniary losses". [16] While accepting his classification "is not perfect", Ogus explains (at 2) that the liability/damages distinction: "... reflects the difference between two major tasks of legal science. The first seeks to prescribe the quality of conduct necessary to make a man or an enterprise answerable for injuries caused. It must have recourse to a certain set of moral, economic and social factors. The second determines the extent of the injured party's redress, the types of loss which may properly be made the subject of an award, and the general level of compensation. The factors which influence the incidence of liability may be relevant here but more often different considerations prevail, notably those representing the economic standards of the community." [17] Ogus is also critical (at 2) of the "loose usage" of the terms "damage" and "damages", suggesting "damage" should be confined "to the injury inflicted by the tort or breach of contract" while "damages" should "connote the sum of money payable by way of compensation" (emphasis in original). ... [20] The underlying rationale for nominal damages is often said to have been explained by Holt CJ in Ashby v White [1790] EngR 55; (1703) 2 Ld Raym 938 [92 ER 126] (at 955) on the basis that "... every injury imports a damage, though it does not cost the party one farthing" ... However Holt CJ's explanation accords with Ogus' preference for the use of the term "damage", that is to say as referring to the "injury inflicted by ... the breach of contract". 12The Custodian submits that on the Stevens analysis of the distinction between "injury inflicted" and "sum of money payable by way of compensation", the Club must fail on its application for nominal damages, because the breach established did not inflict an injury at all to the plaintiff's person or property "as pleaded and/or as the plaintiff chose to run its case" (see para 27 of the defendant's submissions). 13There is, I accept, a distinction between injury inflicted and sum of money payable by way of compensation but Mr Harris' submission is answered by the judgment of McLure P, Newnes and Murphy JJA in Motium Pty Ltd v Arrow Electronics Australia Pty Ltd [2011] WASCA 65 (S) ("Motium") at [7] (cited by McColl JA in Stevens at [18]) where their Honours said: "It is clear that a breach of contract by one party always gives the other party a right to recover damages for the breach: Agricultural and Rural Finance Pty Ltd v Gardiner [2008] HCA 57; (2008) 238 CLR 570 [58]. If the breach is not proved to have caused any loss, the party that has breached the contract is liable to pay nominal damages: see Luna Park (NSW) Ltd v Tramways Advertising Pty Ltd [1938] HCA 66; (1938) 61 CLR 286, 301; Huppert v Stock Options of Australia Pty Ltd [1965] HCA 30; (1965) 112 CLR 414, 424, 431; Chappel v Hart [1998] HCA 55; (1998) 195 CLR 232 [93], [149]." And at [14] "It was, in our view, unnecessary for the appellant expressly to seek an order for nominal damages in the alternative to its claim for substantial damages at trial. Upon a finding that the respondent was in breach of the contract it necessarily followed that the appellant was entitled to an order for nominal damages if it failed (as it did) to establish that it had suffered substantial damages, and such an order should have been made by the primary judge. In the absence of such an order, it is appropriate for this court to remedy the omission." 14The breaches in question are breaches of the Lease. Damage does not need to be established. Stevens clearly treated Motium as correctly decided: see [18]-[22]. Motium holds that the party suing on a breach of contract is entitled to nominal damages where it establishes breach and even where it has not expressly sought such an order. Since breach of the lease has been established in the instant case an order for nominal damages must follow. 15Mr Parker, in his written submissions, sought an order that the Custodian carry out the repair work but did not persist with that claim during oral submissions. In my view he had no other choice, his client having abandoned that claim for relief in the course of the hearing, if not before. Costs 16The Club seeks an order that the Custodian pay its costs save for the costs associated with the quantification of damage suffered by the Club. The Custodian seeks an order that the Club pay all of its costs. 17Generally the successful party is entitled to its costs. As Motium points out the fact that nominal damages are awarded to a party does not entitle it to the costs of the proceedings, rather: "The question is whether a party that is awarded nominal damages is to be regarded as the successful party" and after citing the words of Devlin J in Anglo-Cyprian Trade Agencies Ltd v Paphos Wine Industries Ltd [1951] 1 All ER 873 and McHugh J in Oshlack Richmond River Council [1998] HCA 11; (1998) 193 CLR 72 ("Oshlack") the Court said: "[10] While each case must depend upon its own facts, where it is not a primary purpose of proceedings simply to establish or vindicate some legal right but the primary purpose is to recover substantial damages, ordinarily an award of nominal damages will not entitle a party to the costs of the proceedings: see Thiess Contractors Pty Ltd v Placer (Granny Smith) Pty Ltd [2001] WASCA 166 [9]. In such a case, the party has obtained something of no real use to them and something which, if they had known it was all that was available, they would not have brought proceedings to recover. It would be contrary to modern notions of the efficient and cost-effective use of judicial resources to enable a party to recover its costs for a pyrrhic victory, having substantively failed in the action. [11] This case is such an instance. It is clear enough that the appellant's only purpose in bringing the action was to recover substantial damages. Having failed to prove at trial that it had suffered any damage, it was entitled to no more than nominal damages. On the appeal, the appellant sought to establish that his Honour erred in finding that no damage had been proved, but failed. The finding of breach was not in issue on the appeal." 18In support of its approach the Club sought to draw support from the fact that: (a)It had established breach of the lease by the Custodian notwithstanding the many occasions in which by correspondence the Custodian had denied that it was liable to repair the defects; (b)That the Custodian had only admitted liability for the leaks in closing submissions; (c)That expert evidence had to be obtained in respect of the leaks and other defects and these aspects required time and expense including some part of the hearing; (d)As a consequence of (a), (b) and (c) the Club has been successful in obtaining nominal damages; (e)The Custodian abandoned its cross-claim during the hearing; (f)The costs assessor could determine what costs; and precisely were not incurred on the causation and quantum issues. 19The Custodian in support of its approach relies on the following matters: (a)The real and practical effect of the reasons for judgment of July is that the Club has comprehensively failed in its endeavour to establish that it suffered any loss of revenue by virtue of the defect; (b)The Club's claim for loss of profits was a recent invention, pointing to the lack of documentary evidence, and to my observations of that deficiency in the Club's case at [75] and [82] of the principal judgment; (c)The Custodian also points to significant deficiencies in the Club's evidence, particularly that of Mr Gibson and Mr McLean, as well as the issue of lack of tenure of the Lease that "ran like a leaden thread" through the Club's case, as factors that tell against the Club's entitlement to an order for costs; (d)The engineering witnesses' evidence went for 11 out of 370 pages of Transcript and their reports were not concerned only with the nature and cause of the defects but also what would need to be done to repair the defects for the period until the end of the Club's lease (as opposed to permanent repair); (e)Once the Club had introduced its claim for lost profits that was what this case was all about; and (f)The fact that nominal damages are awarded is not indicative of the success (indeed it has been said that the party obtaining such an award is usually not to be so regarded: see Mid City Skin Cancer and Laser Centre v Zahedi-Anarak [2006] NSWSC 1149 at [47]-[52] per Campbell J (as his Honour then was), referred to in Stevens at [22] with approval). 20The Club commenced proceedings seeking relief to which (on my findings) it was entitled, but it must have determined at some point in time that the repairs to the Property would be of little practical benefit to it since it had to vacate the premises by the end of this year and that damages on the basis of (unsustainable) claims of lost profit would be the better alternative. 21The Custodian abandoned its cross-claim during the hearing. The general rule in relation to cross-claims is that if the plaintiff fails on its claim and the defendant fails on its cross-claim the plaintiff is entitled only to the costs of resisting the cross-claim that were additional to the costs of the claim: see Metway Oil and Storage Ltd v Continental Contractors [1929] AC 88 followed in Smith v Madden (1946) 73 CLR 129 per Dixon J (as his Honour then was). The Club did not contend that it incurred any costs in defending the cross-claim that were not incurred in prosecuting its claim, the cross-claim appearing to be wholly defensive in nature. 22The ordinary rule is that the successful party is entitled to all of its costs even on issues on which it had failed and this approach tends to be more closely followed when it is the defendant who has been successful: see Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service (No 2) [2011] NSWCA 171 at [10] per Hodgson JA with whom Allsop P and Macfarlan JA agreed, and the other cases cited in King v Benecke [2014] NSWSC 957 at [45]-[48] per Harrison J. 23I accept the Custodian's contention that the Club comprehensively failed in its claim, and that the nominal damages awarded does not vindicate any right that it was seeking by the proceedings as heard by me, to protect. I accept that the proceedings as commenced were limited to seeking specific performance but that was later abandoned. The claim for damages in lieu of specific performance, the subject of an earlier amendment, was itself later abandoned. The claim for damages based on lost profits at some point before the hearing commenced became the only claim advanced. 24To avoid having to pay all of the defendant's costs the Club must persuade the Court that the defendant should not obtain all of its costs because the defendant failed to make good one of its defences. The fact that it admitted liability for the leaks does not establish that its defences were advanced unreasonably nor does the fact that I found against the Custodian on the car park and poles. 25I was initially attracted to the idea of reducing the Custodian's costs by a small percentage to reflect the fact that the Club established breach and that the proceedings when commenced were brought to require rectification of the defects. 26On further reflection however I do not think that there should be any departure from the general rule that the successful party should be awarded all of its costs, and for these reasons: (1)The case for rectification of defects and damages in lieu were in reality, abandoned, and what was left was a claim on which the Club lost comprehensively it having succeeded only in establishing breaches of the lease. (2)Very little time was spent at the hearing on the breach issue: the amount of time spent on the discrete issue on whether the unsuccessful party was successful is relevant, see Elite Protective Personnel Pty Ltd v Salmon (No 2) [2007] NSWCA 373 at [6], [7] and [11] and Yazgi v Permanent Custodians Limited [2007] NSWCA 306 at [24]. (3)The Custodian is the defendant and that is relevant in deciding whether to order it to pay costs of a specific issue even though it was successful in resisting the plaintiff's claim. (4)The breaches which were established were in the context of a claim for several millions of dollars for which there was no discernable proper basis. That the conduct of a successful party is relevant to depriving it of costs orders or part of its costs is recognised: see Dal Pont Law of Costs 3rd Ed 8.65 and the cases at footnote 358 and I can see no reason why it cannot be taken into account in deciding whether the unsuccessful party should be entitled to a costs order in its favour on a specific issue; see also Oshlack (supra at p 122) and King v Benecke at [11]. 27The orders that I propose to make therefore are: (1)Judgment for the plaintiff against the defendant in the sum of $100. (2)The plaintiff is to pay the defendant's costs of the proceedings. (3)The cross-claim is dismissed. (4)Each party is to bear its own costs of the defendant's crossclaim.