I delivered reasons for judgment in this matter on 12 December 2017: see Malek Fahd Islamic School Limited v The Australian Federation of Islamic Councils Inc [2017] NSWSC 1712. Subsequently on 20 March 2018, I made orders to give effect to that judgment. The only outstanding issue is costs. This judgment is concerned with that question. It assumes familiarity with my principal judgment and uses the abbreviations adopted in that judgment.
[2]
Background
In these proceedings, MFIS sought equitable relief against AFIC in relation to a number of properties that had been acquired in the name of AFIC for use as schools by MFIS and in relation to a number of other transactions entered into between MFIS and AFIC in respect of which it was alleged that AFIC had breached fiduciary duties that it owed MFIS. AFIC filed a cross-claim in the proceedings seeking the payment of rent said to be owing in respect of two of the properties, referred to as the Greenacre Property and the Hoxton Park Property, together with judgment in respect of a loan advanced by AFIC to MFIS.
On 30 October 2017, shortly before the commencement of the hearing (which started on 8 November 2017), AFIC served a document entitled "Open Statement by the Defendant" (the Open Statement) in which AFIC made a number of admissions and offered to consent to the Court making certain orders against it.
On 3 November 2017, AFIC made a without prejudice offer to MFIS. That offer followed a without prejudice offer that had been made by AFIC on 24 October 2017 and a without prejudice counter-offer made by MFIS on 30 October 2017. The 3 November 2017 offer repeated the offer contained in the Open Statement and proposed a number of other terms to resolve the proceedings in their entirety. The additional terms were:
7. MFIS pay AFIC the sum of $4.2 million in respect of unpaid rent and interest on Greenacre Property and Hoxton Park Property for the period from 1 January 2013 to the end of November 2017.
8. MFIS pay AFIC the sum of $791,047.22, plus an administration fee of $23,731.42, with the total being $814,778.64 in respect of the interest free financial accommodation provided by AFIC.
9. The sums in paragraphs 7 and 8 be set off against the sums to be paid by AFIC under earlier paragraphs of this offer.
10. The rent for Greenacre Property be set at $1,200,000 million [sic] per annum plus GST for the balance of the current rental year, with the rent to be reviewed thereafter as per the lease.
11. The rent for Hoxton Park Property be set at $500,000 per annum plus GST for the balance of the current rental year, with the rent to be reviewed thereafter as per the lease.
12. The parties' proceedings otherwise be dismissed.
13. AFIC to pay MFIS' costs of the proceedings up to the date of this offer, with such costs to be as agreed or as assessed on the indemnity basis.
The offer was expressed to expire at 2.00pm on 7 November 2017. In fact, it was rejected by MFIS later on the day it was made.
The offer made in the Open Statement was reflected in orders made by the Court on 9 November 2017 (the second day of the hearing) and the hearing proceeded in relation to the remaining issues in the case. It is common ground that MFIS did no better in the proceedings than it would have done had it accepted the 3 November 2017 offer.
[3]
Relevant legal principles
The principles relating to the assessment of costs are not in dispute. The Court has a wide discretion in relation to costs: Civil Procedure Act 2005 (NSW) s 98. Normally, costs follow the event: Uniform Civil Procedure Rules 2005 (NSW) (UCPR) r 42.1. Generally, the "event" refers to the result of a claim or counterclaim and may be understood as referring to the practical result of a particular claim: see Ryde Developments Pty Ltd v The Property Investors Alliance Pty Ltd (No 2) [2018] NSWCA 40 at [6] per Beazley P, Payne JA and Barrett AJA, citing Doppstadt Pty Ltd v Lovick & Sons Developments Pty Ltd (No 2) [2014] NSWCA 219 at [15] per Ward, Emmett and Gleeson JJA.
Where there are multiple issues in the case, a court does not generally seek to differentiate between those issues on which a party is successful and those on which it is not. However, it may do so where the matters upon which a party was unsuccessful took up a significant part of the trial, either by way of evidence or argument: see Bostik Australia Pty Ltd v Liddiard (No 2) [2009] NSWCA 304 at [38] per Beazley, Ipp and Basten JJA, citing Sabah Yazgi v Permanent Custodians Limited (No 2) [2007] NSWCA 306 at [24] per Beazley, Ipp and Tobias JJA. 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 on matters of impression and evaluation: Bostik at [38].
An unreasonable refusal of a party to accept a genuine offer of compromise may justify a special costs order in favour of the party making the offer in relation to the costs incurred after the offer was made: Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 at [8] per Basten JA (with whom McColl and Campbell JJA agreed).
[4]
The issues
The present case raises two questions in relation to costs. The first is whether MFIS is entitled to all of its costs up until the date of the Open Statement or AFIC's without prejudice offer of compromise. The second is whether AFIC is entitled to a special costs order from those dates.
[5]
Costs up to the Open Statement or without prejudice offer
Save for two exceptions to which I will come, in my opinion, MFIS is entitled to its costs up to and including 3 November 2017. MFIS was successful in relation to the matters the subject of the Open Statement, since the Open Statement represented capitulation in relation to those matters by AFIC. Those matters formed a substantial part of the issues in the case and, in accordance with the usual principles, MFIS should be entitled to its costs in relation to those issues up until the time the proceedings were or were capable of being resolved in a way that disposed of those issues. That was on 3 November 2017, when MFIS could have accepted AFIC's without prejudice offer.
Although AFIC only capitulated in relation to some of the issues that were the subject of MFIS's claim, it is not possible in this case to separate out the costs that were relevant to the claims on which MFIS succeeded (as a result of AFIC's capitulation) and those on which it did not. Even if the claim had been limited to the issues on which MFIS succeeded, it would still have been necessary for MFIS to undertake much of the same work as it did. It was successful and should be entitled to the costs it incurred in achieving that success.
AFIC submits that after 3 November 2017, some of that work continued to be deployed in relation to a case that failed and consequently that the costs should be apportioned. I do not accept that submission. MFIS should not be deprived of costs it had to incur in order to succeed simply because the same work was used for a claim that failed. This is not a case where it could be said that the costs incurred up until 3 November 2017 in relation to that part of MFIS's case that failed added significantly to the costs of the case up until that date. As I have said, for the most part those costs would have been incurred in any event.
The first exception to the principle that MFIS should have its costs up to 3 November 2017 relates to the costs MFIS incurred in obtaining an expert report dated 6 July 2017 from Ms Hoolihan. That report was not necessary in order for MFIS to succeed on the claims that it did. Moreover, in my opinion, for the reasons stated in my principal judgment, there must be a real question whether Ms Hoolihan exercised the degree of independence required of any expert who purports to give evidence in accordance with the Expert Witness Code of Conduct set out in Sch 7 of the UCPR. For that reason, I do not think that MFIS should be permitted to recover its costs of and incidental to obtaining that report.
The second exception relates to the cross-claim. The orders sought by AFIC distinguish between the costs of MFIS's claim and the costs of AFIC's cross-claim. AFIC seeks to recover its costs of the cross-claim. It was successful in relation to the cross-claim and, in principle, it is entitled to those costs. However, in my opinion, there are practical reasons for not making an order in the terms sought by AFIC. The issues raised by MFIS's claim and AFIC's cross-claim were closely intertwined and at least some of the evidence was relevant to both sets of issues. On assessment, a division of costs between the claim and the cross-claim is likely to provide a fertile source of argument and make any assessment process more complicated, time consuming and expensive than it ought to be. In my view, a preferable approach would be to make a global order in relation to the costs of the proceedings which takes account of AFIC's success on the cross-claim. That could be done by permitting MFIS to recover a proportion of its costs of the proceedings (up to 3 November 2017). Necessarily, that involves the Court taking a broad brush approach based largely on impression. In adopting that approach, it needs to be borne in mind that any apportionment must reflect both the fact that AFIC would be entitled to its costs of the cross-claim and would not have to pay MFIS's costs of the cross-claim. Taking those matters into account, in my opinion, AFIC should pay 70 per cent of MFIS's costs of the proceedings up to and including 3 November 2017, other than the costs of and incidental to the obtaining of Ms Hoolihan's report.
[6]
Costs from 4 November 2017
That leaves the costs from 4 November 2017. MFIS did no better in the proceedings than it would have done had it accepted AFIC's offer dated 3 November 2017. In the normal course of events, it would be appropriate in those circumstances for the Court to order that MFIS pay AFIC's costs on an indemnity basis from that time.
MFIS resists an order in those terms on two bases. First, it submits that it was reasonable for it not to accept the offer. Second, it submits that, even if that was wrong, AFIC should only be entitled to its costs on an indemnity basis from 9 November 2017, when orders embodying the offer made in the Open Statement were made.
As to the first submission, MFIS submits that it was not in a position to assess the reasonableness of AFIC's offer because AFIC's offer did not provide a breakdown of how the offer to accept $4,200,000 in respect of unpaid rent for the Greenacre Property and Hoxton Park Property was calculated. Moreover, it submits that it was reasonable for it not to accept the proposal that rent for the Greenacre Property be set at $1,200,000 for the balance of the then current rental year and that rent for the Hoxton Park Property be set at $500,000 for the balance of the then current rental year, with rent reviews from that time in accordance with the relevant leases. That was said to be because of the position that had been taken by the Commonwealth Government in relation to funding arising from a concern about the rent that MFIS had paid in the past.
I do not accept those submissions. By the time the offer was made, MFIS had the expert valuation evidence relied on by AFIC and its own expert evidence obtained from Ms Hoolihan. It was in a position to evaluate that evidence and reach a conclusion in relation to the appropriate rent. It was obliged to pay a commercial rent in accordance with the relevant leases.
In my principal judgment, I concluded that the rent for the Greenacre Property for 2017 was in excess of $1,200,000 and the rent for the Hoxton Park Property was in excess of the $500,000 offered by AFIC. Those conclusions were reached on the basis of evidence available to MFIS at the time. The fact that MFIS may have been concerned about agreeing to pay rent in those amounts because of the attitude adopted by some third party (in this case, the Commonwealth), cannot affect whether, as between AFIC and it, it was reasonable for it to refuse the offer.
As to MFIS's second point, MFIS rejected the 3 November 2017 offer on that day. I cannot see why the consequences of doing so should not take effect from the date after the offer was rejected - that is, from 4 November 2017.
[7]
Orders
The orders of the Court are:
1. The defendant pay 70 per cent of the plaintiff's costs of the proceedings (including the cross-claim) up to and including 3 November 2017, other than the costs of and incidental to obtaining the expert report of Ms Felicity Jane Hoolihan dated 6 July 2017;
2. The plaintiff pay the defendant's costs of the proceedings on an indemnity basis on and from 4 November 2017.
[8]
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Decision last updated: 23 March 2018