Marmax Investments Pty Ltd v RPR Maintenance Pty Ltd

1. Orders 3(a) and 3(c) made by the Federal Court of Australia on 3 June 2014 be set aside.
2. Order 3(b) made by the Federal Court of Australia on 3 June 2014 be varied as follows: The respondent, Spanline Weatherstrong Building Systems Pty Ltd, pay to the applicant damages, together with interest pursuant to s 51A of the Federal Court of Australia Act 1976 (Cth), in the amount of $108,888 plus $23.86 per day from 23 September 2015 to 29 October 2015 inclusive, being $109,775.82.
3. Order 11 made by the Federal Court of Australia on 3 June 2014 be varied as follows: The respondent, Spanline Weatherstrong Building Systems Pty Ltd pay the applicants' costs of proceeding at first instance, but only insofar as those costs relate to the proceedings as between Spanline and the applicant, and not between the applicant and Marmax.
4. Each party bear its own costs of the appeal. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 629 of 2014

BETWEEN: MARMAX INVESTMENTS PTY LTD ACN 001 147 511

IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 632 of 2014

BETWEEN: SPANLINE WEATHERSTRONG BUILDING SYSTEMS PTY LTD ACN 002 968 087

JUDGES: MIDDLETON, FOSTER AND GLEESON JJ DATE: 29 October 2015 PLACE: SYDNEY

Marmax appeal (NSD 629 of 2014) 1 On 9 September 2015, the Court allowed Marmax's appeal and made orders including that: (1) Order 11 made on 3 June 2014, which required Marmax and Spanline to pay RPR's costs of the first instance proceeding, in so far as it concerned Marmax, be set aside. (2) Costs be reserved. (3) The parties file and serve either: (a) a joint proposed minute of order in relation to costs; or (b) in the event of disagreement, proposed minutes of order in relation to costs with short written submissions in support: Marmax Investments Pty Ltd v RPR Maintenance Pty Ltd [2015] FCAFC 127. 2 The parties filed separate written submissions, in which they agree that an order should be made for the release of bank guarantees provided to the Court on behalf of Marmax, but do not agree on the appropriate costs order. 3 Marmax contends that RPR should be ordered to pay Marmax's costs of the proceedings, being its costs of the interlocutory application before Yates J, its costs of the trial below before Griffiths J and its costs of the appeal. 4 RPR contends that each party should pay its own costs of the appeal, and that no order should be made in relation to the proceedings at first instance.

Interlocutory application 5 Marmax noted that, in June 2012, Yates J ordered that Marmax's costs of the interlocutory application in RPR Maintenance Pty Ltd v Marmax Investments Pty Ltd (No 2) [2012] FCA 1311 be Marmax's costs in the cause. 6 RPR's submissions did not address the costs of the interlocutory application. In our view, having been successful on the appeal, the effect of Yates J's order is that RPR must pay Marmax's costs of the interlocutory application. Even so, for the sake of clarity, we will make an order that RPR should pay those costs.

Trial before Griffiths J 7 Marmax's position was that these costs followed the event of its successful appeal, citing Ruddock v Vadarlis [2001] FCA 1865; (2001) 115 FCR 229. The relevant passage is at [16] (Black CJ and French J, as he then was). 8 On behalf of RPR, it was asserted that the only costs which have been reserved and on which the Court sought submissions are the costs of the appeal. Further, it was suggested that this Court had not made any order that RPR pay Marmax's costs of the proceedings below because the two points on which Marmax succeeded on appeal were not agitated below and the trial judge's findings were otherwise confirmed. 9 In reply to these submissions, Marmax disputed the correctness of RPR's construction of the Court's 9 September 2015 orders and also disputed that RPR had only succeeded on points which were not agitated below. Marmax referred to its defence to the fourth further amended statement of claim which denied that the sub-franchise agreement had any further effect after 19 February 2005. This contention was referred to by the primary judge at [279] of his reasons (RPR Maintenance Pty Ltd v Marmax Investments Pty Ltd [2014] FCA 409). 10 Further, Marmax referred to its denial (by its defence) that its conduct at any time amounted to a breach of any restraint provision in the transfer of business and loan agreement.

Costs of the appeal 11 In support of its proposed order, Marmax submits that it was successful in its appeal and that costs should follow the event, in the absence of special circumstances. Marmax submits that there are no relevant special circumstances. 12 In support of its proposed order, RPR noted that Marmax succeeded on five grounds of appeal and failed on eight grounds, and four grounds did not arise.

Consideration 13 By setting aside the first instance costs order and reserving the question of costs, the Court did not reserve only the costs of the appeal. The direction to the parties to make submissions on costs was intended to cover all costs of the proceedings at first instance and on appeal, apart from the costs the subject of the order of Yates J in June 2012. 14 We do not accept the bald assertion that Marmax succeeded on the appeal only on points which were not agitated below. It succeeded on the basis of its contentions about the interpretation of the relevant contracts that were identified in Marmax's defence. 15 In our view, there are no circumstances justifying a departure from the usual rule that costs follow the event in relation to the hearing at first instance. The same applies to the costs of the appeal. 16 In Inn Leisure Industries Pty Ltd v DF McCloy Pty Ltd (No 2) (1991) 28 FCR 172 at 173 to 174, French J (as he then was), cited with approval the following passage from Cretazzo v Lombardi (1975) 13 SASR 4 at 16: 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. 17 In Australian Conservation Foundation v Forestry Commission of Tasmania (1988) 81 ALR 166, Burchett J said, at 169: 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 earthworks at every reasonable point along the path of assault. At the same time, if he multiplies issues unreasonably, he may suffer in costs. Ultimately, the question is one of discretion and judgment. 18 This was a claim brought against Marmax, which was ultimately unsuccessful because RPR was found not to have been owed any relevant contractual obligation. Marmax should not be deprived of costs simply because it failed on certain of its grounds of appeal, which were not raised unreasonably. 19 We agree with the submissions made on behalf of Marmax that, in the context of this case, an analysis of success based on the number of grounds of appeal is not appropriate because individual grounds had differing significance for the appeal, and differing degrees of complexity. 20 Accordingly, RPR should pay Marmax's costs of the appeal.

Spanline appeal (NSD 632 of 2014) 21 On 9 September 2015, the Court allowed Spanline's appeal in part and made orders including that: (1) Costs be reserved. (2) The parties file and serve either: (a) a joint proposed minute of order; (b) in the event of disagreement, proposed minutes of order with short written submissions in support, reflecting the Court's reasons, including as to costs. 22 Spanline proposed the following orders for the disposition of the proceeding: 1. The appeal be allowed in part. 2. Orders 3(a) and 3(c) made by the Federal Court of Australia on 3 June 2014 be set aside. 3. Order 3(b) made by the Federal Court of Australia made on 3 June 2014 be varied as follows: [Spanline] pay to [RPR] damages, together with interest pursuant to s51A of the Federal Court Act, in the amount of $103,157.60. 4. Order 11 made by the Federal Court of Australia made on 3 June 2014 be varied as follows: [Spanline] pay 60% of [RPR's] costs of the proceedings before the primary [judge], but only in so far as those costs relate to the proceedings as between [Spanline] and [RPR], and not between [RPR] and [Marmax]. 5. [RPR] pay 60% of [Spanline's] costs of the appeal. 23 Proposed order 1 was made on 9 September 2015. 24 RPR agreed to proposed order 2. That order will be made. 25 RPR accepted the form of proposed order 3 but submitted that the appropriate amount is $108,888 as at 23 September 2015, to which a further $23.86 should be added per day until final orders are entered. 26 In response to proposed order 4, RPR submitted that order 11, made by the Federal Court of Australia on 3 June 2014, should be varied as follows: [Spanline] to pay [RPR's] costs (as assessed) of these proceedings, but such order not to extend to such additional costs as were incurred by reason of the [RPR's] claim against [Marmax] which would not otherwise have been incurred. 27 In response to proposed order 5, RPR contended that Spanline should pay RPR's costs of the appeal.

Quantum of damages 28 In Marmax Investments Pty Ltd v RPR Maintenance Pty Ltd [2015] FCAFC 127 at [253], we concluded that, accepting the strength of the likelihood that RPR would have secured the jobs, damages should be awarded on the basis that RPR would have secured 80% of the work obtained by Marmax or 20 of the 26 jobs, whichever is the greater amount. 29 The parties agreed the following matters: (a) The relevant 26 jobs; (b) The damages that would be awarded in relation to each of these jobs; (c) The interest calculations for each job. 30 According to Spanline, applying the 80% figure to the total profits for the 26 jobs gives a figure of $78,717.60. RPR did not dispute this figure. 31 Spanline contended that, calculating the damages by reference to 20 of the 26 jobs, it was appropriate to exclude the three most profitable and three least profitable jobs. This gives a figure of $57,781 plus interest. 32 On this basis, Spanline contends that it should be ordered to pay damages on its higher figure of $78,717.60 being 80% of the total profits, plus interest being $103,157.60 as at 23 September 2015. 33 RPR contended that, calculating the damages by reference to the 20 most profitable jobs gives a damages figure of $108,888 including interest up to 23 September 2015. Accordingly, it contended that damages should be awarded on this basis. 34 In our view, RPR's figure should be adopted on the basis that RPR lost the chance of securing all of the 26 jobs, including the 20 most profitable jobs. 35 We will adopt the damages figure proposed by RPR for order 3, with interest added for the period from 23 September 2015 to 28 October 2015.

Trial before Griffiths J 36 Spanline proposed that it pay 60% of RPR's costs at first instance, but only in so far as those costs relate to the proceedings as between Spanline and RPR, and not between the [RPR] and Marmax. 37 RPR proposed that Spanline be ordered to pay RPR's costs at first instance, but that such order not to extend to such additional costs as were incurred by reason of RPR's claim against Marmax which would not otherwise have been incurred. 38 In support of its position, Spanline raised the following matters: (a) At the trial RPR made a substantial damages claim for loss of profits against both Spanline and Marmax; (b) While RPR also made a successful claim against Spanline for specific performance of an option agreement, that claim essentially involved a legal argument about the construction of the provisions in the franchise agreement. It played a very minor role in the trial. The most substantial and complex part of the trial involved the claim by RPR against Marmax; (c) Spanline was sued in an action heard simultaneously against Marmax. RPR was ultimately wholly unsuccessful against Marmax. In consequence the hearing against Spanline was more protracted than necessary; (d) Taking these matters into account, RPR ought not to have the whole of its costs of the trial against Spanline, such costs would be disproportionate and an appropriate reduction in the amount of the trial costs incurred by RPR against Spanline would be 40%. 39 RPR argued that, at first instance, it successfully obtained declaratory relief, an order for specific performance, injunctive relief and damages. 40 In our view, costs should follow the event in relation to the trial at first instance. The quantum of the damages recovered by RPR was not so low that the usual rule should be displaced. Nor is the joint hearing of the proceeding against Marmax a matter that means the usual rule should not apply.

Appeal 41 Spanline proposed that RPR be ordered to pay 60% of Spanline's costs of the appeal. 42 RPR proposed that Spanline be ordered to pay RPR's costs of the appeal. 43 Spanline made the following submissions: (a) Spanline had success on its appeal on significant issues regarding its liability for breach of its franchise agreement with RPR. In particular the Full Court found that: (i) The primary judge was wrong to find that Spanline breached its contractual obligations to RPR by not taking "reasonable and available" steps to ensure that RPR's territory remained exclusive; (ii) The primary judge was wrong to find that Spanline breached its contractual obligations to RPR by failing to investigate adequately the complaints it received from RPR about Marmax's activities; and (iii) Spanline's failure to demand that Marmax give full disclosure of work it had done in RPR's territory was not a breach of contract; (b) Spanline had significant success on its appeal in relation to damages. In particular the Full Court found that: (i) Spanline was not liable for the 40 jobs done by Marmax in RPR's territory, as originally found by the primary judge, but only liable for 80% of the 26 jobs (or 20 of the 26 jobs), whichever is the greater, and (ii) RPR was not entitled to indemnity costs against Spanline as a form of damage; (c) The conclusion of the Full Court (at [26]) rejecting RPR's claim for an indemnity for its legal costs was a significant success for Spanline in its appeal as those damages were potentially very significant; (d) An allocation of costs in an appeal where the appellant has had some success, and the respondent had some success, can never be done with "mathematical precision": Cadbury Schweppes Pty Ltd v Darrell Lea Chocolate Shops Pty Ltd (No 3) [2007] FCAFC 119 at [13]. 44 RPR argued that, in the end result, Spanline failed on most of its appeal but succeeded in part. It contended that Spanline failed on appeal grounds 1, 2, 3, 4, partially failed on 5, failed on 6, 8 and 9, did not press 10 to 15, partially failed on 16, failed on 17 and 18 and succeeded on 7 and 19 to 21. 45 RPR submitted Spanline will enjoy a modest reduction in the damages payable to RPR from $130,257 awarded by Griffths J to $106,419. (The basis for the figure of $106,419 was not clear: it may take into account interest). This 'saving' is surely eclipsed by the costs incurred in bringing the appeal. 46 RPR complained that it has "endured a long hard-fought trial and appeal against a better-resourced opponent". RPR submitted that it succeeded below and retained most of that result on appeal. RPR should not have its damages further eroded by any order to contribute to Spanline's costs of the appeal. Rather, Spanline should pay RPR's costs of the appeal either in full or a substantial proportion which the Court considers fair. 47 In our view, Spanline's success on the appeal is fairly measured by reference to the reduction in damages payable to RPR. Whatever the precise figure, it is a small amount that cannot be said to have warranted the costs of the appeal from either party's perspective. In those circumstances, we consider the appropriate order to be that each party bears its own costs of the appeal. I certify that the preceding forty-seven (47) paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Middleton, Foster and Gleeson.