[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]
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Judgment
THE COURT: On 3 May 2016, this Court dismissed Mr Mitchell's appeal and directed the parties to supply within 14 days either agreed orders as to the costs of the appeal, or the orders proposed by them as to costs, any evidence in support, and short submissions: Mitchell v Leafs Gully Farm Pty Ltd [2016] NSWCA 92. There is agreement that Mr Mitchell should pay the costs of Leafs Gully Farm Pty Ltd (LGF), but a dispute as to who should pay the costs of the second respondent, AGL Power Generation Pty Ltd (AGL Power). Mr Mitchell and AGL Power submit that LGF should be ordered to pay the costs of AGL Power, while LGF submits that the Court should make either a Sanderson or a Bullock order so that the ultimate burden of AGL Power's costs is borne by Mr Mitchell.
The essential background may be summarised concisely. LGF brought proceedings against Mr Mitchell, and later joined AGL Power. The issues at first instance were (considerably) broader than the issues on appeal, and led to the primary judge making a Bullock order to the effect that LGF pay AGL Power's costs of the proceedings, and that Mr Mitchell pay LGF's costs of the proceedings including costs payable by LGF to AGL Power. AGL Power was a necessary party to the appeal, because it had been joined to the proceedings determined by the primary judge.
Mr Mitchell's appeal was filed on 15 December 2015. The grounds of appeal were confined to questions concerning the construction and repudiation of the contract between Mr Mitchell and LGF. The orders sought in the notice of appeal did not affect AGL Power. When Mr Mitchell's written submissions were served on 20 December 2015, the narrowness of his appeal was confirmed.
However, in its written submissions in response, LGF advanced a contingent claim, in the event that Mr Mitchell succeeded on the construction issues, under the heading "If any of the above issues are determined adversely to LGF, what are its rights against AGL Power?". LGF contended that, in the event Mr Mitchell succeeded, it enjoyed a straightforward claim against AGL Power, which it urged this Court to accept:
"The contingent claim is straightforward and, in the event that the Court reverses the finding of the primary judge and accepts Mr Mitchell's construction, the contingent claim should be accepted."
At around the same time, in response to correspondence from the solicitors for AGL Power indicating a preference not to participate in the appeal, the solicitors for LGF confirmed - consistently with its written submissions - that "we are not in a position to provide [AGL Power] with any assurance that the outcome of the appeal will not impact upon your client".
The written submissions filed by AGL Power in the appeal were confined to responding to LGF's contingent claim against it.
When the appeal was heard, it was common ground that LGF's contingent claim would not need to be addressed if Mr Mitchell's appeal were unsuccessful. In those circumstances the Court did not hear counsel for LGF or AGL Power in connection with the contingent claim, and did not determine it in its judgment.
In those circumstances, the position is quite clear. LGF sought to expand the issues in the appeal by making submissions, contingently, impacting upon the rights of AGL Power. It did so irregularly, because it asked this Court to make orders which the primary judge had not made. To do this, it should have filed a cross-appeal, because it sought a variation of the decision made at first instance: UCPR r 51.17. If LGF had complied with the rules, then its contingent cross-appeal would have been dismissed, and the default position provided for in UCPR r 42.1 would obtain in respect of the costs of that cross-appeal. There is no reason why LGF's failure to comply with its obligations in UCPR r 51.17 to file and serve a notice of cross-appeal should give rise to a result as to costs which is more advantageous to it.
But the position as to costs does not turn upon a procedural non-compliance with the rules (of which no complaint was made in AGL Power's written submissions). The practical reality of the matter is that substantial costs have been incurred by AGL Power in responding to LGF's submissions. Those costs are directly attributable to LGF's decision to expand the appeal beyond the issues raised by Mr Mitchell. Mr Mitchell had no interest in the expanded dispute between LGF and AGL Power. Prima facie, there is good reason for LGF, not Mr Mitchell, to bear the additional costs incurred by AGL Power.
What then is submitted on behalf of LGF in support of its contrary position?
First, LGF referred to the Bullock order made by the primary judge, which was based upon a finding that "[AGL Power's] participation in the proceedings is a direct consequence of the nature of the case for which [Mr Mitchell] has unsuccessfully contended", and submitted that "Mr Mitchell should not be permitted to attempt to go behind the finding at this stage". However, there is no question of "going behind" the finding of the primary judge. The issue at hand is not the costs of the trial, but the costs of the appeal, and the issues on appeal were very substantially narrowed compared to the issues at trial. By reason of the narrowing of the issues by Mr Mitchell, and their expansion by LGF, it cannot be said that AGL Power's participation in the appeal is a direct consequence of Mr Mitchell's unsuccessful appeal. Instead, it is a direct consequence of LGF's contingent claim against AGL Power.
Secondly, LGF observes that a mere six of the 59 paragraphs of its written submissions were directed to AGL Power. It is correct that only a small minority of its submissions affected AGL Power. However, the fact that the large majority of its written submissions were responsive to Mr Mitchell's appeal does not alter the fact that it was LGF's contingent submissions against AGL Power, and those submissions alone, which required AGL Power to maintain an active stance in the appeal, rather than filing a submitting appearance. There is no substance to this point.
Thirdly, LGF contends that it was "only natural for LGF, against the prospect that Mr Mitchell might succeed on the crediting provisions construction issue such that it was required to pay $15 million instead of $11,850,000, to look to its claim that AGL Power had warranted that the purchase price payable was no more than $12 million" and that it would be "wholly unreasonable for Mr Mitchell to expect LGF to forego its contingent claim against AGL [Power] on appeal". This is the strongest consideration supporting the orders sought by LGF.
In many cases, it will be reasonable for a defendant at trial, or a respondent to an appeal, to file a cross-claim or cross-appeal, which is wholly contingent upon the plaintiff's or appellant's failure. A recurring example arises where there are cross-claims seeking statutory or equitable contribution. Commonly in those cases, a Bullock or Sanderson order is made in respect of the unadjudicated cross-claim or cross-appeal.
But in all such cases there will be questions of degree. Here, a variety of considerations point against an acceptance of LGF's submissions.
The first is the seeming weakness of Mr Mitchell's case on appeal, characterised in the opening sentence of LGF's written submissions as "a wholly unmeritorious appeal". LGF added, in paragraph 5 of its submissions, that Mr Mitchell's appeal was based on a reading of the relevant provisions which was described as "highly contrived and textually unsupportable".
The second is the discreteness of the issues in Mr Mitchell's appeal from the matters sought to be raised by LGF against AGL Power. There was no overlap whatsoever. Mr Mitchell's appeal raised pure questions of contractual construction, and potentially an issue concerning repudiation. Those issues had been determined by the primary judge. LGF's contingent claim against AGL Power gave rise to an exchange of submissions with AGL Power as to whether having regard to the way in which LGF had pleaded and run its case at trial it was open to advance a claim, and, if it was open to do so, whether there had been a breach of an implied term and if so what was the remedy. Those issues had not been determined by the primary judge. AGL Power had no interest in the issues between Mr Mitchell and LGF, and Mr Mitchell had no interest in the issues on LGF's contingent claim against AGL Power.
The third is that there was nothing to suggest in the material served in support of this application by each party that any attempt had been made by LGF and AGL Power to agree, as between themselves, to preserve their rights against each other, in respect of LGF's undetermined claim, against the contingency that Mr Mitchell's appeal might succeed. Contrary to LGF's submission, it was not obliged to forego its contingent claim against AGL Power. It would have been open to LGF and AGL Power to agree that success by Mr Mitchell in his appeal would not bind LGF and AGL Power in respect of the unadjudicated dispute between them. Alternatively, if LGF had filed a cross-appeal in accordance with the rules, it would have been open to LGF, in the unusual circumstances of this litigation, to apply for the cross-appeal to be heard separately from Mr Mitchell's appeal (on the basis that the cross-appeal might never need to be heard, that AGL Power would take no active part in Mr Mitchell's appeal, and that Mr Mitchell would take no part in the cross-appeal in the event that it was heard). Aside from observing that an application to separate the appeal from the cross-appeal would have reasonable prospects of success, it is not necessary to say anything further about this. The presently relevant point is that both of the mechanisms summarised above demonstrate that LGF was not put to an election between agitating its claim against LGF or forever losing it.
The fourth, which is related to the third, is that the correspondence between the parties records prompt and appropriate efforts by the solicitors retained by Mr Mitchell and AGL Power to obtain clarification from LGF and to seek assurances as would enable AGL Power to file a submitting appearance.
Finally, LGF submits that "Mr Mitchell is the only party who has failed on the merits". That is so. But it does not produce the result that Mr Mitchell should bear the costs of issues introduced by LGF in which he had no interest and which were not inevitable consequences of his exercising his right to appeal.
For those reasons, the Court will make the orders favoured by Mr Mitchell and AGL Power. LGF should pay the costs of the other parties in relation to the dispute as to costs.
The formal orders of the Court are:
1. Subject to (3) below, the appellant (Mr Mitchell) is to pay the costs of the first respondent (LGF) of this appeal as agreed or assessed, such costs not to include amounts LGF is required to pay pursuant to (2) below.
2. LGF is to pay the costs of the second respondent (AGL Power) of this appeal as agreed or assessed.
3. LGF is to pay the costs of Mr Mitchell and AGL Power in respect of the application for costs.
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Decision last updated: 23 May 2016