Motor Trade Finances Prestige Leasing Pty Ltd v Elderslie Finance Corporation Ltd & 2 Ors - on costs - [2006] NSWSC 1446 - NSWSC 2006 case summary

50064/05 Motor Trade Finances Prestige Leasing Pty Ltd v Elderslie Finance Corporation Ltd & 2 Ors (No. 2) JUDGMENT 1 HIS HONOUR: The first question is what order for costs should be made in favour of the plaintiff against the first and second defendants. The first and second defendants submit that they should be ordered to pay one third of the plaintiff's costs of the proceedings. The plaintiff submits that costs should follow the event, so that the appropriate order is that the first and second defendants pay the plaintiff's costs of the proceedings as assessed or agreed. 2 The plaintiff succeeded in establishing that the first defendant was liable for damages for breach of contract and was liable for damages for misleading and deceptive conduct. However, the plaintiff had claimed damages in contract for loss of profits, and had claimed damages for its lost opportunity to market its lease finance product elsewhere, in an amount of more than $8,000,000. 3 The plaintiff failed on its claim for damages for lost opportunity in being able to market its product elsewhere, and was found to be entitled to only $21,648 as damages for loss of profits. This was the result of my not accepting the plaintiff's submissions as to the value of its leasing product, and the effect of the one-month termination period on the assessment of damages for breach of contract. Hence a claim in contract for damages of more than $8,000,000 resulted in judgment of just over $20,000 for damages for breach of contract. 4 The plaintiff succeeded in establishing that the first and second defendants had engaged in misleading and deceptive conduct but, as I have said, failed to substantiate that it had thereby lost an opportunity which was more than speculative. The plaintiff obtained other damages for misleading and deceptive conduct representing the actual losses suffered by it in its venture with the first defendant, but proved only $205,976.50 of such losses. 5 The first and second defendants contend that the costs which both parties will have incurred in the conduct of the proceedings were out of all proportion to the damages which the plaintiff has ultimately recovered. 6 Prior to the passing of the Civil Procedure Act 2005 (NSW) and the introduction of the Uniform Civil Procedure Rules 2005 (NSW), the Supreme Court Rules 1970 (NSW) provided that, in respect of proceedings commenced after 1 October 1997, the plaintiff was entitled to recover only half its costs if it obtained a sum of more than $225,000, but less than $450,000 (Pt 52A r 33(4)(f)). This rule was an application of the principle that there should be a proportionality between costs recovered and damages awarded. It also reflected the policy that claims for comparatively small amounts should not be brought in the Supreme Court. Under Pt 52 r 33 (5) of the Supreme Court Rules, the plaintiff could recover a higher amount of costs if it appeared to the Court that the plaintiff had sufficient reason for commencing or continuing proceedings in the Supreme Court. That rule did not survive the introduction of the Civil Procedure Act and the Uniform Civil Procedure Rules. 7 Section 98 of the Civil Procedure Act confers a wide discretion on the Court in relation to orders for costs. Subsection 98(1) provides that costs are in the discretion of the court which has full power to determine by whom, to whom and to what extent costs are to be paid.

10 These discretionary powers entitle the Court to moderate the costs which a successful party is otherwise entitled to receive to reflect, amongst other things, its degree of success on particular issues, the quantum of damages awarded, their proportion to the length of hearing and the likely costs incurred by the parties, and the conduct of the successful party in the proceedings. 11 The first and second defendants do not only point to the comparatively small amount of damages which the plaintiff has been successful in obtaining. Those defendants also complain that the proceedings were delayed and costs increased by the way in which the plaintiff's evidence was presented and prepared. 12 The defendants filed a notice of motion in September 2005 seeking an order that the summons be struck out on the grounds that the plaintiff had not complied with the Court's orders for the filing of evidence. Shortly before that application was heard, the plaintiff served an unsworn affidavit of Mr Dunn, and a report from the plaintiff's expert. 13 On 9 September 2005, I noted that the plaintiff, through its counsel, had advised that all of its evidence-in-chief had been served, save for any further affidavit evidence relating to what were then current negotiations said to be being undertaken by the plaintiff in relation to the marketing of its lease financing product. However further evidence-in-chief was served right up to the hearing. Ultimately the defendants did not object to the plaintiffs relying upon that evidence. 14 The late service of the plaintiff's evidence was said to have increased the costs which the defendants themselves incurred, and made it difficult for the defendants to make any realistic assessment as to what settlement offer, if any, should be made. That difficulty arose because, until immediately before the hearing, the plaintiff had not served any evidence to support its claim to recover losses actually suffered in the venture with the first defendant. 15 Substantial parts of the expert reports which were served by the plaintiff were rejected. The second report of the plaintiff's expert (which was served only on the last working day before the hearing) was rejected, in large part because of its late service. 16 The debate concerning the admissibility of the plaintiff's two experts' reports occupied a significant part of one day of the hearing. 17 It would certainly not be just for the first and second defendants to be required to pay all of the plaintiff's costs without moderation where those costs included the costs of obtaining the expert evidence which was ultimately rejected, and where that which was admitted was of no utility to the resolution of the proceedings. 18 However, I do not propose to deal with the question of the plaintiff's costs simply by excluding from the costs which the first and second defendants should pay, costs relating to the obtaining of those experts' reports. 19 Rather than dealing with costs in such a piecemeal way, I think the better approach is that which the first and second defendants propound, namely, to weigh that factor, that is the plaintiff's costs in obtaining expert evidence, along with the other matters, to reach a broader determination as to what percentage of the plaintiff's costs the first and second defendants should be ordered to pay. 20 I think there is substance in the defendants' submission that although the first and second defendants have been found to be liable both for breach of contract and for misleading and deceptive conduct, the plaintiff has been unsuccessful in a substantial part of its claim, in particular its claim for damages for loss of opportunity to market its product. 21 The plaintiff has recovered only minimal damages for breach of contract and it has failed to prove a substantial part of its claim to recover losses actually suffered. 22 I take those matters into account, together with the defendants' complaint as to the consequences of the late service of some of the plaintiff's evidence, together also with the rejection of the plaintiff's expert's report. 23 However, taking all of those matters into account, I do not think that they warrant a two-thirds reduction, as submitted by the first and second defendants. 24 The case was one which was suitable for litigation in this Court. 25 The first and the second defendants have been found to have contravened the Australian Securities and Investments Commission Act 2001 (Cth), and the first defendant has been found to have breached its contract. The plaintiff has had some measure of success, although not the measure which it sought. 26 In all the circumstances, I think the appropriate order is that the costs which the plaintiff is entitled to recover should be reduced by one-quarter. I therefore order that the first and second defendants pay 75 per cent of the plaintiff's costs of the proceedings as assessed or agreed. 27 The plaintiff resisted an order that it pay the third defendant's costs of the proceedings. However, it failed in its claim against the third defendant. I see no reason that the costs of its claim against the third defendant should not follow the event. I order that the plaintiff pay the third defendant's costs of the proceedings as assessed or agreed. 28 The plaintiff has provided a security by way of bank guarantees for the costs of the defendants in the proceedings. I understand it to be common ground that that security should be discharged upon the plaintiff providing adequate security to the third defendant in respect of the costs to which he is entitled. 29 It is accepted that the costs payable by the first and second defendants to the plaintiff are likely to substantially exceed the costs payable by the plaintiff to the third defendant. Hence the third defendant will be sufficiently protected if the plaintiff gives a direction to the first and second defendants to pay out of the moneys otherwise payable by them to the plaintiff for costs pursuant to the order I have just made, the amount of costs payable by the plaintiff to the third defendant. 30 Upon that direction being given by the plaintiff to the first and second defendants, the plaintiff will be entitled to the release of the bank guarantees presently held by the solicitors for the defendants as security for the costs of the defendants. 31 The remaining issue concerns an application made by the plaintiff on 21 November 2006 for orders restraining the first defendant from dealing with its assets up to a value of $11,510,633. That application was dealt with by the first defendant giving undertakings to the Court. The terms of the undertakings were varied. 32 An undertaking in substance to the effect of the orders sought was proffered by the first defendant on 22 November 2006. However, there was no admission given or implied in the furnishing of that undertaking. On 15 December 2006, the undertaking was varied to the effect that the first defendant would not deal with its assets so as to diminish their value below the sum of $500,000. That undertaking will expire today. 33 It is not at all clear to me why the application was made by the plaintiff. The application was supported by an affidavit of Mr Dunn, which disclosed that according to the last published annual report of the first defendant, it had net assets exceeding $70,000,000. The application appears to have been prompted by a newspaper article that the first defendant, or the group of which it was part, had switched its business into passive investment as a funder of development capital, and that the first defendant's shareholders had received a bid to buy the company. The newspaper report included a statement that the first defendant would continue to operate and trade as it has done. 34 The evidence of Mr Garrett is that the first defendant has net assets of almost $50,000,000, and has insurance cover in relation to the plaintiff's claim of up to $10,000,000. 35 It was said for the plaintiff that had the first defendant disclosed the existence of that insurance cover at the outset, the application would have been unnecessary. However, I am unable to discern in the material upon which the plaintiff moved any threat by the first defendant improperly to deal with its assets in a way which might defeat the judgment which the plaintiff hoped to obtain. 36 The proposal about which the plaintiff was concerned involved a sale of shares in the first defendant. It would be unjustified speculation to think that if the sale of shares proceeded, a new shareholder would improperly strip the first defendant of its assets. 37 I accept that a defendant faced with such an application should not be in any way penalised by giving an undertaking to the Court which costs it nothing, in the sense that there was never any threat to be alleviated by the provision of such an undertaking, but which saves an unnecessary hearing. 38 I accept that the application by the notice of motion of 21 November 2006 was unnecessary and involved a waste of the parties' time and money. 39 I order that the plaintiff pay the defendant's costs of the notice of motion of 21 November 2006 and that such costs be paid on an indemnity basis. 40 I order that each party bear his and its own costs of today. 41 I reserve liberty to apply in relation to the release of the bank guarantees provided pursuant to the orders made for the provision of security for costs.

Motor Trade Finances Prestige Leasing Pty Ltd v Elderslie Finance Corporation Ltd & 2 Ors - on costs

At a glance

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Decision date

Before

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Judgment (14 paragraphs)

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Legislation Cited (5)