Mr Rental Australia Pty Ltd v IRD Services Pty Ltd

Judgment

1. I delivered judgment in these proceedings on 2 June 2016. In accordance with directions made at that time, the parties then provided short minutes of order which contained orders that they agreed were appropriate to give effect to the Court's judgment, save for two orders, being those numbered 6 and 12. The remaining orders in those short minutes, and an order dismissing the defendants' cross-claim, were made on 17 June 2016.
2. The plaintiff contends that orders 6 and 12 should also be made in the form contained in the short minutes. The defendants resist the making of order 6 and submit that order 12, which provides that the first, third, fourth, seventh, tenth and eleventh defendants pay the plaintiff's costs of the proceedings on an indemnity basis, instead should be an order that those costs be paid on the ordinary basis.
3. As to proposed order 6: This order would require the first to fifth defendants to provide the plaintiff with a list containing certain details of each customer who is the subject of either a Rental Agreement or a New Rental Agreement ([2016] NSWSC 700 at [31]).
4. I decline to make an order in the terms sought. The plaintiff has access to the CAIRO system and the information it contains in relation to the customers of each franchise as at the date of termination. It also has received further information from the franchisee defendants in relation to rental agreements subsequently entered into, in accordance with their undertakings given on 25 August 2015.
5. To the extent that it is necessary for further information to be provided to the plaintiff so as to enable the effective assignment and transfer of the benefit of the rental agreements made before or after termination, the provision of that information would be required under existing order 4. Accordingly, there is no need to make any further and more specific order.
6. As to proposed order 12: This order as sought requires the first, third and fourth defendants as franchisees and the seventh, tenth and eleventh defendants as guarantors of those franchisees to pay the plaintiff's costs of the proceedings on an indemnity basis.
7. That order is sought in exercise of the Court's discretion to award costs under s 98 of the Civil Procedure Act 2005 (NSW), which relevantly provides: (1) Subject to rules of court and to this or any other Act: (a) costs are in the discretion of the court, and (b) the court has full power to determine by whom, to whom and to what extent costs are to be paid, and (c) the court may order that costs are to be awarded on the ordinary basis or on an indemnity basis.
8. In relation to the second and fifth defendants, and the eighth, ninth, twelfth and thirteenth defendants as guarantors of those franchisees, an order has been made, in accordance with the short minutes agreed between the parties, that they pay the plaintiff's costs of the proceedings on an ordinary basis. That order was made under s 98 and there was no argument that different considerations arose in relation to the making of that costs order against the guarantors.
9. In relation to the costs order sought by order 12, the remaining defendants do not contest that an order for payment of the plaintiff's costs should be made against each of them. They do however contend that the order should be as to costs assessed on the ordinary basis.
10. The Uniform Civil Procedure Rules 2005 (NSW) (UCPR), r 42.2 provides that unless the Court orders otherwise or the rules otherwise provide, "costs payable to a person under an order of the court or these rules are to be assessed on the ordinary basis".
11. In the exercise of its discretion to "order otherwise", a matter to be considered is whether the party seeking the order for payment of its costs has a contractual right to have those costs assessed and paid on a particular basis. Ordinarily the Court will seek to give effect to that contractual right. The position nevertheless remains that the question as to the basis on which costs are to be awarded is to be determined in the exercise of the Court's discretion: see Kyabram Property Investments Pty Ltd v Murray [2005] NSWCA 87 at [11]-[13]; Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service (No 2) [2011] NSWCA 171 at [34]-[37]; Chen v Kevin McNamara & Son Pty Ltd [2012] VSCA 229 at [8].
12. The plaintiff contends that it has the benefit of an agreement that the costs of enforcing its rights under the Purchase Option in cl 22.6 should be awarded on an indemnity basis. It relies upon cl 28.1 of the franchise agreements, which provided: 28 Costs and Charges 28.1 Payment The Franchisee must, upon demand, pay the Franchisor's reasonable costs and expenses and outgoings (including the costs of the Franchisor's solicitors on a solicitor and own client basis) which may arise in connection with: … (b) the enforcement or attempted enforcement or preservation or attempted preservation of any rights that the Franchisor has under this Agreement, or any related agreement, amendment, substitution or variation to this Agreement or any related agreement.
13. The plaintiff did not rely upon this provision in relation to the second and fifth defendants because their franchise agreements were made after 1 January 2015 and accordingly were subject to the Franchising Code of Conduct prescribed by the Competition and Consumer (Industry Codes - Franchising) Regulation 2014, which was made under s 51AE of the Competition and Consumer Act 2010 (Cth). Clause 22 of that Code, which only applies to franchise agreements made on or after 1 January 2015, provides that a clause that "requires the franchisee to pay to the franchisor costs incurred by the franchisor in relation to settling a dispute under the agreement" is of no effect. Without conceding that this provision applies to cl 28.1, the plaintiff did not press its claim to indemnity costs against those defendants, or the guarantors of their liabilities.
14. The plaintiff's claim to an award of costs on an indemnity basis is opposed by the relevant defendants for two reasons. First, it is contended that cl 28.1 does not "plainly and unambiguously" (cf Kyabram Property Investments at [12]) provide for the payment by the relevant franchisees of the plaintiff's costs on an indemnity basis. Secondly, it is contended that even if that clause does provide for the payment of costs assessed on that basis, there are other discretionary considerations that militate against the making of such an order. They include that the plaintiff's success in relation to the franchisees' uncertainty argument as to the option to purchase was "derived from a holding for which it never contended". It is also said that the plaintiff's pursuit of a claim to damages for the loss of the benefit of the franchise agreements by reason of the franchisees' repudiatory conduct, that claim having been subsequently abandoned, involved the waste of "considerable time" and was "contrary to proper case management and the administration of justice". A third matter, not relied upon by the defendants, but relevant to any exercise of the discretion, is that a significant proportion of the costs incurred must have related to issues common to all of the defendants. Accordingly, the effect of the order sought will be that the plaintiff will recover all of its costs on an indemnity basis, other than those incurred solely in relation to its claims against the second and fifth defendants.
15. In my view the defendants' first argument should be accepted. The "ordinary basis" for the assessment of costs is, by reason of the definition in s 3 of the Civil Procedure Act, that provided for in the Legal Profession Uniform Law Application Act 2014 (NSW), ss 74-80. Under those provisions, a party awarded costs on that basis is entitled to recover a "fair and reasonable amount" for the costs and disbursements reasonably incurred in the conduct of the proceedings. Such an award provides an indemnity to that party for all costs and disbursements that have been reasonably incurred and are for a reasonable amount.
16. An award of costs assessed on an "indemnity basis" in a case such as the present provides for the payment of all costs and disbursements, other than those that appear to have been unreasonably incurred or appear to be of an unreasonable amount: UCPR, r 42.5. As was observed by Santow JA in Bouras v Grandelis [2005] NSWCA 463; 65 NSWLR 214 at [118], quoting Megarry VC in EMI Records Limited v Ian Cameron Wallace Ltd [1983] 1 Ch 59 at 71: The litigant does not have to establish that the costs were necessary or proper, or that the costs were of a reasonable amount and reasonably incurred. Provided they are costs of and incidental to the proceedings, he is entitled to recover them, subject only to the qualification that they are liable to be reduced in respect of anything that the taxing master considers to fall within the headings 'unreasonable amount' or 'unreasonably incurred'. In a word, the difference is between including only the reasonable and including everything except the unreasonable.
17. In my view, and contrary to the submissions made on behalf of the plaintiff, the effect of cl 28.1(b) is to provide for the franchisee to pay the plaintiff's reasonable costs and expenses including, to the extent that they answer that description, costs payable by the plaintiff to its solicitor.
18. The subject matter of the franchisees' obligation under cl 28.1 is the plaintiff's "reasonable costs and expenses and outgoings", which include costs of the plaintiff's solicitors on a "solicitor and own client basis", but only to the extent that, as with any other costs and expenses and outgoings, they are "reasonable". The reference to costs of the plaintiff's solicitors "on a solicitor and own client basis" is to costs payable by the client to the solicitor on an assessment between them: see Bouras v Grandelis at [18] (Giles JA, Basten JA agreeing). Those costs may include costs recoverable as between solicitor and client which viewed objectively, may be seen as unreasonably incurred or unreasonable in amount. However the franchisees are only liable under cl 28.1 to pay such costs to the extent they are "reasonable", which must mean reasonable in amount and reasonably incurred.
19. If follows that the costs recoverable by the plaintiff under cl 28.1(b) must answer the description "reasonable costs and expenses and outgoings" arising in connection with the enforcement of the franchisor's rights under the agreement; and that they do so must be established by the franchisor. For that reason, cl 28.1 does not provide for the payment of those costs on an indemnity basis. Nor does cl 28.1 justify an order for costs assessed on a "solicitor and own client basis" (to the extent that may be regarded as different to an award of costs on an indemnity basis, as to which see Kyabram Property Investments at [10] and Macquarie International Health Clinic at [36]). That is because that provision only applies to such costs and expenses and outgoings to the extent they are "reasonable".
20. This conclusion makes it unnecessary to consider the defendants' arguments as to whether there were other discretionary considerations which weighed against the making of an order for indemnity costs. That said, I do not accept that the plaintiff's success on the issue as to whether the option to purchase was void for uncertainty resulted from a "holding for which it never contended". The plaintiff succeeded on that issue because the defendants' uncertainty arguments, which depended on the sense in which "goodwill" was to be understood as used in cl 22.7(iii), were rejected ([2016] NSWSC 700 at [68]-[70]).
21. In view of these conclusions, the only order which I make in addition to the orders made on 17 June 2016 is: Each of the first, third, fourth, seventh, tenth and eleventh defendants pay the plaintiff's costs on an ordinary basis.