Palin v Vetterli

Supreme Court of NSW|2013-08-08|Before: Schmidt J, Mr P

Judgment 1The principal judgment was given in this matter on 8 July 2013 (see Palin v Vetterli [2013] NSWSC 893). Judgment was then given for the Vetterlis. The parties subsequently agreed on the calculation of damages, apart from one matter. 2They also each sought a departure from the usual order as to costs, which would be an order that the Palins bear the Vetterlis' costs, as agreed or assessed (see Rule 42.2 of the Uniform Civil Procedure Rules 2005). Otherwise the orders were agreed.

Calculation of damages 3It was common ground that taking out of the Vetterlis' calculation the depreciation of equipment purchased from the Palins, which had been returned to them, that in the trading period to 30 June the Vetterlis had suffered a loss of some $5,064.89. It was also agreed that in the period to 20 September, they had achieved a profit of a similar amount. 4The Palins' position was that in calculating damages the result which the Vetterlis had achieved during the entire trading period to 20 September had to be taken into account. The Vetterlis' position was that because there had been no claim for counter restitution, the profits they had earned after 30 June could not be taken into account in calculating damages. 5In the judgment I observed as to damages (at [207] - [210]): "207 There was no contest that if they made out their misrepresentation case, the rescission and restitution orders which they sought could be made in favour of Mr and Mrs Vetterli. That is, for the repayment of the purchase price, the return of what they had received under the contract to Mr and Mrs Palin and for the losses they had suffered. It was accepted for Mr and Mrs Vetterli that in calculating damages, there could be no "double dipping" for the period from March to September 2010, for Mr Vetterli's earnings. 208 Given the conclusions I have reached as to the misrepresentation established in relation to the crucial Seda contract, on which Mr and Mrs Vetterli relied to their considerable disadvantage, it follows that the orders sought for repayment of the $100,000 paid as part of the purchase price, as well as orders for the repayment of the rent and the other trading losses which they suffered in the conduct of the business, prior to 20 September 2010, should be made. 209 How some of this was to be calculated was in issue. After the Palins locked the Vetterlis out of the premises, they not only obtained possession of the premises, but also possession of certain assets which had been transferred to the Vetterlis on the sale of the business, such as plant and equipment located at the premises and a truck. 210 There was some evidence as to what occurred subsequently. Certain property and business records were returned to the Vetterlis and other equipment remained with the Palins. That has to be taken into account in the calculations." 6As to depreciation, I concluded at [214]: "When the Palins took possession of the premises, they also obtained possession of equipment included in the sale, which they retain. It follows that damages cannot be calculated by reference to the deprecation of such equipment. Depreciation of any equipment which Mr and Mrs Vetterli otherwise acquired, seems to fall into a different position. I can see no reason why they should not be taken into account in calculating damages. Further, if Mr and Mrs Palin retained or disposed of any such equipment after they took possession of it, rather than returning it to Mr and Mrs Vetterli, this would also have to be taken into account." 7There was finally no dispute between the parties as to what had occurred to the equipment. 8The judgment contemplated calculation of damages for the entire period that the Vetterlis conducted the business from March, when they took over the business, to September, when the Palins went into possession, with the result that the Vetterlis could no longer trade. It did not contemplate that they be calculated in two separate periods, by reference to profits or losses achieved in two financial years, or that profits achieved in either financial year be ignored. 9The calculation of damages does not require or involve a claim for counter restitution by the Palins. It must properly reflect the consequence of what in fact resulted for the Vetterlis from their operation of the business during the entire period that they operated it, until the Palins took possession and prevented them from continuing its operation. 10As it has transpired, the end result of the exercise necessary to be undertaken in accordance with the conclusions reached in the judgment, including as to depreciation of equipment, is that the Vetterlis in fact suffered no trading loss. That must be properly reflected in the damages ordered in their favour. They cannot be compensated for what they did not lose.

Costs 11The parties each sought a departure from the usual order. There was no issue as to the Court's discretion to make the costs orders which they respectively sought, under s 98 of the Civil Procedure Act 2005.

The Palins' position 12The Palins sought an order that the Vetterlis bear their costs of certain issues on which they did not succeed and in the alternative, that each party bear their own costs. 13No basis upon which such a departure from the usual order could be granted was established. 14Costs are ordinarily awarded in favour of the successful party, in compensation for their success in the proceedings. A costs order is not punitive (see Latoudis v Casey [1990] HCA 59; (1990) 170 CLR 534). 15The Palins failed to establish the claim which they pursued. They also failed in their resistance of the claim which the Vetterlis brought, with the result that orders which effectively reinstate them to the position they were in, before the Palins sold the business to them, must be made. There is nothing in those circumstances which warrants an order that the Vetterlis pay the Palins' costs, or that they be deprived of an order for the costs which they incurred, in resisting the Palins' case and advancing their own. 16It is an unusual case in which a successful party will not only be deprived of part of their costs, in respect of issues on which they failed, but will be ordered to pay the costs of another party, which has, overall, failed. Such circumstances were explained comprehensively in Arian v Nguyen [2001] NSWCA 5; (2001) 33 MVR 37, where it was observed a [36] - [38]: 36 In Oshlack v Richmond River Council McHugh J (at 97) reiterated the long-standing rule that, subject to certain limited exceptions, a successful party in litigation is entitled to an award of costs in its favour. His Honour went on to say: "The traditional exceptions to the usual order as to costs focus on the conduct of the successful party which disentitles it to the beneficial exercise of the discretion. In Anglo-Cyprian Trade Agencies Ltd v Paphos Wine Industries Ltd ([1951] 1 All ER 873 at 874), Devlin J formulated the relevant principle as follows: 'No doubt, the ordinary rule is that, where a plaintiff has been successful, he ought not to be deprived of his costs, or, at any rate, made to pay the costs of the other side, unless he has been guilty of some sort of misconduct.'" His Honour noted that "misconduct" in this context includes conduct relating to the litigation and conduct that unnecessarily protracts the proceedings. McHugh J was in dissent in Oshlack but as Foster AJA pointed out in Mannix v Loumbos [2000] NSWCA 32 there was no disagreement in the High Court as to these observations of general principle which are well established. 37 The making of an order that a successful party pay his or her opponent's costs requires strong justification (Ottway v Jones [1955] 1 WLR 706 at 708, 714, Scherer v Counting Instruments Limited [1986] 1 WLR 615 at 618) and exceptional circumstances must exist before a party will not only be deprived entirely of costs but also required to pay part of the opponent's costs (Trade Practices Commission v Nicholas Enterprises Pty Ltd (1979) 28 ALR 201; Robinson v Australian Association of Social Workers Limited [2000] SASC 239). Where a party raises issues or makes allegations improperly or unreasonably, this may constitute misconduct such that the court may not only deprive it of its costs but order it to pay the whole or a part of the unsuccessful party's costs: Trade Practices Commission v Nicholas Enterprises Pty Ltd at 208 per Fisher J, Re Elgindata Limited (No 2) [1993] 1 All ER 232 at 237 per Nourse LJ; Ashby v Marshall, (unreported, SC(SA), 28 November 1991); Popovic v Murray (unreported SC(Tas), 15 March 1991). 38 It is rare for a successful party who is guilty of misconduct in the litigation to be ordered to pay the unsuccessful opponent's costs where the misconduct does not lengthen the proceedings unnecessarily, cause unnecessary issues to be canvassed or otherwise cause the costs of the litigation to be increased. Indeed, the court's entitlement to depart from the usual order that costs follow the event has sometimes been said, in effect, to be subject to the qualification that the misconduct in question occasioned unnecessary litigation and expense (see Huxley v West London Extension Railway Company (1899) 14 App Cas 26 at 32-33 per Lord Halsbury LC; Ritter v Godfrey [1920] 2 KB 47 per Atkin LJ at 60). In other cases, however, this qualification has not been mentioned: see for example Donald Campbell & Co v Pollak [1927] AC 732 at 811-812; Thorne v Doug Wade Consultants Pty Ltd [1985] VR 433 at 500; Jamal v Secretary, Department of Health (1988) 14 NSWLR 252 at 271-272; Re Elgindata Limited (No 2) (supra). On balance, it seems to me that while delay and increased expense brought about by improper conduct in the course of the litigation are highly relevant factors in the discretion to depart from the usual order as to costs, they are not essential to the exercise of that discretion. It would, in any event, be very unusual for misconduct of that kind not to cause unnecessary delay and expense." 17In this case, the Palins certainly successfully defended the Vetterlis' claim for Mr Vetterli's lost wages, which would have very substantially increased the money order made in favour of the Vetterlis, had it succeeded. 18Nevertheless, that claim took but a small part of the hearing and was unnecessary prolonged by the Palins' approach to the evidence of Mr Chaneliere. The bulk of the hearing was devoted to the dispute over the misrepresentations which the Vetterlis established. In that aspect of the case too, it was the Palins who unarguably adopted an approach which unnecessarily increased the costs of the litigation. 19It is necessary to give but one example. It was the Vetterlis who called evidence from Mr Dahari. The evidence he gave was unexpectedly contrary to his earlier advice to them, that had caused them to accept that there was no contract with Seda Bakery, about which they established Mr Palin had made certain misrepresentations. For their part, it was only in submissions in reply that it was accepted for the Palins that there had been a contract with Seda for the supply of bread. To that point, by their evidence, both Mr and Mrs Palin had denied the existence of such a contract. Had the Palins accepted from the outset, as they clearly should have, the existence of that contract, it would have been unnecessary for much of the evidence which the Vetterlis, Mr Williams and they gave, to be led. 20Amendments to the pleadings and an acceptance in submissions, that certain of the claims which the Vetterlis had there advanced, should not be pressed, given that they rested on the same evidence as other of their claims, is in my view not a proper basis to make the orders sought by the Palins. It has not been established that those claims were made unnecessarily, or that making them protracted the proceedings unnecessarily. All the claims made rested on the same evidence. The way in which the submissions were finally advanced, reflected a practical acceptance that the litigation would be conducted more efficiently by certain claims not being separately pressed. Further, contrary to the submissions advanced for the Palins, the arguments which they advanced as to various matters, the effect of the nemo dat principle and the position of Mr Robert Palin, for example, were not arguments on which they succeeded. 21In those circumstances, I am well satisfied that the Court's discretion to depart from the usual order as to costs, may not be exercised in the way for which the Palins contended. They have not established necessary misconduct in the litigation on the Vetterlis' part, which would warrant the making of the order which they seek.

The Vetterlis' position 22For the Vetterlis it was accepted that unless they succeeded on the question of how damages were to be calculated, there was no basis upon which an indemnity costs order could be made in their favour. 23Had I not come to the conclusion which I reached on that calculation, the indemnity costs order sought could not, in any event, have been made. 24Their claim rested on an offer of settlement made at a conference prior to the hearing, when an offer in the following terms was made: "The Vetterlis will accept a payment of $130,000 in full and final settlement of their claim, provided the Palins release them from claims to the $80,000 for the unpaid purchase price, the $23,000 unpaid rent, and the costs of the IRC proceedings. The Palins can keep all the equipment. Each party is to bear their own costs and there are to be mutual confidentiality provisions." 25That offer has to be understood in a context where the Vetterlis had earlier brought proceedings in the Industrial Court, which found it had no jurisdiction to entertain their application, which was dismissed. A costs order was made against them. Those costs, it was common ground, amounted to some $17,000. The settlement offer contemplated that the Palins would bear those costs. 26In the circumstances it was accepted that the offer made at the conference was not a Calderbank offer, given the condition attached. It follows that even if the Vetterlis had succeeded on their approach to the calculation of damages, a discretion to award them indemnity costs could not properly have been exercised in their favour, given that what they were proposing was that the Palins waive some $17,000 which the Vetterlis had been ordered to pay them. Justice could not permit this aspect of the offer being so overlooked. 27It was also Mr Vetterlis' evidence that the offer he made at the conference did not reflect his final position on settlement, but that the discussions did not continue, given the Palins' attitude. 28That does not assist the Vetterlis' case. To the contrary, had they been prepared to accept a lower amount, that position should have been reflected in either an offer of compromise under the Rules or in a Calderbank offer, made after the conference. Had either of these steps been taken a settlement might have resulted and if it did not, the Vetterlis could have relied on rejection of the offer as a proper basis for an indemnity costs order being made in their favour. Having failed to take either steps, no such order can now be made in their favour.

Orders 29 For these reasons I order that:

Judgment for the defendants/cross-claimants be entered.
The Court declares that each defendant/cross-claimant has rescinded each of the following: (a) The Contract for the Sale of the R&D Foods and Elba Grissini business with the plaintiffs/cross-defendants; (b) The Lease for the premises known as Units 10 and 11, 10-12 Childs Road, Chipping Norton with the plaintiffs/cross-defendants; (c) The Chattel Mortgage with the plaintiffs/cross-defendants.
That the plaintiffs/cross-defendants pay damages to the defendants/cross-claimants inclusive of interest, up to and including 8 July 2013, in the amount of $126,826.37 and from 9 July 2013 on the amount of $100,000.00 pursuant to s 101 of the Civil Procedure Act 2005 until payment.
The plaintiffs/cross-defendants pay the defendants/cross-claimants' costs of the proceedings, as agreed or assessed.
All exhibits and subpoenaed material may be returned forthwith; any exhibits returned must be retained intact by the party or person that produced the material until the expiry of the time to file an appeal, or until any appeal has been determined.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 22 August 2013

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