Perochinsky v Kirschner & Anor

Judgment 1HIS HONOUR: On 24 April 2013 I directed entry of judgment for the plaintiff (Mrs Perochinsky) against the first defendant (Mrs Kirschner) for $553,152.73 plus interest. I ordered that the plaintiff's claims be otherwise dismissed (Perochinsky v Kirschner [2013] NSWSC 400). This judgment deals with the costs orders to be made consequent upon that decision. 2Three substantive claims were advanced at the hearing. The first was whether Mr and Mrs Kirschner were liable to account to Mrs Perochinsky for the proceeds of sale of shares that had been owned by Mr and Mrs Perochinsky. The shares were sold by Mrs Kirschner in the exercise of powers of attorney provided to her by Mr and Mrs Perochinsky. The substantial part of those proceeds were received by Mr and Mrs Kirschner for their own benefit. The quantum of the claim concerning the share sale proceeds was in the order of $1.3 to $1.4 million. The second claim was that Mrs Kirschner held her interest in the Woollahra unit on trust for Mrs Perochinsky. The third claim was that Mrs Kirschner converted the cheque for the refund of the accommodation bond. 3Mrs Perochinsky succeeded on the last claim but failed on the others. She failed in her claims against Mr Kirschner, the second defendant. 4Counsel for Mrs Perochinsky submitted that costs of her claim against Mrs Kirschner should "follow the event" which, counsel contended, meant that the first defendant (Mrs Kirschner) should pay Mrs Perochinsky's costs. Counsel for Mrs Perochinsky submitted that either there should be no order as to costs between Mrs Perochinsky and Mr Kirschner or, alternatively, that if an order were to be made as to costs as between Mrs Perochinsky and Mr Kirschner those costs should be borne by Mrs Kirschner pursuant to a Bullock order (Bullock v London General Omnibus Co [1907] 1 KB 264) or a Sanderson order (Sanderson v Blyth Theatre Co [1903] 2 KB 533). 5Counsel for Mrs Perochinsky also submitted that if an order were made for Mrs Perochinsky to pay Mr Kirschner's costs, those costs should be limited to any additional costs that were occasioned by reason of his joinder as a defendant. Counsel submitted that almost all of the costs incurred by both defendants would have been incurred in any event, even if Mr Kirschner had not been joined. 6Counsel for Mr and Mrs Kirschner submitted that Mrs Perochinsky should pay all of Mr Kirschner's costs. He submitted that an appropriate order would be that Mrs Kirschner pay between a quarter and a third of Mrs Perochinsky's costs and that Mrs Perochinsky's costs should be reduced by approximately 15 per cent of her total costs to take into account the costs of her unsuccessfully pursuing Mr Kirschner. He submitted that Mrs Perochinsky should pay between three-quarters and two-thirds of Mrs Kirschner's costs. Counsel for Mr and Mrs Kirschner submitted that such orders were appropriate to reflect both the fact that Mrs Perochinsky wholly failed in her claims against Mr Kirschner and was unsuccessful in two of the three substantive claims against Mrs Kirschner. 7Pursuant to s 98 of the Civil Procedure Act 2005 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. Rule 42.1 of the Uniform Civil Procedure Rules provides that subject to that Part, if the court makes any order as to costs the court is to order that the costs follow the event, unless it appears to the court that some other order should be made as to the whole or any part of the costs. The prima facie position is that costs are to follow the event. 8The rules do not define what is "the event" which the costs are to follow. In Reid, Hewitt & Co v Joseph [1918] AC 717, Lord Finlay LC, with whom Lord Parmoor agreed, said (at 733) that: "... the words 'the costs shall follow the event' mean that the costs are to be distributed according to the results of the several issues, while the party who is successful on the whole gets the general costs." 9However later cases have adopted a more flexible approach to determining what is "the event". In Cretazzo v Lombardi (1975) 13 SASR 4, Jacobs J said (at [16], 14): "... I would wish to sound a note of cautious disapproval of applications, which are being made with increasing frequency, to apportion costs according only to the success or failure of one party or the other on the various issues of fact or law, which arise in the course of a trial. It is true that in the case of Forster v Farquhar [1893] 1 QB 564, which is often relied upon, a successful plaintiff, acting throughout in good faith, was deprived of his costs and ordered to pay the defendant's costs on certain issues. But there are two things to notice about that case. In the first place, it was a jury trial, and the relevant rule (Order LXV, rule 1) under which the general discretion was conferred carried a proviso, that 'where any action ... is tried by a jury, the costs shall follow the event unless the judge ... shall for good cause otherwise order.' The general discretion of the Court was not being invoked. Secondly, the plaintiff claimed damages for breach of contract under four distinct heads, in total some three hundred and ninety-four pounds, but his verdict was for only twelve guineas, being less than half the claim under one head of damage. The three severable heads of damage, in respect of which the defendant was awarded costs, did not flow from the defendant's breach, and in respect of those severable items the claim was misconceived. But trials occur daily in which the party, who in the end is wholly or substantially successful, nevertheless fails along the way on particular issues of fact or law. 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 severalty 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." 10In Walters v PC Henderson Aust Pty Ltd [1994] NSWCA 338; (1994) 254 ALR 328, Mahoney JA (at 330 - 331) approved of a statement in Ritchie's Supreme Court Civil Procedure that: "Where the proceedings involve multiple issues the application of the rule that costs follow the event may involve hardship where a party succeeds on some issues and yet fails on others. Particularly is this so where, for example, a defendant succeeds on issues that occupied the bulk of the time taken by the proceedings. Nevertheless unless a particular issue or group of issues is clearly dominant or separable it will ordinarily be appropriate to award the costs of the proceedings to the successful party without attempting to differentiate between those particular issues on which it was successful and those on which it failed." 11In that case, Priestley JA, with whom in this respect Kirby P agreed, indicated a great willingness to evaluate the outcome of distinct issues in the making of a costs order. His Honour said (at 331): "... I thought there was considerable force in the submissions for the appellant that it would have been not a particularly difficult task to make a quick evaluation of distinct issues that were before the referee and to make a somewhat more particular costs order than the trial judge thought appropriate." 12Nonetheless there was no error of principle in the judge taking a global view that the successful party was entitled to costs although it failed on particular issues. 13In Elite Protective Personnel Pty Ltd & Anor v Salmon (No 2) [2007] NSWCA 373 the Court of Appeal said (at [6]): "Where there are multiple issues in a case the Court generally does not attempt to differentiate between the issues on which the appellant was successful and those on which it failed. Unless a particular issue or group of issues is clearly dominant or separable it will ordinarily be appropriate to award the costs of the proceedings to the successful party without attempting to differentiate between those particular issues on which it was successful and those on which it failed: Waters v P C Henderson (Aust) Pty Ltd (Court of Appeal, 6 July 1994, unreported)." 14Counsel for Mrs Perochinsky submitted that the application of the principles stated in para [6] of Elite Protective Personnel Pty Ltd & Anor v Salmon (No.2) to this case should yield the result that Mrs Perochinsky was entitled to all of her costs against Mrs Kirschner because, according to counsel's submission, Mrs Perochinsky was the "successful party". She submitted that the issues on which Mrs Kirschner succeeded were not clearly dominant or separable. 15These principles were restated and elaborated upon to an extent in Bostik Australia Pty Ltd v Liddiard (No. 2) [2009] NSWCA 304. The Court of Appeal (Beazley, Ipp and Basten JJA) said (at [38]): "The principles governing the making of an order as to costs so as to reflect the time taken in dealing with a particular issue in which the successful party in the proceedings or on the appeal did not succeed were reviewed by this Court in Elite Protective Personnel Pty Ltd & Anor v Salmon (No. 2) [2007] NSWCA 373. Those principles may be summarised as follows: Where there are multiple issues in a case the Court generally does not attempt to differentiate between the issues on which a party was successful and those on which it failed. Unless a particular issue or group of issues is clearly dominant or separable it will ordinarily be appropriate to award the costs of the proceedings to the successful party without attempting to differentiate between those particular issues on which it was successful and those on which it failed: Waters v P C Henderson (Aust) Pty Ltd (Court of Appeal, 6 July 1994, unreported). In relation to trials it has been said that it may be appropriate to deprive a successful party of costs or a portion of the costs if the matters upon which that party was unsuccessful took up a significant part of the trial, either by way of evidence or argument: Sabah Yazgi v Permanent Custodians Limited (No. 2) [2007] NSWCA 306 at [24]. A similar approach is adopted on appeal. If the appellant loses on a separate issue argued on the appeal which has increased the time taken in hearing the appeal, then a special order for costs may be appropriate which deprives the appellant of the costs of that issue: Sydney City Council v Geftlick & Ors (No. 2) [2006] NSWCA 374 at [27]. Whether an order contrary to the general rule that costs follow the event should be made depends on the circumstances of the case viewed against the wide discretionary powers of the court, which powers should be liberally construed: State of New South Wales v Stanley [2007] NSWCA 330 at [18] per Hislop J (with whom Beazley and Tobias JJA agreed). A separable issue can relate to 'any disputed question of fact or law' before a court on which a party fails, notwithstanding that they are otherwise successful in terms of the ultimate outcome of the matter: James v Surf Road Nominees Pty Ltd (No. 2) [2005] NSWCA 296 at [34]. Where there is a mixed outcome in proceedings, the question of apportionment is very much a matter of discretion and mathematical precision is illusory. The exercise of the discretion depends upon matters of impression and evaluation: James v Surf Road Nominees Pty Ltd (No. 2), citing Dodds Family Investments Pty Ltd v Lane Industries Pty Ltd (1993) 26 IPR 261 at 272. These principles were applied in City of Canada Bay Council v Bonaccorso Pty Ltd (No. 3) [2008] NSWCA 57 at [22] and most recently in Turkmani v Visvalingham (No. 2) [2009] NSWCA 279." 16A costs order in favour of a successful party can be ameliorated to reflect that party's failure on particular issues even though the successful party did not act unreasonably in raising or defending those issues (Permanent Trustee Australia Ltd v FAI General Insurance Co Ltd (Supreme Court of New South Wales, Hodgson CJ in Eq, 3 June 1998, unreported, BC 9802305 at [10]-[11]); Short v Crawley (No. 40) [2008] NSWSC 1302 at [32]; Corbett Court Pty Limited v Quasar Constructions (NSW) Pty Limited [2008] NSWSC 1423 at [25]-[32]; Dee-Tech Pty Limited & Anor v Neddam Holdings Pty Limited (No. 2) [2012] NSWSC 517 at [33]). 17In Bowen Investments v Tabcorp Holdings Ltd (No. 2) [2008] FCAFC 107, Finkelstein and Gordon JJ observed that fairness dictates how the discretion as to costs should be exercised. Their Honours said that if an issue by issue approach will produce a result that is fairer than giving the successful party all of his or her costs, notwithstanding his or her failure on particular issues, then the issue by issue approach should be applied. 18The adjustment of a costs order to reflect a successful party's failure on particular issues may also be warranted to provide a sanction against a party mounting an attack or defence on several fronts, some with little prospect of victory. (See Inn Leisure Industries Pty Ltd v DF McCloy Pty Ltd (No. 2) (1991) 28 FCR 172 (at 174); Baulderstone Hornibrook Pty Ltd v Qantas Airways Ltd (No. 3) [2003] FCA 325 at [3]-[5]; AMP Services Ltd v Manning (No. 3) [2007] FCA 510 at [4]). 19In my view an issue by issue approach to the determination of the appropriate costs order is appropriate in the present case. I do not accept the submission of counsel for Mrs Perochinsky that the issues upon which Mrs Kirschner succeeded were not dominant issues or clearly separable issues from those on which Mrs Perochinsky succeeded. 20Counsel submitted that the claim for conversion of the cheque for the refund of the accommodation bond arose from the same factual background or factual matrix that gave rise to the other claims. Speaking broadly, that factual matrix was that in early 2007, according to Mr and Mrs Kirschner, Mr and Mrs Perochinsky told them that they wanted to give their shares to Mr and Mrs Kirschner and expressed their intention that Mr and Mrs Kirschner receive the refund of the accommodation bond. The matrix of facts included Mr Perochinsky's going into the nursing home, the provision of the accommodation bond, the sale of shares pursuant to the power of attorney, the purchase of the Woollahra unit and the refund of the accommodation bond after Mr Perochinsky's death. 21Whilst these events are connected, that does not mean that the claim for conversion of the cheque, being the refund of the accommodation bond, was not a separable claim and a separate issue. In Bostik Australia Pty Ltd v Liddiard (No. 2) the Court of Appeal said (at [38]) that: "A separable issue can relate to 'any disputed question of fact or law' before a court on which a party fails, notwithstanding that they are otherwise successful in terms of the ultimate outcome of the matter." 22Nor would Mrs Perochinsky be better off if I had accepted that part of counsel's submission. Counsel's submission assumed that Mrs Perochinsky was the successful party. This was by reason of the order directing entry of judgment for $553,152.73 plus interest. However, I also ordered that the plaintiff's claims be otherwise dismissed. The plaintiff's other claims were of substantially greater monetary value than the claim for conversion of the cheque. 23It is not at all clear to me that either party can say that they were the successful party in the proceedings. Each had a measure of success and a measure of failure. If the claim on which Mrs Perochinsky succeeded is not characterised as a separate claim for the purposes of the exercise of the costs discretion, it would not follow that she would be entitled to her costs. 24It is also relevant that Mrs Perochinsky failed in her factual contentions in relation to the factual matrix summarised earlier in these reasons, except in relation to the evidence of Mrs Kirschner of the conversation said to have occurred on or about 20 August 2009 in which she deposed that Mrs Perochinsky agreed to her depositing the cheque into her own bank account. 25Where courts have taken an issue by issue approach to the making of costs orders the orders have taken a variety of forms. Sometimes the failure of a successful party on one or more issues will lead simply to a reduction in the percentage of costs payable. Sometimes failure on particular issues may result in there being no order as to costs, or may result in an order being made for the payment of the otherwise unsuccessful party's costs. Sometimes orders may be made, as sought by Mrs Kirschner in this case, for payment by both parties of a proportion of the other's costs. (See for example Griffiths v Boral Resources (Qld) Pty Ltd (No. 2) [2006] FCAFC 196 at [17]). 26Counsel for Mrs Kirschner correctly submitted that if Mrs Perochinsky had pursued only the cause of action on which she ultimately succeeded the hearing would have been substantially shorter and she would have received an award for costs which Mrs Kirschner would have had to pay. On the other hand, if Mrs Perochinsky had sued only in relation to the two claims on which she failed the defendants would have received costs orders in their favour. Counsel submitted that it would not be fair if Mrs Perochinsky were to receive a portion of her costs associated with the successful issue and there was no order for costs in favour of the defendants in respect of the issues on which they succeeded because that would mean the defendants recovered nothing in relation to the claims on which they were successful and had to pay the plaintiff some of her costs. 27I accept that in deciding what is a proper costs order, account should be taken of the fact that had Mrs Perochinsky brought only the claims on which she failed she would not only have had to pay her own costs of those claims but would have to pay the defendants' costs. That does not necessarily mean, however, that there should be offsetting costs orders of the kind proposed by counsel for Mrs Kirschner. 28Indeed, it is not inevitable that had the case been confined to the claims on which Mrs Perochinsky failed the Kirschners would have recovered all of their costs of those claims. The reason for that is that there were subsidiary issues in those claims on which the parties had mixed success. 29A submission at the heart of the defendants' case was that Mrs Kirschner was entitled to sell the shares and apply the proceeds of sale to herself and her husband pursuant to the powers given to her by the power of attorney, whether or not the Perochinskys had expressed an intention to make a gift of the shares. That raised a substantial legal issue on which I received significant submissions and which occupied a significant part of the hearing. It was an issue of law on which I found against Mr and Mrs Kirschner. On the other hand, Mr and Mrs Kirschner succeeded on the question whether Mr and Mrs Perochinsky did express an intention to make a gift of the shares. They failed on the question of whether Mr Perochinsky had capacity to make a gift of the shares, in that I accepted the submission for Mrs Perochinsky that I should accept the evidence of Associate Professor Rosenfeld in preference to that of Dr Kosoff. Nonetheless Mr and Mrs Kirschner succeeded in establishing that they did not know, nor could they have known, of Mr Perochinsky's lack of capacity and they succeeded in establishing that Mrs Kirschner was entitled to exercise the power of attorney to sell the shares and to keep the proceeds when she was not aware of Mr Perochinsky's lack of capacity. 30I think the parties' success and failure on these issues, or these sub-issues, is also to be taken into account in deciding what is an appropriate costs order. 31Also relevant is the fact that the proceedings were lengthened by Mrs Perochinsky's implausible evidence concerning the purchase of the Woollahra unit. Her credit was successfully attacked. The proceedings were lengthened and no doubt were more expensive by reason of the need for Mr and Mrs Kirschner to mount a substantial challenge to her credit. 32Of course, also significant to the exercise of the costs discretion is the fact that Mrs Perochinsky succeeded on her claim for conversion of the cheque. 33It is not possible to weigh the parties' success and failure on the various issues and sub-issues in an arithmetical or mechanistic way to determine the appropriate costs order. The matter is one of discretion and impression. 34I think that considering all of the issues raised, Mrs Kirschner has a greater claim to have been a successful party than does Mrs Perochinsky. 35Having regard to the number of issues on which Mrs Perochinsky failed and the other matters referred to above, including the lengthening of the proceedings by reason of her implausible evidence, I do not think it would be just if the defendants were required to pay any part of Mrs Perochinsky's costs. On the other hand I do not think it would be just if Mrs Perochinsky were required to pay all, or even a substantial proportion, of Mrs Kirschner's costs. I think she should pay some proportion of Mrs Kirschner's costs to reflect the greater number of issues upon which Mrs Kirschner succeeded, but that figure should not be 50 per cent as suggested at one point in the course of oral argument by counsel for Mrs Kirschner. In my view the appropriate order is that Mrs Perochinsky pay one-quarter of Mrs Kirschner's costs. 36So far as Mr Kirschner is concerned, he is a successful party. So far as he is concerned, there is no difficulty in identifying the event which prima facie costs are to follow. I see no reason to deprive Mr Kirschner of any part of his costs. 37On the other hand there is clearly substance in Mrs Perochinsky's contention that the bulk of the costs of the defendants would have been incurred in any event, even if Mr Kirschner had not been joined. Both defendants acted through the same solicitors and counsel. It is only to the extent that the defendants' costs were increased by the joinder of Mr Kirschner that he should have his costs. 38I do not accept that it is appropriate to make either a Bullock order or a Sanderson order in respect of the second defendant's costs. Either order may be justified where it is the conduct of an unsuccessful defendant that causes the plaintiff to join a defendant who succeeds in his or her defence. In Gould v Vaggelas (1985) 157 CLR 215, Wilson J said (at 247) that: "A Bullock order is a term - derived from the decision of the Court of Appeal in Bullock v London General Omnibus Co - used to describe an order requiring an unsuccessful defendant to pay the costs which have been awarded in favour of a successful defendant. Such an order may be made where the costs in question have been reasonably and properly incurred by the plaintiff as between him and the unsuccessful defendant ..." 39That will normally be demonstrated by some conduct on the part of the unsuccessful defendant, in this case Mrs Kirschner, which makes it proper that the successful defendant, in this case Mr Kirschner, be joined so that she should bear his costs (Roads and Traffic Authority of New South Wales v Palmer (No. 2) [2005] NSWCA 140; ACQ V Cook (No. 2) [2008] NSWCA 306 at [29]-[43]). 40In the statement of claim Mrs Perochinsky originally joined Mrs Kirschner as the only defendant. The statement of claim included a separate claim under the heading "Shareholding" in which Mrs Perochinsky alleged that Mrs Kirschner had failed or refused to account for the share sale proceeds. In her defence to that claim Mrs Kirschner pleaded that Mr and Mrs Perochinsky had made a gift of that shareholding to Mr and Mrs Kirschner. It is that pleading which is said to have resulted in the joinder of Mr Kirschner as a defendant. However, Mrs Perochinsky failed on the shareholding claim. There was nothing in Mrs Kirschner's defence to the claim on which Mrs Perochinsky succeeded that could reasonably have caused Mrs Perochinsky to join Mr Kirschner to the proceedings. Her joinder of Mr Kirschner to the proceedings was perfectly reasonable having regard to all of the claims which she advanced, but as she failed on the shareholding claim and as it was only that claim that truly engaged Mr Kirschner, there is no reason that she should not pay Mr Kirschner's costs. Mrs Perochinsky pleaded that Mr Kirschner also converted the cheque for the refund of the accommodation bond but there was no evidence to support that contention and it was not established. 41For these reasons I decline to make a Bullock or a Sanderson order. 42The orders are that without disturbing existing costs orders, I order that the plaintiff pay one-quarter of the first defendant's costs and pay the second defendant's costs limited to the extent to which the defendants' costs were increased by the joinder of the second defendant. [Counsel addressed on costs.] 43I think the defendants have had a greater measure of success on the argument about costs than the plaintiff. That might not be reflected in the general costs orders I have made. I think I should make a separate order in relation to the costs of the hearing on costs. In respect of the costs hearing I order that the plaintiff pay two-thirds of the defendants' costs. 44The exhibits can be dealt with in accordance with the Practice Note. 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: 25 June 2013