Plaintiff v Defendant

Supreme Court of Victoria|2021-06-21|Before: Nichols J

PRACTICE AND PROCEDURE - Costs - Whether appropriate to depart from usual rule that costs follow the event - Plaintiff obtained nominal damages - Which party can be said to be the successful party - Whether to make no order as to costs.

1 By its statement of claim, the plaintiff (KSG) advanced two causes of action against the defendant (Open Markets): a claim for damages arising from breaches of the shareholders agreement to which KSG, Open Markets and other shareholders were party () and a claim seeking orders pursuant to ss 232 and 233 of the (Cth), on the basis that the breaches of the SHA were oppressive or unfairly prejudicial to it or discriminatory against it.

2 I delivered judgment on KSG's claim on 31 March 2021.[1] KSG was wholly unsuccessful in respect of its claim for oppression,[2] and was awarded nominal damages in the sum of $100 in respect of its claim for breach of contract.[3]

3 KSG's breach of contract claim was put this way: Open Markets made numerous allotments of new shares between July 2013 and March 2016. It was required, under the SHA, to notify existing shareholders and invite them to take up shares, but did not do so. KSG claimed that because it did not receive the mandated notices it was deprived of its rights and an opportunity to participate in those allocations. It did not exercise its rights to take up shares that it would have exercised had it received offers in accordance with the SHA, each time new securities were issued. KSG's case was that it would have purchased every share that it was entitled to purchase under the SHA, and would, in 2016, have sold all of the shares that it would by then have acquired, at a profit. Its loss was calculated as the difference between that profit and the costs that KSG would have incurred to purchase the shares, put on two alternative bases. On its "scenario 1", it says it would have purchased all shares that should have been offered to it, including all shares not taken up by other existing shareholders, and then would have sold those shares at the termination of the shareholders agreement in March 2016, and thereby it would have made a net profit of $9,964,506 on that transaction. On its "scenario 2", it would only have purchased those shares to which it was entitled by way of first round offer, and would have sold those shares in March 2016 at the termination of the shareholders agreement, making a net profit of $2,077,896 on that transaction.

4 Although Open Markets' position as to the extent of its admissions of breach of contract was not clear on its pleading at the outset of the trial, in its written outline of opening submissions, filed prior to the commencement of the trial, it substantially admitted the breaches of contract alleged by KSG, save in respect of one of the 17 tranches of shares that were in issue. The defendants contended that that particular share issue (to an investor named Chow Fah Thoo) was not subject to the offer requirements imposed by the SHA, because of an exception that applied to the circumstances of that investment. I concluded that the exception did not apply.[4] The defendants' admissions were repeated and clarified during the course of oral opening submissions and in discussions during the trial and reflected in an amended defence filed on 27 April 2020.

5 As such, in respect of the breach of contract claim, the evidence and submissions at trial were overwhelmingly directed to the questions of whether Open Markets' breaches of contract had caused the loss claimed by KSG and the quantum of any such loss. KSG failed on those questions and was only entitled to an award of nominal damages.

6 The subject matter of KSG's oppression claim was co-extensive with that of its claim for breach of contract. It was KSG's case that it had been oppressed because of the financial effect of Open Markets' conduct on KSG (the loss of an opportunity to purchase and then sell shares, resulting in a dilution of its shareholding). KSG failed on that case. I did not find that Open Markets' conduct was oppressive to, unfairly prejudicial to, or unfairly discriminatory against KSG and concluded that in any event it would have been inappropriate to order the relief sought by KSG.

7 By its submissions on the question of costs KSG characterised itself as the successful party in this proceeding. In substance, KSG said that it had successfully prosecuted a claim for breach of contract. Open Markets said that it was the successful party, and that the contest at trial had been devoted to questions of causation and loss, and not to breach of contract.

8 The relevant general principles governing the question of costs can be briefly stated:

(a) The power to award costs is in the Court's discretion.[5] The discretion must be exercised judicially and in accordance with principle.[6]

(b) The ordinary rule is that costs follow the event. That rule is grounded in reasons of fairness and policy and operates whether the successful party is the plaintiff or the defendant. It recognises that if the litigation had not been brought or defended by the unsuccessful party, the successful party would not have incurred the expense which it did.[7] As the High Court said in Sangare, this is "one of the most, if not the most, important" principles by reference to which the discretion to award costs is to be exercised.[8]

(c) The ordinary rule may be modified or displaced where conduct on the part of the successful party in relation to the litigation would justify a different outcome.[9]

(d) The fact that not all of the successful party's arguments have been accepted by the Court does not of itself require a departure from the ordinary rule or justify the adoption of an "issue-based" approach to the award of costs. The existence of clearly distinct and severable issues on which the successful party has failed might justify a departure from the ordinary rule. In such a case it would be necessary to weigh the significance of the contested issues in proportion to the proceeding as a whole and, where relevant, the conduct of the successful litigant, in the context of case management principles.[10] However, a court should not too readily disallow costs simply because a party has failed on an issue, unless the issue is quite separate and distinct or unless there is "some element of unreasonableness or inappropriate conduct in relation to that issue".[11] As Refshauge J said in Lewis v Chief Executive Department of Justice and Community Safety -

[i]t is not appropriate for the court to comb through the proceedings to separate out issues on which the successful party has not been successful so as, in some way, to moderate the usual order for costs.[12]

The fact that a party has failed on an issue does not of itself mean that the party has acted inappropriately or unreasonably.[13] Hence, while there is a discretion to apportion costs, other than in the clearest of cases, the successful party should not be deprived of its costs.[14]

9 It is now well accepted that a party who has only been awarded nominal damages is not usually entitled to recover costs as they cannot be regarded as the successful party and, further, that the Australian common law (and, indeed, the English common law) no longer regards nominal damages as a "peg on which to hang costs".[15] The discretion to award costs is always dependent upon the facts and circumstances of the individual case and, in particular, on which party can be characterised as the successful party, on the basis of those facts and circumstances.[16]

10 In some circumstances, it may follow from an award of nominal damages to a plaintiff, that the plaintiff should have its costs. Such instances may include, for example, where the primary purpose of the proceeding was not merely to recover substantial damages but rather to "establish or vindicate some legal right",[17] or where proof of breach or duty was a substantial and vigorously contested aspect of the case at trial.[18] Further, in some instances where other costs rules apply (for example, where an offer of compromise has been made by a defendant), the operation of those rules may be relevant factors in the exercise of the judicial discretion to award costs.[19]

11 Conversely, a factor that will militate against considering the plaintiff a successful party where they have been awarded nominal damages is where the real purpose of the proceeding was to obtain substantial damages.[20]

12 KSG relied on two authorities to support its contention that nominal damages should still be considered "a peg on which to hang damages". The first is a decision of Full Court of the Supreme Court of Victoria, in which the Eames J said for the Court:[21]

In the present case both causes of action were pleaded. Where the claim is brought in tort, however, it would be necessary for the plaintiff to prove actual damage in order to succeed in the action whereas in an action based on breach of contract proof of damage is not required; nominal damages may be recovered thus entitling the plaintiff, prima facie, to an order for costs. (See Sykes v Midland Bank Executor and Trustee Co Ltd [1971] 1 QB 113).

Two things must be said about the extract above. First, the statement relied upon by KSG was the briefest obiter - indeed, in that case the Full Court held that, contrary to the findings of the trial judge, the plaintiff had indeed suffered loss a result of the defendant's negligence and was thus entitled to substantial damages. Understood in that light, the Court's passing reference to a plaintiff's entitlement to costs is better understood as a hypothetical or principled statement, one not in issue before the Court, that a plaintiff may successfully make out a cause of action in contract, and thus prima facie be entitled to its costs, without the need to prove loss.[22] Second, Sykes v Midland Bank Executor and Trustee Co Ltd[23] does not obviously stand for the proposition cited. In Sykes, the English Court of Appeal overturned a decision of a trial judge awarding damages, and instead found the plaintiff was only entitled to nominal damages in the sum of 40s. An award of costs was made in favour of the defendant, for half the costs of trial after the date of payment into Court, departing somewhat from the rule that the defendant should have its costs in circumstances where the plaintiffs had failed to better a payment into Court.[24] That decision illustrates the foundational proposition that an award of costs is a discretion to be exercised judicially in light of the circumstances of the relevant case. In light of the volume of subsequent appellate authority expressly to the contrary of the proposition that a plaintiff awarded nominal damages is prima facie entitled to costs, I do not consider myself bound by the statement extracted above.

13 The second authority upon which KSG relies is S_imply Irresistible Pty Ltd v Couper & Ors (No 2)_ [2011] VSC 33, in which the plaintiff, who had been awarded nominal damages, was found to be entitled to costs up until the point at which the defendant had made an offer of compromise, pursuant to Order 26 of the Supreme Court (General Civil Procedure) Rules. However, this decision is distinguishable on two grounds, namely that it was decided on the basis of the rules concerning an offer of compromise (which are not applicable to the case at hand) and that the question of duty of care and breach of duty were central issues in contest in the case, on which points the plaintiff succeeded.[25]

14 On an alternative basis, KSG contended that there should be no order as to costs. It is undoubtedly correct that the Court has the power not to award costs in an appropriate case. However, that is a departure from the ordinary rule that costs should follow the event, and the Court's discretion should only be exercised in that manner if there are circumstances that would justify a different outcome.[26]

15 That submission was made by reference to two authorities. The first was Dering v Uris.[27] That decision was a costs ruling by a single judge of the Queen's Bench, which concerned the costs of a defamation trial where a payment into court of £2 had been made, but the jury had determined, after 18 days of trial, that the plaintiff was entitled to damages of only a halfpenny, which was 29 shillings and 11 halfpennies less than what the defendants had paid into Court. Lawton J found that if there had been no payment into Court, he would have been minded not to make an order as to costs.[28] However, as there had been a payment into Court, Lawton J found that the defendants should have their costs after the date of payment into Court and prior to that the plaintiff should not have his costs.[29] The facts of that case are so radically different from those in the instant case that they are of no assistance to KSG.

16 The second authority upon which KSG relied was a decision of the High Court of New Zealand at Christchurch. In Walsh v Kerr,[30] the plaintiffs established they had been induced to purchase a hotel subject to a lease on the representation that performance of the tenant's obligations was fully guaranteed by a substantial public company. It was only after settlement that the plaintiff purchasers discovered that the guarantee had been varied to release the guarantor if the lease was assigned to an acceptable assignee. At first instance, Tipping J held they had not established that any loss had flowed from that misrepresentation,[31] and awarded the nominal damages only.[32] His Honour made no order as to costs, seemingly, although the reasons were not set out in his detail, because the plaintiffs had established the fact of the defendants' misrepresentation, an allegation which had been denied throughout trial.[33] The only possible relevance of this case is as an example of the exercise of judicial discretion in a case returning the plaintiff nominal damages, however, in such widely different factual and legal circumstances, there is no need to consider it further.

17 It is clear that in the circumstances of this case, Open Markets was the successful party.

18 First, Open Markets was entirely successful on the oppression claim.[34]

19 Second, it was entirely successful on the issues of causation and proof of loss, in respect of the breach of contract claim.

20 Third, the purpose of the litigation was to recover a substantial sum of damages, being $9,964,506 on KSG's scenario 1 or $2,077,896 on KSG's scenario 2. The shareholders agreement had been terminated in 2016 and there was no ongoing breach of contract.

21 Fourth, the overwhelming majority of the trial of this matter was directed to issues of causation, damages and oppression, and not to breach of contract.

22 KSG's submissions were largely directed toward the contention that breach of contract had been in dispute between the parties, and that KSG had to bring the matter to trial in order for the defendant to make the relevant admissions, and for findings to be made concerning breach of contract. KSG also relied on the fact that there had never been any admission by the defendant in respect of the issue of shares to Chow Fah Thoo, which Open Markets had unsuccessfully claimed were exempt from the notice provisions of the shareholders agreement.

23 While it is correct to say that up until the time of Open Markets' opening submissions the scope of their admissions of breach was unclear, and that the precise scope of its admissions was discussed and clarified during the trial, the point cannot be generally maintained. Open Markets' written opening submissions were filed prior to the commencement of trial, and the conduct of the trial reflected that the plaintiff understood that issues of breach were largely admitted. Although there was some cross-examination on the question of breach of contract, in particular in relation to the issue of shares to Chow Fah Thoo, it was very limited when compared to the extensive time spent by the parties seeking to prove their case and defence respectively, concerning causation and quantum of loss.

24 In any event, the fact that some aspects of the plaintiff's claim for breach of the shareholders agreement were still in play during the trial does not alter the fact that the breaches were substantially admitted. Nor does it alter the fact that KSG was the unsuccessful party, in that it did not achieve the outcome that was the purpose of the litigation - a significant award of damages.

25 No order was sought for an apportionment of costs, although the plaintiff's emphasis on its success on the question of breach, and with respect to the shares issued to Chow Fah Thoo, may have been directed to such an outcome, without explicitly saying so. To the extent that the KSG's submissions can be read in that way, I do not consider there to be any justification for me to depart from the rule that ordinarily costs follow the event, for reasons already discussed.

26 Accordingly, I will make orders that KSG pay Open Markets' costs of the proceeding, to be taxed on an ordinary basis, if not agreed.

[1] KSG Investments Pty Ltd v Open Markets Group Ltd [2021] VSC 145 (Principal Reasons).

[2] Principal Reasons [316]-[333].

[6] Northern Territory v Sangare [2019] HCA 25; (2019) 265 CLR 164 (Sangare), 172-3 [24].

[7] Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72, 96-97 [66]-[67].

[10] See Zentai v Honourable Brendan O'Connor (No 4) [2010] FCA 1385, [72].

[11] See Dr Martens Australia Pty Ltd v Figgins Holdings Pty Ltd (No 2) [2000] FCA 602, [54].

[12] Lewis v Chief Executive Department of Justice and Community Safety (No 2) [2014] ACTSC 196 (Lewis), [26].

[13] BHP Billiton Iron Ore Pty Ltd v National Competition Council (No 2) [2007] FCA 557, [21].

[14] Lewis, [27]; Orrong Strategies Pty Ltd v Village Roadshow Ltd (No 2) [2007] VSC 205, [14].

[15] Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72, 98 [70] (McHugh J); Nexus Minerals NL v Brutus Constructions Pty Ltd [1997] FCA 926 (Spender, Nicholson and Finn JJ); Actrol Parts Pty Ltd v Coppi (No 3) [2015] VSC 758; (2015) 49 VR 573, 597-601 [86]-[103] (Bell J); Alltrans Express Ltd v CVA Holdings Ltd [1984] 1 WLR 394, 403 (Stephenson LJ), 404 (Griffiths LJ).

[16] Nexus Minerals NL v Brutus Constructions Pty Ltd [1997] FCA 926 (Spender, Nicholson and Finn JJ); Anglo-Cyprian Trade Agencies Ltd v Paphos Wine Industries Ltd [1951] 1 All ER 873, 874 (Devlin J).

[17] Motium Pty Ltd v Arrow Electronics Australia Pty Ltd [2011] WASCA 65 (S), [10] (McLure P, Newnes and Murphy JJA); Actrol Parts Pty Ltd v Coppi (No 3) [2015] VSC 758; (2015) 49 VR 573, 597-601 [98] (Bell J); NCON Australia Ltd v Spotlight Pty Ltd (No 7) [2014] VSC 25, [14] (Robson J); Ng v Chong [2005] NSWSC 385, [8] (Hamilton J).

[18] Simply Irresistible Pty Ltd v Couper [2011] VSC 33, [26] (Kyrou J); Witcombe v Talbot & Olivier (No 2) [2009] WASC 173 (S), [27] (Beech J); Gold and Copper Resources Pty Ltd v Newcrest Operations Ltd [2013] NSWSC 345, [36] (Stevenson J).

[19] Simply Irresistible Pty Ltd v Couper [2011] VSC 33, [25]-[27] (Kyrou J).

[20] Rockcote Enterprises Pty Ltd v FS Architects Pty Ltd; Carelli v FS Architects Pty Ltd [2008] NSWCA 30, [100] (Campbell JA, McColl JA and Handley AJA agreeing); State of New South Wales v Stevens [2012] NSWCA 415; (2012) 82 NSWLR 106, 111-112 [22] (McColl JA, Ward JA and Sackville AJA agreeing); NCON Australia Ltd v Spotlight Pty Ltd (No 7) [2014] VSC 25, [16] (Robson J); MLW Technology Pty Ltd v May (No 4) [2003] VSC 293, [6] (Byrne J); see also Alltrans Express Ltd v CVA Holdings Ltd [1984] 1 WLR 394, 403 (Stephenson LJ).

[21] Siskamanis v Pandeli Barbayannis & Co [1993] ANZ Conv 514, 517 (Eames J, Brooking and Nathan JJ agreeing).

[22] Siskamanis v Pandeli Barbayannis & Co [1993] ANZ Conv 514, 520 (Eames J, Brooking and Nathan JJ agreeing).

[23] S_ykes v Midland Bank Executor and Trustee Co Ltd_ [1971] 1 QB 113.

[24] S_ykes v Midland Bank Executor and Trustee Co Ltd_ [1971] 1 QB 113, 132; see, for the operation of the English rule and its former Victorian cognates, Williams v Volta [1982] VicRp 74; [1982] VR 739.

[25] Simply Irresistible Pty Ltd v Couper [2011] VSC 33, [25]-[27] (Kyrou J).

[28] Dering v Uris [1964] 2 QB 669, 672.

[29] Dering v Uris [1964] 2 QB 669, 673.

[30] Walsh v Kerr [1987] 2 NZLR 166 (Tipping J).

[31] This judgment was later overturned, on the separate basis that Tipping J had applied the wrong measure of loss: Walsh v Kerr [1989] 1 NZLR 490 (Cooke P, Somers and Hardie Boys JJ).

[32] Although framed in terms of misrepresentation, the cause of action was breach of contract by force of s 6 of the Contractual Remedies Act 1979 (NZ).

[33] Walsh v Kerr [1987] 2 NZLR 166, 182 (Tipping J).

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