Rushcutters Bay Smash Repairs v H McKenna Netmakers & Ors

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

1079/01 RUSHCUTTERS BAY SMASH REPAIRS PTY LTD v H MCKENNA NETMAKERS PTY LTD & 3 0RS JUDGMENT 1 By consent, I entered judgment for the plaintiff against the first defendant for $198,796, against the second defendant for $25,631 and against the third defendant for $5,007.50. I reserved the question of costs. 2 Ordinarily, costs will follow the event and, ordinarily, an order for costs made against two or more defendants is joint and several as between them (Ryan v South Sydney Junior Rugby League Club Ltd [1955] 2 NSWLR 660 at 663). The justification for the joint and several liability is that a plaintiff as the successful party is, prima facie, entitled to its costs of the action and if one of the unsuccessful defendants is unable or unwilling to meet its share of the obligation, the misfortune should be that of the "partners in crime" and not that of the plaintiff (Trade Practices Commission v Nicholas Enterprises Pty Ltd (1979) 28 ALR 201 at 210). 3 The defendants submitted that I should depart from this course and order each defendant to pay the plaintiff's cost of the issues raised against it and leave it to the assessment process to ascertain the appropriate amounts. 4 The action was not continued against the fourth defendant. She and the third defendant were the directors of the first and second defendants. She misappropriated funds from the plaintiff, was charged with and found guilty of criminal offences and was subsequently bankrupted. She ceased to be a director of the first and second defendants. 5 The proceedings were commenced in this Court to enable moneys to be traced into the property of the defendants. After documentation was made available to an expert, he reported that the moneys had not been used to acquire assets and the claims were limited to unjust enrichment, with respect to which the defendants agreed to the consent orders last week. 6 The plaintiff's evidence to this effect was put on in August 2002. The fourth defendant misappropriated 19 cheques, 16 of which were used to the benefit of the first defendant, two were used to the benefit of second defendant and one was used to the benefit of third defendant. 7 The evidence put on by the plaintiff was that of an expert that did not deal with the cheque that benefited the third defendant and two affidavits of a director of the plaintiff. 8 It was argued on behalf of the defendants that each was a discrete claim against a discrete recipient and that the third defendant was, when the misappropriations occurred, ignorant of the facts and was not a "partner in crime" with the fourth defendant. 9 The plaintiff submitted that the evidence was interconnected. The evidence with respect to one defendant was not compartmentalised or divorced from the evidence with respect to other defendants. It was submitted that there was no explanation for the delay since August 2002 in compromising the action. It was pointed out that on the third defendant's admission the second defendant had no assets. It was submitted that as a director, the third defendant was responsible for the actions of the first and second defendants and could not be exonerated on the basis of his ignorance of the activities of the fourth defendant as his co-director. 10 One aspect of the issues for determination in Nicholas was an appropriate order as to costs where two defendants were unsuccessful and another defendant was successful on an issue. At 210, Fisher J said that the proportion of the plaintiff's costs which the two unsuccessful defendants should bear either jointly or separately should be reduced to reflect the time taken and costs incurred by joining the successful defendant because the unsuccessful defendants should not have to shoulder the increased burden (Mt Gambier Co-operative Milling Society Ltd v Williams [1921] SASR 185). His Honour took this view because he regarded the case against the successful defendant as being disengaged to a substantial extent from the case against the two unsuccessful defendants. 11 It was submitted that that principle should be adopted in the instant circumstances. I reject that submission. The facts with which his Honour was concerned differ from those before me where the defendants have been wholly unsuccessful. That type of situation was also considered by Fisher J at 210. His Honour said: "The plaintiff as the successful party is prima facie entitled by way of indemnity to its costs of the action, and if one of the unsuccessful defendants is unable or unwilling to meet its share of the obligation, the misfortune should be that of its "partner in crime" and not of the plaintiff. In so far as I have been able to find any authority, it is in favour of the contrary proposition to that propounded by counsel on behalf of the Morphett Arms. I refer to Dansk Rekylriffel Syndikat Aktieselskab v Snell [1908] 2 Ch 127 at 138, where an order was made against defendants jointly in circumstances where one became bankrupt during the proceedings. In my opinion the conventional order that the two defendants pay the plaintiff's costs should stand." 12 I do not understand his Honour to mean by the expression "partners in crime" that there must be some delinquency in which the defendants are jointly involved beyond a finding against them in favour of the plaintiff before the conventional order should be made. His Honour's use of inverted commas clearly indicates a metaphorical use of words. 13 In Mike Gaffikin Marine Pty Ltd v Princes Street Marina Pty Ltd (unreported, Young J, 15 July 1996) his Honour, having observed that orders for costs against two or more defendants are both joint and several, went on to say that the Court could make an order for costs to some other effect but it would usually only do so if there were some special circumstances, citing Nicholas. His Honour said a Court ordinarily would not do so if the defendants could, in a practical sense, be considered "partners in crime." The reason was that if one defendant should, for instance, become insolvent it was a more just solution that the other defendant should pay the costs, rather than the loss fall on the successful party. 14 In Thiess Watkins White Construction Ltd (in liq) v Witan Nominess (1985) Pty Ltd [1992] 2 Qd R 452 at 454, Cooper J said that the general rule that costs against two or more persons are joint and several should not be disturbed unless, and only to the extent that, one defendant conducted a separate and distinct defence that incurred costs that could not be attributed to the joint conduct of the defendants in the defence of the action. 15 In my view, there was no sufficient segregation of the conduct of the defence to warrant departure from the general rule. 16 That rule, in my opinion, is not dependent upon the activities of the defendants constituting them partners in crime in any literal sense. The phrase has a metaphorical meaning that should apply to most unsuccessful co-defendants. In the absence of any delinquency, other than that the plaintiff has been successful against them, the burden of payment of full costs because of non-payment of part of the costs by another defendant should fall on the co-defendants rather than upon the successful plaintiff. 17 If I be wrong in this view and something more is required to constitute co-defendants "partners in crime," the third defendant was the only co-director of the fourth defendant and, in my view, that was sufficient commonality between each of the defendants to exclude departure from the general rule. 18 In my view the plaintiff is entitled to an order for costs against each of the defendants. 19 My attention was drawn to the Supreme Court Rules 1970, Pt 52A r 33 which excludes an order for costs if a plaintiff obtains judgment not exceeding $225,000 and limits an order to 50% of costs of a judgment of not more than $450,000. It was accepted that the rule was limited to proceedings in the Common Law Division or entered in the Commercial List. 20 Under the settlement, I entered judgments for the plaintiffs totalling $229,434.50. It was submitted that, by analogy with the rule, I should limit the order for costs in favour of the plaintiff. 21 I decline to do so. At the time the proceedings were instituted it was necessary to invoke the jurisdiction of this Court to ground relief by way of tracing. In those circumstances, I do not regard it as appropriate to exercise my discretion by reference to a rule that does not apply to the proceedings.

22 The plaintiff will have an order for costs against each defendant.

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