Salvo & Ors v New Tel

HIS HONOUR: 1 The plaintiffs and New Tel each claimed to be beneficially entitled to an amount of $1,600,000 held in a jointly controlled trust account. On 13 August 2004, I gave judgment in which I decided that the plaintiffs had made out their entitlement to part of that sum, $750,000, but that New Tel was entitled to the balance, $850,000. The parties are agreed on the orders that should be made to give effect to my reasons, except that they cannot agree on costs. 2 The plaintiffs sought an order that New Tel should pay their costs of the action and of the cross-claim. New Tel sought an order that the plaintiffs pay its costs on and from 19 May 2004, and that otherwise there be no order as to costs. 3 I received written submissions from the plaintiffs and New Tel, and heard oral argument in support of those submissions, on 8 September 2004. At the conclusion of argument, I made orders as agreed by the parties and ordered New Tel to pay two thirds of the plaintiffs' costs of the proceedings. I said that I would give reasons for my decision on costs. These are my reasons. Background 4 The relevant facts, and the issues propounded by the parties for decision, are set out in my earlier reasons. I will not repeat them. It is however necessary to note that, although the issues related to two discrete components, $750,000 and $850,000, of the total of $1,600,000 held in trust, much of the factual material, and some of the submissions, were relevant to both components. The Calderbank letter 5 On 20 April 2004, New Tel's solicitors, Blake Dawson Waldron, wrote to the plaintiffs' solicitors, Baker & McKenzie. They conveyed New Tel's offer to settle the proceedings on the following basis: "1. Our client is to pay your client the sum of $750,001 in settlement of the Proceeding (save as to costs). 2. Our client is to retain the balance of the monies relating to the second deposit paid by New Tel in accordance with the Third Deed of Variation and Amendment dated 11 October 2002 to the Henry Davis York Trust Account - Account No: 30-0114, BSB No: 032-000 at Westpac Banking Corporation, 341 George Street, Sydney. 3. Costs lie where they fall. 4. The Proceeding is to be dismissed. 5. Mutual releases are to be provided. 6. This offer remains open for a period of 28 days from the date of this facsimile, after which time it shall lapse. 7. The terms of this offer are to be incorporated in a deed of settlement and release acceptable to the parties, with payment of the sums in paragraphs 1 and 2 (Settlement Sum) to be made at the time of execution of the deed. Such a deed must be entered into within 14 days of your clients' acceptance of this offer." 6 The offer was prefaced by observations to the effect that New Tel had strong prospects of success; and followed by observations that in light of those prospects, the offer "represents a considerable compromise of [New Tel's] claim, and entitlement to costs". The letter concluded by referring to the decision in Calderbank v Calderbank [1976] Fam 93, indicating that if necessary it would be deployed upon the basis defined in that decision. Principles relevant to the discretion to award costs 7 By s 76 of the Supreme Court Act 1970 (NSW), costs are in the discretion of the Court. By SCR Pt 52A r 11, costs are to follow the event "except where it appears to the Court that some other order should be made as to the whole or any part of the costs." 8 The application of the "follow the event" rule often gives rise to difficulty in identifying what is the relevant "event". Whether the "event" that costs should follow is the outcome of the proceedings, or the determination on separate issues, will depend on the nature of the proceedings. In Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (No 3) (1998) 30 ACSR 20, Young J discussed the relevant principles at 20-21. His Honour said that where there are multiple issues, costs may be assessed on each issue or the Court may make a reduction in the costs which the successful party obtains because that party has lost on separate issues. He pointed out that "it is unwise to be too technical about what is meant by "event" or "issue" in this context". He said that "one does not look at issues as if they were pleaders' issues, but approaches the matter with a broad brush." 9 In some cases, where it can be seen that there was a dominant issue that led to the plaintiff receiving substantially less than the amount of its claim, it may be appropriate to reduce on an "issues" basis the costs otherwise payable: Forster v Farquhar & Ors [1893] 1 QB 564; Cretazzo v Lombardi (1975) 13 SASR 4. Where there are clearly dominant or separable issues, it may be appropriate to order costs on a basis that reflects success or failure on those issues: Waters v P C Henderson Australia Pty Ltd (Court of Appeal, 6 July 1994, unreported). 10 A leading decision in this area is the judgment of Toohey J in Hughes v Western Australian Cricket Assn Inc (1986) 8 ATPR 40-748. At 48, 136, his Honour set out the following principles (I both paraphrase his Honour's words and omit citations):

Further, in those circumstances, the litigant whilst overall successful may not only be deprived of its own costs but also be ordered to pay the other party's costs of those issues. In this context, issue means not "a precise issue in the technical pleading sense but any disputed question of fact or of law". 11 In Rosniak v Government Insurance Office (1997) 41 NSWLR 608, Mason P at 615 confirmed that it may be appropriate to order a party that is successful overall to pay the costs of a discrete issue on which it failed. In the circumstances of that case, his Honour held that such an order was appropriate because the successful plaintiff had directed a "vast amount of written and oral expert evidence (spanning many days) … to the attempt to challenge the Todorovic v Waller discount rate of 3%". That attempt involved "adjournments and directions hearings occasioned solely by the plaintiff's wish to prove the economic forecast issue". The plaintiff failed in this and his Honour held, confirming the decision of Badgery-Parker J at first instance, that the defendant should have its costs of that issue and should have them on an indemnity basis. Meagher JA agreed with Mason P except on the indemnity costs issue; and Clarke AJA, with a presently irrelevant exception, agreed with the reasons of Mason P. 12 In Fexuto, Young J at 24, having referred both to Rosniak and Forster, said that "a judge has got to look at the matter globally and in the circumstances of each case and make an order for costs that is fair and reasonable after taking into account the general guidelines." Analysis 13 In the present case, the fund was comprised of two discrete amounts. Although much of the evidence was relevant to both of those amounts, there were some separate evidentiary issues. Although some of the submissions were relevant to both amounts, the analysis in respect of each was significantly different. As I sought to make clear, a decision in favour of the plaintiffs on the amount of $750,000 did not dictate that the plaintiffs should also succeed on the amount of $850,000. 14 In addition, the plaintiffs claimed that New Tel was estopped from denying the existence of the asserted trusts in respect of the two amounts. The estoppel was argued as both estoppel by representation and conventional estoppel. Although the estoppel issues arose out of the common factual matrix, there were some individual matters of fact relevant to them alone. The arguments directed to the estoppel issues were, naturally, distinct from those directed to the trust cases. 15 It was not necessary for me to consider the estoppel case in relation to the sum of $750,000 (because I held that the plaintiffs had made out their case that they were the beneficiaries of a trust of that sum). It was, however, necessary for me to consider the estoppel case in relation to the sum of $850,000 (because I held that the plaintiffs had not made out their case that they were the beneficiaries of a trust of that sum). I concluded that the estoppel case failed. 16 New Tel had cross-claimed against, among other cross-defendants, the plaintiffs. The cross-claim was not pressed. 17 For the plaintiffs, Mr R J Brender of Counsel submitted that the "event" was the outcome of the proceedings; and that the plaintiffs had, overall, succeeded. For New Tel, Mr I R Pike of Counsel submitted that there were in substance two separate cases, one in respect of each sum of money; and that the plaintiffs had succeeded on one, and New Tel on the other. 18 It followed, from Mr Brender's approach, that the plaintiffs should have all their costs; and, from Mr Pike's approach, that there should be no order as to costs. (I put to one side, for the moment, Mr Pike's submissions based on the Calderbank letter.) 19 I think that the appropriate analysis of these proceedings is that they involve a common factual substratum, or matrix, that gave rise to two distinct claims. However, referring to them as "distinct" claims somewhat oversimplifies the position. As I recounted in my earlier reasons, the plaintiffs were obliged initially to subscribe $2,000,000 for convertible notes in New Tel, to be applied in satisfaction of New Tel's obligations to acquire the issued share capital of Digiplus. The arrangements (both between the plaintiffs and New Tel and between New Tel and Digiplus) were varied on a number of occasions, as I recounted in my earlier reasons. The result of those variations was that the amounts that were ultimately held on trust had quite different sources, although there is no doubt that, in one case actually and in the other notionally, they represented money provided by the plaintiffs, or money to which the plaintiffs were entitled and that was provided on their behalf. 20 I do not think that it is appropriate to ignore the significant differences in analysis that were required in respect of the two amounts of money. That having been said, I do not think that it is appropriate to regard the proceedings as, in substance, comprising two separate cases. 21 Thus, whilst I consider that the plaintiffs have succeeded overall, and should have some of their costs, I do not think that they should have all of their costs. I do think that it is necessary to make some reduction to recognise the fact that they failed in respect of the $850,000, and failed on their estoppel case. Equally, it has to be recognised that the cross-claim (although it was not pressed at the hearing) was abandoned, in circumstances where the plaintiffs must have incurred, and are entitled to recover, some costs in preparing to oppose it. 22 I turn to the Calderbank letter. If (as New Tel submitted before me) it was appropriate to regard the proceedings as including two separate cases, one over the $750,000 and one over the $850,000, then the offer could be seen as offering the principal (but no interests or costs) in respect of the one, and $1 in respect of the other. What the offer did not take into account was that substantial interest had accrued on the total sum. Mr Brender submitted, and Mr Pike accepted, that at the time the offer was made, the accrued interest was over $90,000. On a proportional basis, about $42,000 of that accrued interest would be referable to the sum of $750,000 in respect of which the plaintiffs succeeded. 23 It follows, when one takes into account interest, that even allowing for the plaintiffs' failure in respect of the sum of $850,000, their entitlement based on my reasons was substantially more than the amount of the offer. 24 I therefore do not regard the Calderbank letter as providing any basis for concluding that the plaintiffs should have no costs. Once that is recognised, the Calderbank letter has minimal, if any, continuing relevance: that is, it has little, if anything, to say as to the precise order that should be made in favour of the plaintiffs. 25 Taking into account the statements of principle to which I have referred that bear upon the exercise of the discretion, and taking into account the circumstances relating to the particular litigation to which I have referred, I concluded that an appropriate order was that the plaintiffs should have two thirds of their costs of the proceedings. An order in those terms vindicated the plaintiffs' position as successful litigants (and litigants whose success was greater than the amount of the only proved offer made to them). It also recognised that the plaintiffs did not succeed on certain issues that were, in a legal sense, quite distinct. It recognised that, notwithstanding the legally distinctive character of issues, all issues arose out of a common factual substratum or matrix, and the individual evidentiary material relevant to one only of the separate issues was limited. Finally, the order was intended to recognise that the plaintiffs must have incurred costs in respect of the cross-claim that, ultimately, was not pressed. Conclusion 26 It was for these reasons that on 8 September 2004 I ordered New Tel to pay two thirds of the plaintiffs' costs of the proceedings. For the avoidance of doubt, the plaintiffs' costs of the proceedings include their costs of New Tel's cross-claim.

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Judgment (10 paragraphs)

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