Shield Mercantile v Citigroup

Judgment (EX TEMPORE - REVISED 22 MARCH 2013) 1HIS HONOUR: The plaintiff (Shield) sued the defendant (Citigroup) claiming underpaid commissions in relation to debt collection assignments given by Citigroup to Shield, and claiming damages for breach of contract (including loss of the opportunity to make further, and supposedly profitable, debt collection agreements). 2The proceedings were heard over some twelve days in October and November 2012. 3I gave judgment on 28 February 2013: [2013] NSWSC 117. The parties are agreed that, on the assumption that my conclusions set out in those reasons are correct, Shield is entitled to recover some $144,316.46 for underpaid commission, nothing for damages for breach of contract or loss of opportunity, and some $89,014.39 in interest up until today's date. If my arithmetic is correct (and I acknowledge that is a more than usually unreliable assumption) the total is $233,330.85. 4It may thus be seen that the twelve days of hearing each resulted in a recovery, net of interest, of about $12,000; or, including interest, a little under $20,000. It is I think certain that on the former basis the daily costs of running the trial exceeded the amount recovered day by day; and that is probably true on the latter basis also. 5I reserved making any order as to costs, because I expected that there would be argument on that topic. That indeed proved to be the case. 6Citigroup sought, in the alternative, a variety of costs orders. 7Shield took the position that it had succeeded, and thus was entitled to its costs (UCPR r 42.1). 8At the outset of the argument on costs, there was some question as to whether the debate could proceed today. That was because one of the elements in Citigroup's argument was a Calderbank offer made back in March 2011. The parties had engaged in minute analysis of Shield's success or failure compared to the amount offered. 9Mr Henskens of Senior Counsel, who appeared with Mr Zahra of counsel for Citigroup, submitted that he could not deal with the question today because a recently served affidavit from Shield's solicitor, Mr Cockburn, indicated that Shield's costs, at the date the Calderbank offer was made, were about $45,000 more than had been thought. The exactness of the calculations in which the parties engaged meant that this might be a significant figure. 10Confronted with the entirely unpalatable prospect of yet further delay, and thus the assurance that further costs would be incurred, I indicated that I had a preliminary view that there should be no order as to costs. 11Mr Darke of counsel, who appeared with Ms Gordon of counsel for Shield, sought to persuade me otherwise. 12Mr Henskens took the approach, on instructions, that if I remained of that view then Citigroup would not press its alternative (and from its perspective, more favourable) claims for costs. 13Mr Henskens submitted that an order for costs should not be made, at least in the first instance, because of UCPR r 42.34. That rule reads as follows: 42.34 Costs order not to be made in proceedings in Supreme Court unless Court satisfied proceedings in appropriate court (1) This rule applies if: (a) in proceedings in the Supreme Court, other than defamation proceedings, a plaintiff has obtained a judgment against the defendant or, if more than one defendant, against all the defendants, in an amount of less than $500,000, and (b) the plaintiff would, apart from this rule, be entitled to an order for costs against the defendant or defendants. (2) An order for costs may be made, but will not ordinarily be made, unless the Supreme Court is satisfied the commencement and continuation of the proceedings in the Supreme Court, rather than the District Court, was warranted. 14It appears to apply because these proceedings are other than defamation proceedings and because Shield has recovered an amount of less than $500,000. In that circumstance, Shield would be entitled to its costs "apart from this rule" by virtue of r 42.1, unless the Court were to order otherwise. 15In those circumstances, the effect of r 42.34 would be that the order for costs should not be made unless this Court is satisfied that the commencement and continuation of the proceedings in this Court rather than in the District Court was satisfied. 16That rule came into effect on 10 September 2010, well after these proceedings were commenced. However, the rule encompasses both the commencement and continuation of the proceedings, so it is at least arguable that it applied to these proceedings on and from 10 September 2010. 17However, Mr Darke submitted that there was a difficulty in sending the proceedings to the District Court, because one of Citigroup's defences was a defence of equitable estoppel. Mr Darke submitted, correctly, that there was a body of first instance authority to the effect that the District Court lacks jurisdiction to determine such defences. I have taken the view that it would be inappropriate for me to examine and, perhaps, question those authorities in the course of a judgment on costs. 18Thus, it seems to me, the trend of those authorities in this Court would suggest that Citigroup's argument based on r 42.34 goes nowhere. 19However, my preliminary view was based not so much on the rule but on what I perceived as being the total lack of proportionality that would ensue if any costs order were to be made in favour of Shield. 20It is necessary to take a number of matters into consideration. The first is that Shield's claimed loss, as articulated in its expert evidence, has decreased dramatically over time. The first expert report on which Shield relied claimed damages in excess of $9.1 million. The second report, some seven months later, reduced the claim to a little over $8 million. The third report, served some ten days before the commencement of the hearing, reduced the claim to a little under $1.7 million. 21Finally (and of course this followed the conference process between the experts, their joint reports and their cross-examination on the claim for loss), Shield's closing written submissions articulated a claim of $708,000, in round figures. 22In fact, the only element of the claim that succeeded was the claim for loss of commission, on approximately three quarters of what were, finally, the number of debt files in dispute. 23For my part, I simply do not see how it can be justified to run a case for twelve days in this Court, embodying the specialist services of the Commercial List, for a claim of $144,000. 24It is apparent that the way the case has been conducted on Shield's part has caused considerable loss to Citigroup. Citigroup has been required to meet various articulations of the claim, in the "pleadings", and various articulations of the case for loss in the expert evidence. I accept, as Mr Darke submitted, that to some extent those losses have been offset by costs orders made in Citigroup's favour. 25Mr Darke submitted that Shield had enjoyed substantial success. I do not agree. First, it is to be observed that the claim for anything other than underpaid commissions failed entirely. The reason why it failed was that a fundamental assumption, which underpinned every attempt on Shield's part to calculate its loss of profit, remained unproven (as I concluded). That assumption was as to the proportion of Shield's total work volume that was represented by Citigroup files. Shield relied on a snapshot taken on one particular day. That was inconsistent with other elements of its evidence, and in my view an entirely unrealistic approach to take bearing in mind that the commercial relationship between the two entities had subsisted over many years. 26Mr Darke, in his final submissions at the hearing, sought valiantly to persuade me that there were other approaches that could be taken that might lead to the same result. The unfortunate defect in those approaches was that the experts had not had any real opportunity of examining them. In the result, I concluded that the claim for loss (apart from underpaid commissions) had not been proved. 27Another element of the case in which Citigroup failed related to what I called in my principal reasons the "Shield Specials" and "Brodies Specials" assignments. I did not accept the relevant evidence of Shield's witness on that point. Although I did not find that the witness was deliberately lying, I did conclude that his evidence was entirely unacceptable. I did not make the stronger finding because it was not necessary to do so. But it is worth noting that Shield maintained its position, based on that evidence, despite a mass of what in my view was unchallengeable (and indeed, as it proved, substantially unchallenged) documentary evidence which demonstrated the contrary of the position that Shield, through the witness in question, maintained. 28It is of course correct to say that Shield succeeded on all the construction arguments that were necessary to be resolved. It is equally correct to say that I accepted the substance of Shield's witnesses' evidence as to the circumstances in which the relationship came to an end. Finally, it is correct to say that they were very significant issues in the case. But to say that Shield enjoyed substantial success seems to me to overstate the position. 29The discretion as to costs is a broad one. It requires consideration of, among other things, a proportionate relationship between the amount that was recovered and the costs that might be allowed. It is to be exercised taking into account the prima facie position that costs follow the event. On that basis, as Mr Darke correctly submitted, Shield would be entitled to its costs. But to give Shield costs, which even the evidence before me indicates will be many hundreds of thousands of dollars, if not more, would I think be a rank injustice. It would mean that Shield would make a substantial recovery in costs, far exceeding the ultimate amount of its claim, for a case which it has never really been able to articulate. I say that not only because of the circumstances relating to quantification of damage to which I have pointed but also because, as I recorded in my reasons, the substance of the evidence, as to the commission files in question, came from Citigroup's witnesses; and the analysis that enabled me to reach the conclusions that I did was one provided by Citigroup's legal team. 30Equally, to make any costs order in favour of Citigroup (bearing in mind that I am considering the matter only on the basis that there should be no order as to costs, and without reference to the other factors on which Mr Henskens relied) would fly in the face of r 42.1. 31Balancing those consideration as best I can, and taking into account the considerations of proportionality (which seem to me to be determinative in this case) I conclude that there should be no further order as to costs. That is to say, to the extent that there have been existing costs orders, they will be maintained; but there will be no other order. [Counsel addressed] 32I will make the following orders: