Sydney Local Health District v Macquarie International Health Clinic Pty Ltd

judgment

1. THE COURT: On 2 November 2020, we delivered reasons for allowing an appeal brought by Sydney Local Health District (SLHD) from a decision of Kunc J (the primary judge) in which his Honour awarded Macquarie International Health Clinic Pty Ltd (Macquarie) damages in excess of $88 million including interest up until 29 November 2019: Sydney Local Health District v Macquarie International Health Clinic Pty Ltd [2020] NSWCA 274 (the appeal judgment). The $88 million damages awarded by the primary judge was in respect of a claim for mesne profits in relation to trespass to two discrete sites, referred to in the appeal judgment as the Hospital Site and the Car Park Site.
2. This judgment adopts the terminology of, and assumes a familiarity with, the appeal judgment.
3. In allowing the appeal and dismissing the cross-appeal, the Court set aside orders 1-7 and 9 of the orders made by the primary judge on 29 November 2019, the terms of which were set out in [45] of the appeal judgment, and, in lieu thereof, ordered judgment for Macquarie as follows: "(i) mesne profits of $14,530,510 (comprising $9,486,564 in damages and $5,043,946 in interest) in relation to the Car Park Site together with interest under s 100 of the Civil Procedure Act 2005 (NSW) on that total amount from 4 May 2017; (ii) $1,048,800 in damages for additional building and consultancy costs; and (iii) $301,990 (excluding GST) in damages for remediation and excavation work."
4. The effect of the appeal judgment was to reduce the damages awarded by the primary judge in respect of the Hospital Site from over $55 million to nil, and to reduce the damages in respect of the Car Park Site from $27.67 million to $14.53 million (including interest). SLHD had substantial success on the appeal and by order 4 of our orders of 2 November 2020, Macquarie was ordered to pay SLHD's costs of and incidental to the appeal.
5. Orders 5, 7 and 9 made by the primary judge were as follows: "5. [SLHD] to pay [Macquarie's] costs of the damages inquiry in proceedings 2000/34949, the guarantee and indemnity proceedings 2010/90340 and the Land and Environment Court proceedings 2015/348137 in the sum of $4,643,000. … 7 [SLHD] to pay [Macquarie's] costs of [SLHD's] relisting of the proceedings on 9 May 2019 and [SLHD's] Notice of Motion filed on 13 May 2019 as agreed in the sum of $138,000. … 9 On the condition that [SLHD] pays [Macquarie] the amount of $16,059,335.15 (receipt of which amount on 18 October 2019 is acknowledged by [Macquarie]), stay the execution of Orders 1 and 5 above until further order and on the basis that interest is payable pursuant to s 101(1) of the Civil Procedure Act 2005 (NSW) on the judgment amount as is unpaid."
6. Three matters should be noted at the outset in relation to orders 5, 7 and 9.
7. First, as to Order 5, we do not understand that order to have had the effect of overriding the primary judge's order made on 26 September 2014 that Macquarie pay SLHD's costs thrown away by reason of the amendments permitted by the primary judge and the subject of his Honour's Amendment Judgment referred to in [24]-[25] of the appeal judgment. As we there stated, the amendment: "… entailed the abandonment of what hitherto had been Macquarie's case which was a claim for loss of profits or for damages for the loss of opportunity to develop the Private Hospital on the Hospital Site, and the introduction of a claim for mesne profits in respect of that site. Mesne profits were similarly sought in respect of the Car Park Site and a claim for lost profits in respect of the trespass to that site was also abandoned."
8. As we also noted in the appeal judgment, the amendments resulting in the abandonment of the claims for loss of profits occurred after 40 hearing days of the inquiry. Although some of the evidence that had been prepared to further that claim had some continuing relevance to the claim for mesne profits in relation to both the Hospital and Car Park Sites, it is highly unlikely that all of it did, given the very different nature of the measures of damages.
9. Secondly, it is common ground that the sum of $138,000 referred to in Order 7 of the primary judge's orders was paid over by SLHD to Macquarie. The sum of $138,000 was an agreed sum in respect of Macquarie's costs of SLHD's Notice of Motion of 13 May 2019. The Notice of Motion in respect of which those costs were awarded was dealt with in the appeal judgment at [160]-[202]. SLHD enjoyed substantial success on that aspect of the appeal and we concluded that the primary judge was wrong to accede to Macquarie's contention on the hearing of the Notice of Motion that the Existing State/Actual User Argument had not been advanced by SLHD in closing submissions at first instance.
10. Thirdly, the payment referred to in Order 9 of the primary judge's orders was effectively a partial payment of the damages awarded to Macquarie at first instance.
11. The result of the setting aside of Orders 5, 7 and 9 following SLHD's successful appeal was that the question of the costs of the inquiry as to damages before the primary judge, including the costs of the Notice of Motion, needed to be dealt with. To this end, in our orders of 2 November 2020, we directed the parties to file written submissions as to the question of costs at first instance, interest thereon and any additional orders that it was submitted ought to be made. The Court indicated that it would deal with these issues on the papers unless any application for further oral hearing was made. In the event, no such application has been made.

Applicable principles

1. Macquarie agreed with the following summary of principles outlined by SLHD: "Section 98 of the Civil Procedure Act 2005 (NSW) (CPA) relevantly provides that, subject to the Uniform Civil Procedure Rules 2005 (NSW) (UCPR), 'costs are in the discretion of the court' and the court has 'full power to determine by whom, to whom and to what extent costs are to be paid'. Rule 42.1 of the UCPR provides that, 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'. This rule reflects the well established principle that a successful litigant is entitled to an order for costs. However, 'the central and overriding principle is that of doing justice to the parties in each particular case'. Thus, the cases recognise that the 'event' is not confined to the final outcome of the proceedings; it can include the determination of individual issues litigated in the court of the proceedings. Depending on the circumstances of the case, a party may be entitled to his, her or its costs of an issue on which the party has succeeded. As Reynolds JA observed in Laguillo v Haden Engineering Pry Ltd [1978] NSWLR 306 at 308, '[a] principle of importance is that, as a general rule, a party is entitled to the costs of an issue on which he [, she or it] succeeds.' Where particular issues are 'clearly dominant or separable', then it may be appropriate to award costs in favour of the successful party on those issues. There may also be circumstances where it is appropriate to make orders depriving a successful party overall of his, her or its costs in respect of issues on which he, she or it failed. For example, in BHP Billiton Iron Ore P[t]y Ltd v National Competition Council (No 2) [2007] FCA 557 at [23], Middleton J observed: 'It seems appropriate when considering separate and distinct issues or inquiries, where there is no element of unreasonableness or inappropriate behaviour on behalf of the successful litigant, to consider appropriate case management principles, the relative merits or strengths of the lost issue or inquiry, whether the length of the proceedings had been greatly increased by the lost issue or inquiry on which the successful party failed, and whether the issue or inquiry on which the successful party failed otherwise was of sufficient significance in proportion to the whole case to warrant a special order to deprive that party of the costs of that issue.' The court may make an award of costs for and against each party on respective issues. Much will depend on the facts and circumstances of the case. Alternatively, the court may order a proportion of costs in favour of a party where numerous issues have been litigated and the successful party overall has not won every issue. In those circumstances, the court will apportion costs 'primarily as "a matter of impression and evaluation", rather than with arithmetical precision, having considered the importance of the matters upon which the parties have been successful or unsuccessful, the time occupied and the ambit of the submissions made, as well as any other relevant matter'. Given the reticence of the courts to apportion costs in a precise fashion, the Court can adopt a broad-brush approach to apportionment and is not required to tally each party's wins and losses in order to do so." (footnotes omitted).
2. There is nothing controversial in this summary of applicable principles and it broadly accords with a number of recent decisions in this Court: see, for example, Ryde Developments Pty Ltd v Property Investors Alliance Pty Ltd (No 2) [2018] NSWCA 40; Choo v Zhang (No 2) [2016] NSWCA 301; Doppstadt Australia Pty Ltd v Lovick & Sons Developments Pty Ltd (No 2) [2014] NSWCA 219; James v Surf Road Nominees Pty Ltd (No 2) [2005] NSWCA 296; and Bostik Australia Pty Ltd v Liddiard (No 2) [2009] NSWCA 304.

Parties' submissions

1. Broadly speaking, and putting to one side for the moment certain issues in respect of which the parties were largely in agreement, SLHD's contention was that the inquiry as to damages involved discrete issues, namely the claim in respect of the Hospital Site (in respect of which SLHD had complete success on appeal) and the claim in respect of the Car Park Site (in respect of which SLHD had significant success on appeal but in respect of which Macquarie still secured a judgment for almost $15 million including interest).
2. SLHD's contention was that: 1. Macquarie should pay SLHD's costs of that part of the damages inquiry related to the Hospital Site; and 2. SLHD should pay 25% of Macquarie's costs of that part of the damages inquiry related to the Car Park Site.
3. The rationale advanced for the 25% figure contended for by SLHD was that Macquarie only secured about a quarter of its claim for damages in respect of the Car Park Site.
4. In the alternative, SLHD submitted that: "if the Court does not consider it appropriate to apportion costs based on two events/issues and is minded to adopt a global assessment, then, given that Macquarie's case in relation to the Hospital Site was at least (if not more) important than its case in relation to the Car Park Site, the minimal success that Macquarie enjoyed overall should be off-set by the substantial success enjoyed by SLHD, such that each side should bear their own costs."
5. Macquarie seizes on SLHD's alternative submission and embraces the view that each party should bear its own costs of the damages inquiry and that this would be the fair and just outcome. Macquarie also submits that, if this order were made, a similar order should be made with respect to the Guarantee and Indemnity and Land & Environment Court proceedings. Macquarie makes the point that seeking to apportion the parties' costs as between "the respective threads of claim would not be a simple exercise" and would only lead to more avenues for dispute between the parties.
6. In respect of the $138,000 payment in relation to the Notice of Motion, SLHD submits that it should be repaid that amount with interest and an equivalent amount paid to it. Macquarie resists the notion that it should repay the $138,000 but says that, if each party is to bear its own costs of the inquiry, it certainly should not be ordered to make a payment to SLHD in respect of its costs of the hearing of the Notice of Motion.

Consideration

1. In respect of SLHD's principal contention, it is premised on the view that the Hospital Site issue and the Car Park Site issue were discrete aspects of the inquiry. This is certainly so to some extent, but there were a number of overlapping issues such as the background to the dispute, and the taxation and interest issues. There is much to be said for Macquarie's submission that apportioning the parties' costs as between the respective threads of claim would not be a simple exercise and that reality is implicitly recognised in SLHD's alternative or fall back position referred to at [17] above.
2. Putting that matter to one side, however, and assuming that the issues were sufficiently discrete to open up the possibility of costs being awarded by reference to them, we are not of the opinion that, were costs to be awarded by reference to issues, Macquarie would only be entitled to 25% of its costs on one issue, namely the Car Park Site claim, in respect of which it still enjoyed very significant financial success even though it did not succeed to the full extent of its claim. It is not usual to reduce a successful party's costs on a proportionate basis referable to the amount of its claim in the way contended for by SLHD. SLHD does not submit, moreover, that, within the Car Park Site issue, there were discrete and clearly identifiable sub-issues in respect of which it succeeded.
3. In these circumstances, we would not make the costs orders sought by SLHD as set out at [15] above. SLHD did not submit that, if we were not to make those orders, we should award Macquarie all of or a higher percentage of its costs in respect of the Car Park Site issue whilst ordering Macquarie to pay SLHD's costs in respect of the Hospital Site issue. Rather, as we have noted, its fall back submission was one whereby each party paid its own costs of the inquiry as to damages.
4. This is the order we propose to make, subject to an order that Macquarie repay to SLHD the $138,000 together with interest at Court rates which it was paid as a result of Order 7 made by the primary judge as set out at [5] above. It is appropriate that that amount be repaid in light of our conclusion that the primary judge was wrong to accede to Macquarie's contention on the hearing of the Notice of Motion that the Existing State/Actual User Argument had not been advanced by SLHD in closing submissions at first instance.
5. We would not order that Macquarie pay SLHD its costs of the Notice of Motion in the sum of $138,000 (as a proxy for SLHD's costs) or at all. The hearing of the Notice of Motion was part of the damages inquiry and not, in our opinion, sufficiently discrete to warrant separate treatment from the broad approach that we (and the parties otherwise) favour, namely that, in all of the circumstances, each party should bear its own costs of the inquiry as to damages.

Orders

1. The following orders reflect these reasons and some additional orders as to which the parties, in substance, agreed: 1. Order (3)(a)(i) made on 2 November 2020 be varied such that there be judgment for the respondent for mesne profits of $15,806,163.90 (comprising $9,486,564 in damages and $6,319,599.90 in interest to the date of payment on 18 October 2019) in relation to the Car Park Site (which sum has already been paid). 2. Order 3(a)(ii) made on 2 November 2020 be varied such that there be judgment as at 29 November 2019 for the respondent in the sum of $795,628.75 for additional building and consultancy costs (being $1,048,800 less part payment of $253,171.25). 3. Order 3(a)(iii) made on 2 November 2020 be varied such that there be judgment as at 29 November 2019 for the respondent in the sum of $301,990 (excluding GST) in damages for remediation and excavation work. 4. The respondent repay to the appellant the sum of $138,000 (together with interest at Supreme Court rates from 24 December 2019 to the date of payment), being the payment made pursuant to order 7 made by the primary judge on 29 November 2019. 5. Each party pay its own costs of the inquiry as to damages before Kunc J. 6. Each party pay its own costs of the Guarantee and Indemnity proceedings 2010/90340 and the Land and Environment Court proceedings 2015/348137.
2. These orders do not have the effect of vacating or superseding any other costs orders made by the primary judge which were not otherwise set aside by our orders of 2 November 2020.
3. The Court also notes, as Macquarie's submissions acknowledged, that the sum of $15,806,163.90 referred to in proposed order 1 above has already been paid.

---

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: 08 December 2020