Tomasetti v Brailey

Supreme Court of NSW|2012-02-13|Before: Hulme J

Judgment 1HIS HONOUR: On 15 June 2009 the plaintiffs commenced proceedings against their accountants in which damages were sought in respect of certain investments they made in various agricultural managed investment schemes from 2000 to 2005. Broadly speaking, it was claimed that the professional advice they received concerning the making of those investments was deficient. 2Liability was said to arise in negligence; breach of contract; misleading and deceptive conduct (s 42 Fair Trading Act 1987); breach of provisions of the Corporations Act 2001 (Cth); and breach of a fiduciary duty. Determination of the proceedings also involved consideration of issues of partnership, limitations, taxation of any damages awarded, and contributory negligence and apportionment. 3The hearing of the matter occupied 18 sitting days in November 2010 and January - February 2011. There was a substantial quantity of documents in evidence and extensive cross-examination of the two principal witnesses, Messrs Tomasetti and Brailey. 4On 17 November 2011 I gave judgment for the defendants and ordered that the plaintiffs were to pay costs. 28 days were provided for either party to apply for the making of any alternative order as to costs. 5On 9 December 2011 the second and third defendants, Messrs Fenton and Lane, indicated that they sought orders that their costs be paid on an indemnity basis from 10 September 2011 until the day of judgment. They also sought an order that the plaintiffs pay interest on the defendants' costs pursuant to s 101(4) of the Civil Procedure Act 2005. 6The matter came back before me on 13 February 2012. At the outset, Mr Carroll indicated that the second and third defendants did not wish to proceed with their application for indemnity costs. The application by each defendant for an order as to interest on costs was pressed. 7On 2 February 2012 the plaintiffs indicated that they sought an order that their obligations to pay the defendants' costs should be apportioned as between the plaintiffs so as to require the first plaintiff (Mr Tomasetti) to pay 70 per cent, the second plaintiff (Ms Cordony) 15 per cent and the third plaintiff (Tomasetti Superannuation Fund) 15 per cent. An extension of the 28 day period for making this application was also sought.

Interest on costs 8The power to order that interest is to be paid on costs is derived from s 101(4) of the Civil Procedure Act 2005. If such an order is made, interest is to be calculated from the date or dates on which the costs concerned were paid, or such later date as the court may order: s 101(5). There was no suggestion that an order should be made to the latter effect. 9The submissions for the defendants were brief and to the point. This was a commercial case. It was not a case where the parties were represented on a speculative basis. The defendants incurred costs throughout the course of the proceedings and have paid those costs to their solicitors. As a consequence they are out of pocket to the extent they have lost the benefit of interest on those moneys paid. The defendants relied upon the judgment of Campbell J (as his Honour then was) in Joseph Lahoud v Victor Lahoud [2006] NSWSC 126 at [78] - [88]. 10The application was opposed. It was submitted that there was no evidence as to what the out of pocket expenses of the defendants were; whether they involved large or small sums. Further, the plaintiffs had not been responsible for any delay in the proceedings. It was noted that there had been a delay of nine months between judgment being reserved and being handed down and I was invited to take that into account. 11In reply, Mr Carroll submitted that it was unnecessary for there to be any evidence as to the costs that had been incurred. A similar submission to that of the plaintiffs in this respect had been made in Lahoud v Lahoud and rejected. 12On the "no evidence" point, in Lahoud v Lahoud (at [81]), Campbell J reviewed the history of the proceedings and concluded that it was more likely than not that the plaintiffs did have to pay some amounts of costs and disbursements as the litigation progressed. He noted that the form of order which the plaintiffs sought was that interest be payable only from the date when an actual payment had been made. In that event, costs would only be payable in respect of costs actually incurred and paid. In other words, there was an inbuilt safeguard against the plaintiffs being able to recover interest concerning amounts of costs and disbursements which they had not actually paid. 13In the present case, it is highly likely that the defendants did incur and had to pay a considerable amount of costs and disbursements between the commencement of the proceedings and the matter being heard. Even if they did not, which would be highly surprising, there is the inbuilt safeguard described by Campbell J. I am not persuaded that the application should fail for lack of evidence. 14These were proceedings of considerable complexity, both in terms of the volume of documentary evidence and the range and type of issues for determination. With the hearing commencing 17 months after the filing of the original statement of claim, I readily accept that there is no question of delay for which the plaintiffs can be held responsible. The delay between reservation and judgment, for which there are a number of reasons which are unnecessary to develop, is regrettable. However I do not consider that this is a reason to refuse the defendants' application if it is otherwise soundly based. 15The basis upon which Campbell J made an order for the payment of interest on costs in Lahoud v Lahoud (at [81] - [83]) may be summarised in the following five points which, in my view, are apposite in the present case.

The litigation involved extensive preparation.
It was commercial in nature, a species of litigation concerning which there is no regular practice of lawyers accepting work on a speculative basis. (It was subsequently accepted to be "commonplace" in commercial litigation that costs were paid by the client on a regular basis during the course of proceedings: Robb Evans of Robb Evans & Associates v European Bank Ltd (No 2) [2009] NSWCA 170 at [34] per Basten JA).
There is no requirement for the Court to be satisfied that the circumstances of the case are out of the ordinary before an order for the payment of interests on costs can be made.
It is appropriate that the compensation which is recognised in the Court's order for costs take into account that the [applicants] had been out of pocket as a result of having to pay their lawyers' costs and disbursements.
By not being required to pay costs until some time in the future when the costs are agreed or assessed, the [respondents] are likely to have been able to retain, for their own productive use, the amount of those costs. 16The reasoning of Campbell J in Lahoud v Lahoud has been referred to and applied in a number of subsequent cases: see, for example, Leda Pty Ltd v Weerden (No 2) [2007] NSWCA 283 and Drummond and Rosen Pty Ltd v Easey (No 2) [2009] NSWCA 331. Macfarlan JA (Tobias JA agreeing) cited it in the latter of those two cases in support of a conclusion in the circumstances of that case that: [4] In the absence of any countervailing discretionary factor (of which there appear to be none in the present case), it is appropriate that an order for interest on costs be made to compensate the party having the benefit of a costs order for being out of pocket in respect of relevant costs which it has paid. 17In my view, there are no countervailing discretionary factors of substance and I propose to make the order sought. 18It is noted that a formula for the calculation of interest was devised by Campbell J that seems to have been adopted in the same, or similar, terms in subsequent cases. His Honour (at [88]) was also mindful of a potential problem that might arise if there were to be delay in the assessment of costs. I note as well the matter raised by Macfarlan JA at [7] in Drummond and Rosen Pty Ltd v Easey , supra, as to the jurisdiction of costs assessors not extending to the assessment of interest payable on costs. I propose to leave it to the parties to agree, if possible, upon an appropriate form of order that is suitable to the circumstances of the present case.

Apportionment of costs 19The plaintiffs' application for an order as to apportionment was out of time and an extension was sought under the discretionary power provided in r 1.12 Uniform Civil Procedure Rules 2005. The explanation advanced for the delay was that it was not until counsel were preparing a response to the defendants' applications that it was realised that it was appropriate that this application be made. The defendants opposed an extension of time. 20The matter had to come back before me in any event in respect of the two applications by the defendants. It was not suggested by the defendants that they had suffered any prejudice or unfairness. It seems appropriate to grant the extension of time.

Plaintiffs' submissions 21The plaintiffs referred to the discretion in s 98(1)(b) of the Civil Procedure Act 2005 for the Court to determine "by whom ... and to what extent" costs are to be paid. 22It was submitted that given the usual order is that costs follow "the event", it is necessary to consider what is "the event". The proceedings involved a common substratum of facts but were characterised as comprising three separate sets of proceedings, one in respect of each of the three plaintiffs. They were not pursuing a joint entitlement or even joint and several entitlements. Theoretically, if not practically, it would have been possible for the proceedings to have been commenced and conducted separately. 23In respect of the second plaintiff, Ms Cordony, "the event" in her case was the failure of her causes of action against the defendants. It did not include the failure of the proceedings brought by the first and third plaintiffs. There were features of the first plaintiff's case, for example, that were not relevant to, or utilised in, any part of the cases for the other plaintiffs. 24The time devoted to the presentation of the respective cases of the three plaintiffs was compared. It was submitted that the time taken up with the cases of the second and third plaintiffs was minor in comparison to the first plaintiff's case. 25To illustrate this point, reference was made to the number of paragraphs in the written outline of the plaintiffs' closing submissions that were devoted to the cases for each of the plaintiffs (195 paragraphs and 55 pages of annexures in all, in which the second plaintiff's case was mentioned in about 9 paragraphs and the third plaintiff's in about 6 paragraphs). A similar exercise yielded a similar result in relation to the transcript of the hearing, the defendants' written submissions and the judgment. It was contended that these comparisons were even more stark in the case of the third plaintiff. The superannuation fund "was involved in the proceedings almost on a nominal basis". 26It was submitted that in these circumstances "it cannot be just" that the second and third plaintiffs be responsible to the defendants for the costs of the first plaintiff's proceedings. 27There was an invitation to consider the position if the second plaintiff had commenced her proceedings separately from the other plaintiffs but had been compelled to join. It was submitted that in those circumstances, it would be unfair for her to be required to pay the costs of others who she had no desire to be joined with. 28Another hypothetical situation was said to provide a further illustration of why it would be unjust to impose joint and several liability for costs amongst the plaintiffs. If the second plaintiff had succeeded in her claim but the other plaintiffs failed, "the event" in respect of an award of costs in her favour would be the proceedings that concerned her. She could not realistically have any right to an award that covered all of the costs of the plaintiffs. So, it was submitted, "the event" is her proceedings, and there was no difference whether they succeeded or failed.

Defendants' submissions 29It was submitted for the defendants that the plaintiffs' case and the evidence generally shared sufficient commonality so as not to warrant a departure from the usual position that costs follow the event and, ordinarily, orders against unsuccessful parties should be joint and several: see Rushcutters Bay Smash Repairs v H McKenna Netmakers [2003] NSWSC 670 at [2] per Gzell J. In that case, his Honour proceeded to explain that the justification for joint and several liability is that if one unsuccessful party is unable or unwilling to meet its share of the obligation, the misfortune should be that of the "partners in crime" (which his Honour later said was used in a metaphorical sense) and not that of the successful party. 30Gzell J referred to the judgment of Young J (as his Honour then was) in Mike Gaffikin Marine Pty Ltd v Princes Street Marina Pty Ltd (Supreme Court of New South Wales, 15 July 1996, unreported) where it was said that an order imposing other than joint and several liability of unsuccessful parties for costs would usually only be made if there were some special circumstances. 31I interpolate that these authorities are concerned with successful plaintiffs seeking the recovery of their costs from unsuccessful defendants. Expressions such as "partners in crime" (even used in a metaphorical way as Gzell J explained) or "partners in unconscionability" as White J put it in Coyne v Calabro (No 7) [2010] NSWSC 846 at [10], may be apt where unsuccessful defendants participate in transactions giving rise to litigation against them but may not be apt in relation to unsuccessful plaintiffs. 32It was submitted that it was inappropriate to approach the plaintiffs' application by a "minutely detailed quantification of the scope of the affidavits, oral evidence and submissions related to particular issues" in the proceedings. Such an approach was analogous to apportioning costs relating to separate issues won and lost in proceedings, in which case it has been said that the matter is one of discretion and "mathematical precision is illusory": Tomanovic v Global Mortgage Equity Corporation Pty Ltd (No 2) [2011] NSWCA 256 at [84] per Campbell JA. 33Contrary to the plaintiffs' contention, it was submitted that the issues and evidence were "in a very real way common amongst the three plaintiffs". The first plaintiff was the controlling mind of the third plaintiff. He made two investments jointly with it and so his evidence in relation to them was relevant to his own case as well as its case. 34Evidence of Mr Tomasetti was always required in relation to Ms Cordony's claim. Accordingly, findings made in respect of the acceptability of his evidence, in relation to her investments and generally, were relevant to her claim. The converse was true as well. Even if the proceedings had been brought separately, it was always necessary for the one to give evidence in the other's case. 35Other features that were said to be common to the cases for each plaintiff included shared representation; the expert evidence (and obviously so in relation to the joint investments); the partnership issue and the involvement in the proceedings of the second and third defendants; and the question of grossing up any award of damages because of its anticipated treatment by the Australian Taxation Office. 36So, it was submitted that there was no justification to depart from the usual order that a costs awarded against unsuccessful litigants should be joint and several. There was no reason why the non-payment of part of the costs by one plaintiff should be to the detriment of the successful defendants.

Consideration 37The defendants were critical of the plaintiffs' approach in quantifying the proportion of the proceedings devoted to each of the plaintiffs' cases. I accept that counting up paragraphs and transcript pages and the like is not determinative but I do not understand that counsel for the plaintiffs were doing anything more than using such an approach to illustrate the point they sought to make. However, I do not accept that point. 38There was commonality in the issues and evidence in the cases for each plaintiff to a significant degree. The evidence of Mr Tomasetti was far more extensive than that of Ms Cordony. It was, of course, essential to his own case but it was important for the cases of the other plaintiffs as well. Each of the plaintiffs bore the onus of demonstrating that the conduct of Mr Brailey was negligent, or misleading and deceptive, et cetera (to put it generally). Doing so necessitated extensive evidence from Mr Tomasetti in not only his own case but in the cases of the other plaintiffs as well. It also required a lengthy cross-examination of Mr Brailey. Acceptance of the evidence of Mr Tomasetti and rejection of that of Mr Brailey would have been of substantial benefit to the cases for each of the plaintiffs. 39While Ms Cordony's investments were both made in 2005, the last of the six years with which the proceedings were concerned, the presentation of her case could not possibly have had any prospect of success without an examination of the history of the dealings between Mr Tomasetti and Mr Brailey beginning at their first meeting in 1998. If there were proceedings brought by Ms Cordony alone, that examination would not have been so extensive, but it would not have been minimal either. The same can be said in relation to the superannuation fund which made two investments (in 2001 and 2004) jointly with Mr Tomasetti. 40The defendants' point about other issues raised in the proceedings is sound. The partnership claim, also the subject of extensive evidence on both sides, was relevant to each of the plaintiffs. So too was the expert evidence concerning the conduct of a "reasonably competent financial planner" and the issue concerning grossing up damages to account for taxation. 41The hypothetical situations advanced in order to illustrate the plaintiffs' contention that there should be apportionment do not make good their argument. If Ms Cordony had commenced and prosecuted her claim separately, preparation and presentation time and effort would undoubtedly have been less. However, for the reasons just given, it would not have been substantially so. If she had commenced separately but had been compelled to join there may have been other issues to consider, but that is not what she did. I accept that if Ms Cordony had been successful while the other plaintiffs failed, the defendants would undoubtedly have resisted a claim by her that the defendants pay to her all of the plaintiffs' costs. That would have presented an interesting task in striking the right balance, but it is purely hypothetical and its logic does not provide an answer in all situations in which multiple parties are unsuccessful. 42Primarily for the reason that there was a significant commonality of evidence and issues, I am not persuaded that sufficient reason has been shown to depart from the usual requirement that the plaintiffs' liability for costs should be joint and several.

Costs 43Costs of the proceedings insofar as they relate to the defendants' claim for interest and the unsuccessful plaintiffs' claim for apportionment should follow the event. There was no issue about that. 44In relation to the second and third defendants' claim for indemnity costs that was not pressed at the hearing, that is something that I accept was the subject of extensive preparation for argument on both sides. It was only on the morning of the hearing that the plaintiffs' counsel were advised that such an order was no longer being sought. Mr Faulkner SC submitted that the preparation for argument on this issue had been far more extensive than it had been in relation to the other issues. The written submissions that I received in advance of the hearing clearly supports that proposition. Counsel for the second and third defendants did not consent to an award of costs in favour of the plaintiffs in relation to this aspect of the proceedings but was really hamstrung in finding something to say in opposition to it.

Orders 45I propose the following orders:

The plaintiffs are to pay interest on the defendants' costs pursuant to s 101(4) Civil Procedure Act 2005.
Time extended for the plaintiffs to apply for an order as to the apportionment as to costs payable to the defendants.
The plaintiffs' application for apportionment as to costs payable to the defendants is refused.
The plaintiffs are to pay the defendants' costs of these proceedings insofar as they are concerned with the defendants' application for interest and the plaintiffs' application for apportionment. The defendants are to pay the plaintiffs' costs of these proceedings insofar as they are concerned with the defendants' application for indemnity costs.
Liberty to apply on 3 days notice if any alternative or additional orders are sought. 46Short minutes are to be brought in giving effect to these proposed orders with inclusion of an agreed form of order(s) in relation to the payment of interest on the defendants' costs.

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: 24 February 2012

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