W & K Holdings (NSW) Pty Ltd v Laureen Margaret Mayo

Judgment 1In the principal judgment in this matter handed down on 9 August 2013, I asked the parties to prepare short minutes of order giving effect to my reasons and to arrange to have the matter re-listed to resolve any remaining issues between the parties (W & K Holdings (NSW) Pty Ltd v Laureen Margaret Mayo [2013] NSWSC 1063 at [168]). Orders were made on 10 October 2013 disposing of every issue, except for that of costs, which is dealt with in this judgment. 2Rule 42.1 of the Uniform Civil Procedure Rules 2005 (UCPR) provides: 42.1 General rule that costs follow the event Subject to this Part, 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. 3The plaintiff submitted that, for the purpose of applying the general rule, the main event in this case was the determination of whether interest was chargeable on a flat or reducible basis, and whether the plaintiff was entitled to retain the equipment the subject of the leases. The plaintiff submitted that, as it was successful on both counts in its latest statement of claim, it is entitled to a costs order in its favour. The plaintiff says the cross-claim brought by the defendant was unsuccessful in a number of respects (and should therefore not detract from the plaintiff's alleged entitlement to costs), and that the cross-claim brought by Mr Leonard, though unsuccessful, concerned issues peripheral to the main events in the case, or alternatively that the court should take a "broad-brush" approach to the proceedings and not seek to differentiate between Mr Leonard's unsuccessful cross-claim and the otherwise substantial success his company (i.e. the plaintiff) enjoyed under its latest statement of claim. 4The plaintiff says there are three matters supporting its submission for a costs order in its favour. The first is that, apart from the defendant's participation in an unsuccessful mediation, there is no evidence she made any effort to settle the proceedings. The second and third matters are that, on two separate occasions, the plaintiff made settlement offers to the defendant. Although the plaintiff accepts that these offers cannot attract indemnity cost consequences under either the UCPR's offer of compromise regime or under the Calderbank principles, it submits they "fortify" its position on costs. 5The defendant's primary position is for no order for costs to be made, on the basis that, as each party enjoyed a degree of success and suffered a degree of failure, the proper characterisation of the overall outcome is a "draw", or on the alternative basis that even if the plaintiff is characterised as the successful party, significant adjustments to the usual order should be made, so as to achieve the effect that there should be no order as to costs. The defendant's secondary position is that any costs order made in favour of the plaintiff (contrary to the defendant's primary position) should not cover the period prior to February 2012 (when the plaintiff's statement of claim was amended to include for the first time the rectification claim on which it ultimately succeeded) and should be subject to a discount in the period thereafter to reflect the incompleteness of the plaintiff's success in the balance of the proceedings. Finally, the defendant also submitted that, whatever the position taken by the court, the defendant should be entitled to her costs on the entirely unsuccessful cross-claim brought by Mr Leonard. 6As is made clear in the principal judgment (at [4]), the issues the plaintiff ultimately pressed at the trial were rectification, general law and statutory unconscionability and a general question of contractual construction. However, as I have also noted in the principal judgment (at [3]), the plaintiff's latest statement of claim (filed 22 March 2012) included, among other things, a claim for damages for breach of contract, a claim for equitable compensation, allegations of deceit, references to breach of fiduciary duties, non est factum, claims for relief pursuant to sections 23 and 66 of the Supreme Court Act 1970 and s 1317H of the Corporations Act 2001 (Cth) and sought various declarations, and it was only in final submissions that it was clear that none of these would be pressed. 7Although the plaintiff was unsuccessful on two of the three issues ultimately pressed (namely the question of construction and the enforceability of the debentures) and succeeded on one (namely rectification), it is appropriate to characterise its claim for rectification as its principal claim. Significantly, the plaintiff's claim for rectification entitled it to have interest charged on a more favourable basis under the leases, and to receive a transfer of ownership of the equipment at the end of the term of the respective leases (though on the latter point the ultimate finding was somewhere between the plaintiff and the defendant's positions, see [124] of the principal judgment). 8The issue of construction was an entirely legal question, and occupied little time in cross-examination (of Mr Doberer). The majority of cross-examination during the trial, and a significant volume of written evidence, was directed to the issues of the enforceability of the debentures, the enforceability of the personal guarantees provided by Mr Leonard, and the claim for rectification. Understandably, each of these issues requires a fact-rich inquiry into the circumstances surrounding the preparation and execution of the contractual documents. It is difficult to attempt to strictly allocate the evidence to one or other of these issues, as the evidence relevant to one of these issues was usually, in my view, relevant to another of these issues. Nonetheless, having regard to the practical effect, or the "substance and reality" (Hawkesbury District Health Service Ltd v Chaker (No 2) [2011] NSWCA 30 at [10] per Allsop P, Beazley JA and Hoeben J) of the outcome of these proceedings on the parties, I consider the plaintiff to have obtained substantial success on its claim. 9It remains necessary to consider whether the plaintiff's inclusion of a rectification claim, for the first time, in early 2012, affects the plaintiff's entitlement to costs, or completely disentitles it from recovering its costs prior to the date on which the amendment was made (especially as the plaintiff's success in these proceedings consisted largely or wholly in its rectification claim). In Ritchie's Uniform Civil Procedure NSW, it is noted that where a party's success in the proceedings is attributable only to matters raised in a late amendment, the plaintiff should not be entitled to costs, and the defendant should be entitled to costs down to the date of the amendment. The decision cited for that proposition expresses the position as follows (Beoco Ltd v Alfa Laval Co Ltd [1995] QB 137; [1994] 4 All ER 464 at 477 per Stuart-Smith LJ, accepted and applied in numerous Australian authorities including, recently, Mahaffy v Eather T/As Bellevue Pastoral Co (On Costs) [2013] NSWSC 507 at [7] per Rein J): As a general rule, where a plaintiff makes a late amendment as here, which substantially alters the case the defendant has to meet and without which the action will fail, the defendant is entitled to the costs of the action down to the date of the amendment. There may, of course, be special reasons why this general rule should not be applied. 10Although the proceedings have been on foot since mid to late 2008, and the claim for rectification was only formally introduced on 22 March 2012 (in a second further amended statement of claim), I have come to the view, following a comparison of previous iterations of the plaintiff's pleading, that the relevant factual issues raised by the rectification claim were alive between the parties prior to 22 March 2012. For example, the plaintiff's statement of claim filed on 24 September 2009 (amended statement of claim) made it clear that the plaintiff was seeking ownership of the equipment at the end of the respective leases (paragraphs [11(d)], [16(b)]). 11However, while the plaintiff sought in its pleading filed on 9 February 2012 (further amended statement of claim) a declaration to the effect that there was an oral contract under which interest would be charged at "9% reducible interest" (paragraph [4A(c)]), the plaintiff did not, in the immediately preceding iteration of its statement of claim (amended statement of claim dated 24 September 2009) expressly contend that interest should be charged on a reducible basis. Rather, the plaintiff pleads an oral agreement providing for "9% interest" (at [11(c)]), and appears to draw a distinction elsewhere its pleading between "an agreement for hire" and "lease financing" (at [16(a)]), and contends that the monthly payments under the written leases "were greater than agreed" (at [16(d)]). It is not apparent from this pleading of 24 September 2009 whether the plaintiff had clearly articulated that the dispute concerned the basis on which interest was charged. I simply cannot tell from the face of the pleading whether the dispute between reducible interest and flat interest was live between the parties prior to 9 February 2012. 12Although the parties had filed in these proceedings a number of affidavits prior to 9 February 2012, many or most of the affidavits on which the parties ultimately relied were filed after that date. It is therefore unclear whether it was the inclusion of the claim for rectification on 9 February 2012 that necessitated the preparation and filing of further affidavits. 13Overall, taking into account the plaintiff's success on what may be described as its principal claim in rectification, but also its failure on the issue of construction, its failure to set aside the debentures under either general law or statutory unconscionability, its abandonment of a multitude of causes of action during submissions immediately before or at the trial, and the uncertainty about the date from which it clearly put into issue the factual question of the basis on which interest would be charged, I think it is appropriate to order that the defendant pays 60% of the plaintiff's costs on the statement of claim, assessed on an ordinary basis. 14Turning to the defendant's cross-claim, it is apparent that she similarly was successful on some issues but unsuccessful on others. As a necessary consequence of the plaintiff's success on the rectification claim, the defendant's claim for damages was largely unsuccessful, and her claims for delivery up and repudiation were entirely unsuccessful. On the other hand, the defendant succeeded on her claim for variation of the interest rates under the leases, and in obtaining a declaration confirming the validity of the debentures granted by the plaintiff. As I have already noted, a lot of the evidence (both written and oral) was directed to the fact-rich question of the validity of the debentures, and some of the evidence was directed to the variation issue, on which the defendant succeeded. The questions of repudiation and damages, on which the defendant failed, were (like the question of construction) largely legal, and therefore occupied little or no time in the trial. 15Overall, having regard to the "substance and reality" of the outcome of the defendant's cross-claim, I think it is appropriate for the plaintiff to pay 30% of the defendant's costs of the cross-claim, assessed on an ordinary basis. 16Finally, turning to Mr Leonard's cross-claim, the only issue agitated was whether the personal guarantees provided by Mr Leonard were enforceable. Given the defendant's complete success in defending Mr Leonard's cross-claim and the volume of written evidence and time spent in cross-examination relevant to this issue, I do not think it is appropriate to describe Mr Leonard's cross-claim as "peripheral" or to treat it as subsumed within the plaintiff's main claim. Mr Leonard should pay the costs of his unsuccessful cross-claim, assessed on an ordinary basis. 17I invite the parties to prepare and send to my Associate short minutes of order giving effect to these reasons.