Warner Bros Feature Productions Pty Ltd v Kennedy Miller Mitchell Films Pty Ltd

Background

1. The respondents brought proceedings against the applicants in the Supreme Court of New South Wales. The applicants sought a stay of the proceedings on the ground that the respondents were bound by an arbitration clause which required the dispute to be referred to arbitration in California (the arbitration clause). The applicants contended that the respondents were bound by the arbitration clause on either of two grounds.
2. First, the applicants submitted that the arbitration clause was incorporated by reference into what was described as the "Letter Agreement" between the respondents and one of the applicants. Clause 21 of the Letter Agreement provided that the "balance of terms" in that Agreement were to be "WB standard for 'A' list directors and producers". The applicants submitted that the arbitration clause was a term which answered this description.
3. Second, the applicants submitted that the dispute was covered by an arbitration clause contained in two "Certificates of Employment" or "COEs", which were agreements between one of the applicants, one of the respondents, and one of the directors of the respondents. The arbitration clause in the COEs was relevantly identical to the arbitration clause sought to be incorporated by reference into the Letter Agreement.
4. The primary judge found that the arbitration clause was not incorporated by reference into the Letter Agreement and that the dispute was not covered by the arbitration clause in the COEs. However, on appeal, this Court found that the Letter Agreement did incorporate the arbitration clause by reference. Since it was not in contest that the dispute was covered by the arbitration clause if it had been incorporated into the Letter Agreement, the Court stayed the proceedings brought by the respondents.
5. By reason of the applicants' success on the first ground, it was unnecessary for the Court to deal with the second ground or express a view on the correctness of the reasoning of the primary judge in rejecting that submission: Judgment at [86]. It was the fact that this Court declined to address the "COE issue" which gives rise to the present motion by the respondents.

The respondents' notice of motion

1. The effect of the variation to the order for costs sought by the respondents would be that they would not be required to pay the applicants "costs incurred only in relation to the applicability of the arbitration clause in the Certificates of Employment", either before the primary judge or before this Court. No other variation to the order for costs was sought.
2. In written submissions in support of their motion, the respondents sought to characterise the applicants as being "not successful" on the COE issue since the primary judge decided against the applicants on that issue and this Court did not decide that issue. The respondents submitted that this justifies "leaving the parties to bear their own costs of that issue". They submitted that it was not necessary to show that it was "unreasonable" to raise that issue: Sze Tu v Lowe (No 2) [2015] NSWCA 91 at [40].
3. Referring to Bostik Australia Pty Ltd v Liddiard (No 2) [2009] NSWCA 304 at [38], the respondents submitted that the COE issue was "severable" and "significant", although they do not appear to submit that it was "dominant". They submitted that the COE issue "raised its own discrete issues", that it was addressed by the parties "discretely in both written and oral submissions, both below and on appeal" and that it "took up a significant portion of both the proceeding below and the hearing of the appeal".
4. The respondents also submitted that the COE issue "caused substantial additional costs to be expended by both sides" which were "relevant only to the COE issue". They pointed to the expert evidence on the content of Californian law which were led in the proceedings below, stated that it was "plainly complex" and asked the Court to infer that the reports were "obtained at significant expense". The respondents noted that the evidence was only referred to by the primary judge in connection with the COE issue and was not referred to at all by this Court in the Judgment.
5. In written submissions in response to the motion, the applicants challenged the respondents' characterisation of them being "not successful" on the COE issue. The applicants submitted that, in order to justify a departure from the "default position" in relation to costs, there must have been an issue "which has in fact been determined adversely to the party who was otherwise successful". They submitted there was "no such issue in the present case".
6. The applicants submitted that, since this Court did not deal with the COE issue at all, it was not correct to say that they were "unsuccessful" on that issue, and that they had in fact "achieved unqualified success in the outcome of the appeal". They submitted that it could not be said that there had been "mixed success" on the appeal and noted that there was no suggestion that it had been "unreasonable or inappropriate" for them to raise the COE issue.
7. The applicants also submitted that the COE issue was "not a clearly dominant or separable issue" and did not take up "a significant part of the hearing of the stay application at first instance or on appeal". They also submitted the expert evidence on Californian law was relevant to more than just the COE issue, since the Letter Agreement and the arbitration clause which it incorporated were governed by Californian law. They pointed to parts of the expert evidence which expressly dealt with matters which were not relevant to the COE issue.

Consideration

1. Section 98(1)(b) of the Civil Procedure Act 2005 (NSW) provides that "the court has full power to determine by whom, to whom and to what extent costs are to be paid", subject to the rules of court. Rule 42.1 of the Uniform Civil Procedure Rules 2005 (NSW) provides that "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".
2. The respondents did not submit that there were separate "events" which would require separate costs orders. They were correct not to do so. While the characterisation of the relevant "event" turns on the individual circumstances of the case, the "event" is generally the "practical result" of the particular claim which has been made: Ryde Developments Pty Ltd v The Property Investors Alliance Pty Ltd (No 2) [2018] NSWCA 40 at [6]. In the present case, the only relevant "event" was the success of the applicants in obtaining an order staying the proceedings brought against them by the respondents.
3. It follows that the applicants were entitled to an order for costs "unless it appears to the court that some other order should be made". As noted at [12]-[13] above, the respondents sought to demonstrate that "some other order should be made" by characterising the COE issue as "severable" and "significant" within the meaning of earlier authorities, even though they appeared to accept that the COE issue "may not have been dominant".
4. In a very limited sense, it might be accepted that the COE issue was "severable" since it was an alternative to another ground relied on by the applicants. In other words, it could still have been possible for the applicants to succeed in their application for a stay on the COE issue even if this Court had determined the issues relating to the Letter Agreement against them. Both the applicants and the respondents approached the COE issue on this basis. As a result, it was addressed separately from the other ground in their submissions and it was the subject of separate evidence.
5. However, this falls far short of demonstrating that "some other order should be made" for costs under r 42.1. When considering whether "some other order should be made", a court must consider the issues in the proceeding in the wider context of the "event" which has occurred. Focusing on one of the issues in the proceeding and identifying that it was "severable" in the sense described in the preceding paragraph tells a court very little that is relevant to the exercise of the power to make "some other order" for costs.
6. In the present case, the respondents brought proceedings against the applicants. The applicants sought a stay by relying on an arbitration clause which was said to bind the respondents on either of two alternative grounds. Those grounds were the subject of separate submissions and evidence. There was no suggestion that it was unreasonable to raise both of the grounds. This Court found that the applicants were entitled to a stay of the proceedings on one of those grounds and found it unnecessary to deal with the other. It did not find in favour of the respondents on any issue. The outcome was that proceedings ought not to have been brought by the respondents in the first place.
7. In these circumstances, it cannot be said that "some other order" should be made for costs. It would be an odd result if the applicants were disentitled from recovering their costs of defending proceedings brought by the respondents simply because this Court found it unnecessary to rule on the merits of an issue which the respondents have not demonstrated and did not seek to demonstrate was unreasonable to have been raised. The respondents did not cite any authority which required such a result.
8. It follows that the notice of motion ought to be dismissed with 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: 13 August 2018