Zeng v Mossensons Pty Limited

Judgment 1On 3 September 2013 I published reasons for judgment on a claim by the plaintiffs in these proceedings against the third to seventh defendants for summary judgment under UCPR r 13.1 on part of the plaintiffs' claims: see Zeng v Mossensons Pty Limited [2013] NSWSC 1206. 2I ordered that the claim for summary judgment be dismissed. 3I invited the parties to make submissions as to the costs order that ought to be made. 4That invitation was extended to the parties, as I noted in par 107, because, on the one hand, the plaintiffs' claim failed, but on the other, the dilatory conduct on the part of the defendants in failing to meet the timetable laid down by the court for the service of evidence had arguably extended the expected hearing time, caused the hearing to go into a second day, and led to the preparation of lengthy affidavits which were not permitted to be filed in court or read. 5In response to the court's invitation the plaintiffs delivered written submissions dated 10 September 2013. The court received written submissions from the defendants, which were undated. 6The plaintiffs relied upon what they described as "the usual order where an application for summary judgment is dismissed". They founded their submission on an observation by Ipp J in Whitehall Holdings Pty Ltd v Custom Credit Corporation Ltd (Supreme Court of Western Australia, Ipp, Pigeon and Owen JJ, 19 June 1992, unreported) (at 2-4 per Ipp J): "Exceptionally, when an application for summary judgment is dismissed, costs are awarded to the defendant; cases of this kind occur where the applications should never have been made." 7Further, in Harry Smith Car Sales Pty Ltd v Claycom Vegetable Supply Co Pty Ltd (1978) 29 ACTR 21 (at 23-24), Blackburn CJ said: "The question of the costs of the application was argued. In a case where the application fails because the defendant shows a genuine possibility of defence to the claim, the costs are normally ordered to be costs in the cause, the principle being that should the defendant ultimately fail he will probably be ordered to pay the plaintiff's costs of the action which will then include the costs of the application; a corresponding result will occur if the plaintiff ultimately fails. In the exceptional case, however, where the application fails because it should not have been made, the defendant should have his taxed costs of the application." 8In Crown in the right of the State of New South Wales v Gevaux [2011] NSWSC 758, a case entered in the General List of the Equity Division, Ward J (as her Honour then was) considered at [11] - [14] the circumstances in which orders that costs be costs in the cause might be made in interlocutory proceedings, and made such an order in relation to the costs of a failed application by the plaintiff for summary judgment. 9The plaintiffs submitted that there is nothing to suggest that the motion was so devoid of merits that it should not have been made. Therefore, so the plaintiffs say, as a starting point, costs should be costs in the cause. 10The plaintiffs then pointed to the conduct of the defendants in preparing their evidence which led me to invite the parties to make submissions on costs and submitted that, first, the plaintiff should be awarded the costs thrown away by the need for the second hearing day, and even if the defendant ultimately succeeds at trial, its costs in the cause should specifically exclude any costs associated with the preparation of the affidavits (including exhibits) which were not permitted to be filed, and any costs of the second day of hearing. 11The defendants' submissions did not advert to the authorities upon which the plaintiffs relied. They submitted that costs should follow the event, so that the plaintiffs should be ordered to pay their costs. They also submitted that costs should be ordered to be paid on an indemnity basis, for a number of reasons including, it was said, misuse by the plaintiffs of the court process to obtain an unfair advantage, that the plaintiffs maintained the proceedings when they should have known they had no real prospect of success, and that the defendants gave prior notice to the plaintiffs of their intention to make the claim for indemnity costs. 12I accept that the plaintiffs' submissions correctly set out the effect of the authorities upon which they rely, and that it may be, historically, that the courts have generally adopted the approach for which the plaintiffs contend in relation to the proper order for costs in cases where plaintiffs fail on applications for summary judgment against defendants. 13However, it is significant in the present case that the plaintiffs commenced their proceedings in the Commercial List of the Equity Division of the Supreme Court. Practice Note SC Eq 3, which governs matters in the Commercial List, provides: "62. As a general rule applications to strike out or for summary judgment will not be entertained. Sometimes applications are appropriate, but Practitioners should expect strictness in declining to entertain such applications." 14Although this part of the Practice Note strictly deals with the court's attitude to allowing applications for summary judgment to be heard, in my view it is representative of a general attitude of the court in matters in the Commercial List to discourage applications for summary judgment other than in exceptionally clear cases. 15In Ridgepoint Corporation Pty Ltd v McCallum Donovan Sweeney (a firm) [2011] WASC 167 (S) Kenneth Martin J considered the authorities upon which the plaintiffs rely in relation to a failed application for summary judgment against the plaintiff by the second defendant in proceedings in the Commercial and Managed Cases (CMC) List of the Supreme Court of Western Australia. Although there are differences between the CMC List and the Commercial List, in my view each List observes comparable objectives in relation to the expeditious disposal of commercial cases. 16The successful plaintiff in that case submitted that the appropriate costs order was that the costs of the failed application for summary judgment should be the plaintiff's costs in the cause, assessed in the cause of the action against the second defendant. The plaintiff would therefore only receive its costs in the event that it was successful at the trial. The second defendant argued that the costs of the application should be each party's costs in the cause, so that the second defendant would get its costs of the application if it succeeded at the trial. 17His Honour stated at [5] that he was not attracted to the course suggested by the second defendant because the question which would arise at any trial would be a different question to that which arose on the summary judgment application: "Put simply, the second defendant was not successful in surmounting the high threshold it faced on its [summary judgment] application. It could not in the end persuade me that the plaintiff's case was so meritless or unarguable that the plaintiff's action against it should not even proceed to trial. A very distinct focus for the trial will require an evaluation of the merits of the plaintiff's case against both defendants by reference to the civil standard of proof, namely the balance of probabilities..." 18His Honour then at [6] referred to the fact that "the court's approach as to costs orders is inherently discretionary" and stated that in his view the fairest costs outcome was for the second defendant only to be exposed to the adverse costs consequence of its failure on its summary judgment application in the event that the plaintiff succeeded against it at trial. He then referred to the two authorities which are now relied upon by the plaintiffs, but distinguished them upon the following bases: "[8] Neither decision addressed the situation of the costs of the defendant's failed application for summary judgment brought against a plaintiff. Furthermore both decisions were delivered in the environment before intensification of case management practices now utilised by courts in Western Australia under rules such as RSC O 1 r 4A and r 4B." 19The second of these propositions is material to the consideration of the appropriate costs order to be made in the present case. 20Kenneth Martin J then set out the following observations in relation to the case before him: "[9] This was an interlocutory application that was argued in the CMC List of this court - where interlocutory disputation is strongly discouraged unless it is absolutely necessary. An ultimately unsuccessful interlocutory applicant on a CMC List application would expect, in the ordinary course, to suffer a likely adverse exposure to some cost consequence arising from its failure on an application it has been responsible for pressing to a curial determination, see CMC List Practice Direction 4.1.2(17) which provides: "A fundamental objective of the CMC List, and indeed the general practices and procedures of the Court, is the discouragement of interlocutory disputes with all means at the Court's disposal, including costs orders in appropriate cases..." [10] It is unwise to seek to lay down hard and fast rules in considering the application of the court's general discretion for costs orders. Each case must be evaluated by reference to its own particular merits..." 21His Honour then considered issues which were particular to the case before him. It appears from par [12] that he was of the view that generally speaking the costs of a failed application for summary judgment in the CMC List should follow the event, but he was influenced by a number of positive features favouring the second defendant to make, in his discretion, the costs order suggested by the plaintiff. Those positive features apparently concerned revisions which the plaintiff was required to make to its statement of claim and areas where the plaintiff's pleading was less than optimal: see par [11]. 22The cardinal proposition must be that costs will always be within the discretion of the court having regard to all material circumstances of the case. However, notwithstanding the differences that may exist between Practice Note SC Eq 3 and par 4.1.2 of the Supreme Court of Western Australia Consolidated Practice Direction, in my view it is appropriate to adopt a comparable approach in cases such as the present to the determination of the appropriate costs order to be made in respect of a failed application for summary judgment in the Commercial List as was adopted by Kenneth Martin J in relation to the equivalent List in the Supreme Court of Western Australia. 23That is, normally a party who applies for summary judgment and fails should expect to be ordered to pay the costs incurred by the other party in respect of the application. Whether or not such an order is appropriate in a particular case will necessarily depend upon all of the circumstances. Parties to proceedings in the Commercial List should not be encouraged to make summary judgment or dismissal applications in the expectation that failure will lead to an order that the costs of the application will be costs in the cause, as a cost order to that effect will be unlikely to deter applicants with dubious prospects of satisfying the General Steel Industries test (General Steel Industries Inc v Commissioner for Railways (NSW)(1964) 112 CLR 125). 24I note that in Imperial Tarmacadam and Ashphalting Company Pty Ltd v St George Bank Limited [2009] NSWSC 1287, in proceedings in the Commercial List, Hammerschlag J dismissed an application to strike out the plaintiff's Commercial List Reply. His Honour referred at [22] to par 62 of Practice Note No. SC Eq 3, and then found at [23] that while he considered that the application was appropriate to be considered, he did not consider that the Bank had met the necessary threshold to succeed in its application to strike out the reply. His Honour ordered the Bank to pay the plaintiff's costs. Earlier, in the Commercial List case of GPT Management Ltd v Spa Heaven Pty Ltd & Ors [2005] NSWSC 1043 Palmer J also ordered the plaintiff to pay the costs of its application for summary judgment, which was dismissed. At [32] his Honour said that he could not see any reason in the particular case why costs should not follow the event. However, Stevenson J in another Commercial List case, Westpac Banking Corporation v Billgate Pty Ltd [2012] NSWSC 1447, made an order that the costs of the Bank's failed application for summary judgment should be costs in the cause. These references to other costs decisions in the Commercial List may not exhaust the occasions when the court has made costs orders following the failure of applications for summary judgment. The different outcomes probably reflect the discretionary nature of the power to make costs orders. 25As appears from my reasons for dismissing the plaintiffs' application, the narrow basis upon which the plaintiffs relied, being that the conditions necessary to achieve the Release Date had not occurred before the End Date, was inherently likely to fail for reasons which were contained in the plaintiffs' own Commercial List statement. The plaintiffs changed the basis of their case in their reply, at least in the alternative, to an argument which may have come very close to succeeding had it been put from the outset. In retrospect I do not think that this was an appropriate case for the plaintiff to seek summary judgment, although I think it would be too harsh a judgment to conclude that the plaintiffs' position was devoid of merit. It was more the case that the plaintiffs were always unlikely to surmount what Kenneth Martin J at par [5] described as the "high threshold" necessary to succeed on a summary judgment application. 26In Ridgepoint Corporation the second defendant avoided suffering an immediate cost order against it because the making of its application had the positive effect of requiring the plaintiff to correct deficiencies in its statement of claim. The present case is comparable in that it exposed the necessity for the defendants to acknowledge that their Commercial List response had been inadequately pleaded, so that leave would need to be sought to re-plead. Furthermore, the defendants' Commercial List response and Commercial List cross claim statement appeared to have been drafted by different hands, as counsel for the defendants acknowledged, and the defendants had to rely upon the material facts alleged only in their cross claim statement to survive the General Steel Industries test. In particular, the plaintiffs rightly complained that the defendants did not strictly raise their claim that the End Date was extended by the plaintiffs' conduct in their Commercial List response. 27Having regard to these considerations, and all other circumstances of this application for summary judgment, I think that the appropriate starting point for determining the proper costs order is that the costs of the application should be the defendants' costs in the cause. 28However, it remains necessary to consider the significance of the late service by the defendants of substantial affidavits immediately before each of the two days upon which the plaintiffs' application was heard. It is clear in my view that the application would have been completed in a single day but for this conduct on the part of the defendants. 29In my view, as the need for the additional hearing day was brought about by the failure of the defendants to comply with the court's directions as to the timely service of evidence, it will be appropriate in this case to deny the defendants their costs of the second day, and order instead that those costs be the plaintiffs' costs in any event. 30It is difficult to decide the proper course to follow in relation to the defendants' costs of preparing the two affidavits of Mr Ehrenfeld which the defendants were not given leave to file in court. The affidavits were both substantial in relative terms, and it was plain that the plaintiffs could not possibly respond appropriately to the affidavits given the total absence of the time available to do so. Having regard to the contents of the affidavits and the amount of information contained in them, in my view the lateness of their service was very serious. It appeared to me that a great deal of the evidence contained in the affidavits took the form of general statements of conclusions rather than evidence which complied with the applicable evidentiary rules, including as to form. Notwithstanding these deficiencies in the content of the affidavits and the timing of their service, I formed the general view from dealing with the plaintiffs' objections (which I entertained on a paragraph by paragraph basis, before I decided that it would be appropriate to decline leave to the defendants to file the affidavits in court in their entirety) that a substantial amount of work appeared to have gone into the preparation of the affidavits. 31The point of these observations is that I would hesitate at this stage to make any costs order adverse to the defendants which had the effect of denying them all of the costs of preparing the affidavits, irrespective of the outcome of these proceedings. In my view it is likely that much of the work which went into the preparation of the affidavits will have utility to the preparation of the defendants' affidavits for the purposes of the final hearing, albeit that it will be necessary for many deficiencies in the affidavits to be corrected. 32In the circumstances in the exercise of my discretion I propose not to make any special order concerning the costs of preparing Mr Ehrenfeld's two affidavits. The effect will be that those costs will be the defendants' costs in the cause. 33In my view it is clear that costs in this application should not be awarded on an indemnity basis. Although the plaintiffs failed, it was a 'near run thing'. The defendants' conduct of the application was unsatisfactory for the reasons I have outlined. 34The costs orders that I make will accordingly be as follows: (1)Subject to order 2, the costs of the plaintiffs' application for summary judgment made in their notice of motion filed on 1 May 2013 will be the third to seventh defendants' costs in the cause. (2)The third to seventh defendants must pay the plaintiffs' costs of the hearing of the notice of motion on the second day of the hearing in any event (so that those costs will not be part of the third to seventh defendants' costs in the cause).