Diakou Nominees P/L (ACN 007 890 673) v Gouger Street P/L (ACN 156 309 116) (No 2) - [2017] SASC 115

SUPREME COURT OF SOUTH AUSTRALIA
(Civil: Application)
DIAKOU NOMINEES P/L (ACN 007 890 673) v GOUGER STREET P/L (ACN 156 309 116) & ANOR (NO 2)
[2017] SASC 115
Judgment of The Honourable Justice Stanley
2 August 2017
PROCEDURE - COSTS - DEPARTING FROM THE GENERAL RULE - NATURE OF PROCEEDINGS - INCONCLUSIVE PROCEEDINGS
PROCEDURE - COSTS - GENERAL RULE - COSTS FOLLOW THE EVENT - COSTS OF ISSUES
This is an application for an order for costs against Diakou Nominees and Kelly & Co on a joint and several basis, following judgment in favour of Gouger Street Pty Ltd on a preliminary issue.
Two issues arise:
1. Whether an order for costs of the preliminary issue in favour of Gouger Street should be made now; and
2. Whether an order should be made that those costs are payable forthwith.
Held, per Stanley J:
1. The Court is satisfied that in this case, the interests of justice warrant a departure from the general practice that costs are not payable until the conclusion of the principal proceeding (at [14]).
2. Diakou and Kelly & Co are to pay the costs of and incidental to the determination of the preliminary issue, on a joint and several basis, forthwith, certified fit for senior counsel (at [15]).
Retail and Commercial Leases Act 1995 (SA); Supreme Court Civil Rules 2006 (SA) r 211, r 265; Supreme Court Civil Rules 1987 (SA) r 101.01(7), referred to.
A, DC v Prince Alfred College Inc (No 2) [2016] SASCFC 27; S, DJ v Channel Seven Adelaide Pty Ltd (2007) 97 SASR 118, discussed.
City of Onkaparinga v Hassell Pty Ltd & Ors [2007] SASC 163, considered.

DIAKOU NOMINEES P/L (ACN 007 890 673) v GOUGER STREET P/L (ACN 156 309 116) & ANOR (NO 2)
[2017] SASC 115
Civil: Application
STANLEY J.
Introduction

This is an application for an order for costs. There are two issues: first, whether an order for costs of the preliminary issue in favour of Gouger Street Pty Ltd (Gouger Street) should be made now; and second, whether an order should be made that those costs are payable forthwith.
Earlier I gave judgment in favour of Gouger Street on the determination of a preliminary question in the two actions, namely, whether on the proper construction of the lease between Gouger Street and Diakou Nominees Pty Ltd (Diakou), and the Retail and Commercial Leases Act 1995 (SA) (the Act), the Act applied to the lease on and from 4 April 2011. Gouger Street now seeks an order for the costs of the preliminary issue. It seeks an order that those costs be payable on a joint and several basis by Diakou and Kelly & Co. If I am prepared to make that order, Gouger Street seeks an order that those costs be payable forthwith.
The application is opposed by Diakou and Kelly & Co on both issues.
Order for costs of the preliminary issue
The general principles governing the exercise of the Court’s discretion to award costs was considered by the Full Court in A, DC v Prince Alfred College Inc (No 2).[1]In their joint reasons the Full Court said:[2]
[1] [2016] SASCFC 27.
[2] [2016] SASCFC 27 at [5]-[13].
The principles governing the exercise of the costs discretion are well established. The Court exercises a judicial discretion with respect to costs in which the general rule is that costs ordinarily follow the event unless there are special circumstances justifying another order. In more recent times, courts more readily modify the general rule recognising that the interests of justice sometimes require a reduction in the costs that would otherwise have been awarded to a successful party when that party has failed on particular disputed questions of fact or law. In Ruddock v Vardalis (No 2), Black CJ and French J summarised the principles as follows:
Within the general discretion of the courts to award costs it is accepted by decisions in both Australian and English jurisdictions that:
·    Ordinarily costs follow the event and a successful litigant receives costs in the absence of special circumstances justifying some other order.
·    Where a litigant has succeeded only upon a portion of the claim, the circumstances may make it reasonable that the litigant bear the expense of litigating that portion upon which he or she has failed.
·    A successful party who has failed on certain issues may not only be deprived of the costs of those issues but may be ordered as well to pay the other parties' costs of them. In this sense “issue” does not mean a precise issue in the technical pleading sense but any disputed question of fact or law.
The modification of the ordinary rule to reflect the way in which particular issues in the litigation are determined is a response to those ‘cases in which issues are raised which unduly extend the time and expense of litigation’.
In Victoria and Master Builders Association of Victoria Ormiston JA explained that in an era of high cost litigation it had become necessary to more often allocate costs according to success on particular issue because ‘regrettably there are many cases in which issues are raised which unduly extend the time and expense of litigation’. Those observations were echoed in Mickelberg v Western Australia by Newens J who referred also to ‘the burdens imposed on the public resources of the Court’ by parties pursuing claims on which they are ultimately not successful.
Just as parties must make a cost benefit and risk analysis decision on whether to bring an action at all, so too must decisions be made about which claims to include within an action. Parties should not be encouraged to add to a claim which has sufficient prospects, in itself, to justify the bringing of an action other claims, of doubtful merit, on the assumption that the costs of pursuing the latter claims will be recovered because of success on the good claim.
In adversarial litigation the parties and their legal advisors carry the primary responsibility for ensuring the cost-effectiveness of litigation because they have a particular knowledge and understanding of the controversy, and the available evidence, which the court cannot know because of legal professional privilege.
It is therefore the responsibility of the legal profession to actively consider the affect of adding doubtful claims, or mounting defences to good claims without any foundation for doing so, on the efficient resolution of the proceedings. In accordance with that duty legal practitioners must give advice on the relative merits of the possible claims and defences and on the cost and time implications of pursuing those claims so that the litigant is in a position to give informed instructions on how to conduct the proceedings.
The authorities to which we have referred make it clear that the rule does not only apply to a ‘precise issue in the technical pleading sense’ but extends to any substantial disputed question of fact or law. There is of course a limit to the dissection of an action which is practicably possible.
On the other hand, the court should not be overly parsimonious in the award of costs to a plaintiff who has won a judgment against a wrongdoer who has denied liability on all of the grounds of the plaintiff’s claim.
There can be no precision in the balancing of the tension between the ordinary rule and its qualification. Much will depend on the extent to which the costs of the litigation of the separate issues can easily be separated out and on the reasonableness of the forensic decision of the successful party to pursue, not only the claims on which he or she succeeded, but also those claims on which he or she failed.
[footnotes omitted.]
In this case the Court made an order pursuant to 6SCR 211 for the determination of the issue of the application of the Act to the lease. The Court ordered the separate trial of that issue. The judgment of the Court constitutes the final determination of the issue in the two actions, although the final determination of the rights of the parties awaits the disposal of all issues in the trial.[3] Diakou and Kelly & Co submit that the Court should order the costs of the preliminary issue should be costs in the cause or reserved until the ultimate disposition of the actions is known. They submit that a variety of issues still to be determined could result in them being wholly or substantially successful and Gouger Street ultimately liable to them for costs.
[3] See City of Onkaparinga v Hassell Pty Ltd & Ors [2007] SASC 163 at [29]-[30].
In addition, Kelly & Co submits it would be wrong for the Court to make an order that Kelly & Co is jointly and severally liable to Gouger Street for the costs of the preliminary issue. Kelly & Co submit that there is a key difference between it and Diakou. Kelly & Co is only party to one action. Diakou alleges that Kelly & Co is liable to it in professional negligence for any losses it suffers as a result of the Act applying to its lease. There is no claim made against Kelly & Co by Gouger Street. Kelly & Co submits that its role is analogous to that of an intervener and that an intervener would not ordinarily be ordered to pay costs. It submits that while it did put somewhat different arguments from Diakou, those submissions did not greatly prolong the trial of the preliminary issue.
In my view an order should be made at this stage. Gouger Street should have its costs of the trial of the preliminary issue. Diakou and Kelly & Co should be jointly and severally liable for those costs. The issue which has been finally determined is a discrete issue in the overall dispute between the parties. The issue has been determined on agreed facts and documentary evidence so the costs insofar as they relate to the determination of the issue are capable of identification and separation from costs attributable to other issues in dispute. In my view that result reflects the contemporary approach to the assessment of costs not only where a discrete issue has been separately tried but where parties at trial succeed and fail with respect to discrete issues in accordance with the principles explained in A, DC v Prince Alfred College Inc (No 2).[4]
[4] [2016] SASCFC 27.
The possibility that Diakou or Kelly & Co may ultimately be wholly or substantially successful in the actions is not a basis to dissuade me from ordering that Gouger Street should have the costs of the trial of the preliminary issue. Gouger Street not only has succeeded on the issue but it was the only issue in the trial. The possibility that a setoff may become necessary later after the final disposition of the actions is not a reason to refrain from dealing with the liability of the costs of the separate trial at this juncture.
I am satisfied that Diakou and Kelly & Co should be jointly and severally liable for those costs. I reject the submission that Kelly & Co should be treated as if it was an intervener. Kelly & Co is a party to one of the two actions in which the preliminary issue was determined. It elected to be heard on the preliminary issue. It opposed the submissions of Gouger Street. It largely adopted the submissions made by Diakou. It put arguments of its own. There is no proper basis to distinguish it from Diakou at least with respect to the liability for the costs of the separate trial.
I am also satisfied that those costs be certified fit for senior counsel.
Should those costs be made payable forthwith?
Pursuant to 6SCR 265 the Court may deal with costs at any stage of proceedings including before or after final judgment. However, subject to any order of the Court to the contrary, a schedule of costs is not to be adjudicated upon until after the principal proceedings have been concluded and an order for costs is not to be enforced until after the principal proceedings have been concluded.[5]
[5] 6SCR 265(2).
Gouger Street submits that this is an instance where the Court should depart from the general practice established by 6SCR 265 and order that the costs should be adjudicated and enforced forthwith rather than waiting until the principal proceedings have concluded. It submits that the Court should do so for six reasons. First, the costs are the costs of a trial not an interlocutory hearing. Second, the trial resolved a discrete issue in dispute in each action. Third, the costs are easily identified. Fourth, the ultimate disposition of the actions is likely to be some time off. Fifth, it is unfair that it should have to carry the financial burden of the costs incurred with respect of the preliminary issue on which it has succeeded. Sixth, the involvement of Kelly & Co in the second action means that the issues in the balance of the proceedings will be more complex and potentially lengthier. In these circumstances it is appropriate that the Court should now draw a line in the sand in relation to the liability for an actual payment of the costs of the trial of the preliminary issue.
The principles relevant to the determination of whether the Court should depart from the general practice enshrined in 6SCR 265 are authoritatively stated in the reasons of Debelle J, with whom Anderson J agreed, in S, DJ v Channel Seven Adelaide Pty Ltd and Another,[6] which considered the predecessor rule to 6SCR 265 namely r 101.01(7) of the Supreme Court Rules 1987 (SA):
[6] [2007] SASC 80 at [11]-[14], (2007) 97 SASR 118 at 121-124.
All parties accept as accurate my summary of the nature of the discretion in Alstom Power Ltd v Yokogawa Australia Pty Ltd (No 2):
4 The discretion with which r 101.01(7) invests the court is unfettered. The rule is expressed in terms which make it clear that the general rule is that a taxation of costs will occur at the conclusion of the proceedings, unless the court makes an order to the contrary. It is not appropriate to state that the order for costs shall be paid forthwith will be made in “rare” or in “exceptional” circumstances. The rule clearly states the general position so that to add epithets such as “rare” or “exceptional” is to add words to the rule in an impermissible manner, which may cause the exercise of the court’s discretion to be improperly fettered.
5 As far as the research of counsel and my own research disclose, the rule has not been the subject of consideration by this Court in any reported decision. However, the rule is in the same terms as O 62, r 3(3) of the Rules of the Federal Court of Australia which has received quite a degree of judicial notice.
The Underlying Policy
6 The policy reasons underlying O 62, r 3(3) were noted by Sackville J in Courtney v Medtel Pty Ltd (No 3). They include:
1.      discouraging interlocutory applications: Stack v Brisbane City Council;
2.      avoiding the inconvenience and possible oppression involved in a series of taxations where there are successive interlocutory applications: Vasyli v AOL International Pty Ltd; and
3.      the fact that it is usually inappropriate to require the unsuccessful party to interlocutory proceedings to pay costs immediately, since that party might ultimately succeed in the substantive proceedings and set-offs can be made in light of the ultimate orders as to costs: Brasington v Overton Investments Pty Ltd; Bailey v Beagle Management Pty Ltd.
Those policy considerations apply with equal force to costs orders made in this Court. Those policy reasons inform the factors to be considered when this Court is deciding whether to depart from the general rule.
7 In the Federal Court O 62, r 3(3) has been generally interpreted as conferring a discretion which should be exercised in favour of a party who establishes that the demands of justice require a departure from the general practice: Thunderdome Racetiming & Scoring Pty Ltd v Dorian Industries Pty Ltd; Stack v Brisbane City Council; Murran Investments Pty Ltd v Aromatic Beauty Products Pty Ltd. Some judges in the Federal Court have expressed the view that a departure from the general rule should be countenanced only in “rare cases”: Vasyli. Others have suggested that the power might be somewhat under-utilised: Allstate Life Insurance Co v Australia and New Zealand Banking Corporation Ltd (No 14); Life Airbag Company of Australia Pty Ltd v Life Airbag Company (New Zealand) Ltd; McKellar v Container Terminal Management Services Ltd. I do not believe that anything is to be gained by considering whether or not the power should be rarely used. The question for consideration is whether it is in the interests of justice to make an order in the individual case, having regard to the fact that the general rule is that costs are not payable until the conclusion of the principal proceeding.
Relevant Factors
8 The factors identified by the Federal Court as justifying a departure from the general rule include the following.
1.      Where an interlocutory proceeding involving a discrete issue has been resolved: Australian Flight Services v Minister for Industry Science & Technology; Courtney v Medtel Pty Ltd (No 3). However, where the interlocutory proceeding concerns pleadings, especially pleadings in a complex action, such an order will not usually be made: All Services Australia Pty Ltd v Telstra; Murran Investments Pty Ltd v Aromatic Beauty Products Pty Ltd.
2.      Where the principal proceedings are not likely to be resolved for some time so that, in the absence of an order, the successful party will not enjoy the fruits of the interlocutory order for a long period: Life Airbag; Allstate Life Insurance Co v Australia and New Zealand Banking Corporation Ltd (No 13).
3.      Where the interlocutory application has had the effect of removing one of several causes of action in its entirety: Mitanis v Pioneer Concrete (Vic) Pty Ltd.
4.      Where the application is an unsuccessful application for leave to appeal on an interlocutory matter of practice and procedure given the strong public policy against the proliferation of such applications: Bailey v Beagle Management Pty Ltd.
These principles are equally applicable to an application under r 101.01(7). There are further matters for consideration. The court will, as a general rule, set its face against multiple applications for costs to be taxed and payable forthwith as the interlocutory proceedings unfold. That proposition does no more than reflect the terms of the rule and the policy reasons underlying it.
In addition to these factors, regard must be had to the financial resources of parties to litigation. In Bailey v Beagle Management Pty Ltd, the Full Court of the Federal Court of Australia said, when dealing with a claim for costs against a private individual:
Impecunious litigants who have a meritorious claim or defence would not be forced out of court because of inability to meet interlocutory costs orders.
It is a corollary of that principle that impecunious litigants who have a meritorious claim or defence should be able to be paid what is due on an interlocutory costs order if the interlocutory proceedings concern a discrete issue and that issue has been resolved especially where the principal proceedings are not likely to be resolved for some considerable time: Australian Flight Test Services Pty Ltd v Minister for Industry, Science and Technology; Life Airbag Co of Australia Pty Ltd v Life Airbag Co (New Zealand) Ltd; Allstate Life Insurance Co v Australia & New Zealand Banking Group Ltd.
That conclusion is consistent with the remarks of Priestley JA in Horrobin v Australia & New Zealand Banking Group Ltd:
None of the cases is on all fours with the present one; indeed, a reading of them emphasises the need for cases to be considered by reference to their own particular facts. Nevertheless, those relied on by counsel for H and S show there is a tendency for costs orders to be made payable forthwith and without waiting for the conclusion of further proceedings when the proceedings in respect of which the costs orders have been made are regarded as sufficiently self-contained and detached or detachable from proceedings yet to be heard, whether between the same or associated parties, as to make it seem just for an actual payment to be made in the meantime.
The Rule on which Priestley JA commented was r 9 of Pt 52A of the Supreme Court Rules 1970 (NSW). Rule 9 relevantly provided:
(1)     Where before the conclusion of any proceedings … the Court makes an order for the payment of costs or a motion is refused with costs, the costs shall not, unless the Court otherwise orders, be payable until the conclusion of the proceedings.
…
(3)     Where in any proceedings:
(a)it appears to the Court that:
(i) a party has been subject to unreasonable delay or default on the part of any other party;
(ii) the proceedings are unreasonably protracted; or
(b)a costs order is made under r 43 or r 43A,
the Court may order that costs, or a specified amount on account of costs, be payable forthwith.
In Fiduciary Ltd v Morningstar Research Pty Ltd, Barrett J held that subr (3) did not represent an exhaustive catalogue of the circumstances in which the court may order that costs be payable forthwith. He said that the starting point was the decision of Priestley JA in Horrobin to which I have already referred. From that starting point Barrett J identified three cases where it might be appropriate to depart from the general rules, namely:
1. where the interlocutory proceeding represents the determination of a separately identifiable matter or may be viewed as a completion of a discrete aspect of the action: see, for example, Charlie Brown Pty Ltd v Green and Bagley v Pinebelt Pty Ltd; 2. where there has been unreasonable conduct on the part of the party against whom costs have been ordered: Gattelleri v Meagher; and
3. a considerable time remains before the proceedings will ultimately be determined: Doran Constructions Pty Ltd v University of Newcastle.
There is an obvious correspondence between these principles and those expressed by judges in the Federal Court of Australia. The New South Wales rule has been replaced by r 42.7(2) of the Uniform Civil Procedure Rules 2005 (NSW) in that Court which provides:
Unless the court orders otherwise, costs referred to in subrule (2) do not become payable until the conclusion of the proceedings.
Plainly, the new rule does not affect the principles enunciated in respect of the former rule. These principles apply with equal force to an application for taxation of costs before the conclusion of the proceedings under both r 101.01(7) and r 265 of the 2006 Rules. While the court has an unfettered discretion to make an order and that discretion must not be fettered by epithets such as “exceptional”, the applicant for taxation of costs before the conclusion of the proceedings must satisfy the court that there are reasons to depart from the general rule.
The plaintiff asserts through his solicitor that he has incurred substantial costs. No evidence was led of the actual amount he has paid in costs. However, the bill of costs which has been filed totals in excess of $55,000. On any view, that is a very substantial amount.
[citations omitted.]

In my view it is appropriate for the Court to make an order for the payment of costs forthwith. Ultimately the Court is concerned whether the interests of justice warrant a departure from the general practice that costs are not payable until the conclusion of the principal proceeding. In this case, I am satisfied that they do. The principles enunciated in Channel Seven were framed around the costs of interlocutory applications. This proceeding however was not an interlocutory application but a trial that finally disposed of the preliminary issue in respect of both actions. The Court in Channel Seven considered that it can be appropriate to depart from the general practice and order payment of costs forthwith where a party has been successful on an interlocutory application a fortiori where, as here, the party seeking the order has succeeded on a trial of a discrete issue. In this case the outcome of the trial on the preliminary issue has had the effect of reducing the issues in dispute and substantially reducing the length of the ultimate trial. As I have observed, the preliminary issue is quite discrete and given the stage presently reached the principal proceedings are unlikely to be finalised for a considerable time. The parties have not yet attended to disclosure and there is the possibility of an application for non-party disclosure from Rockwell Olivier (Perth) Pty Ltd and Mr Pledge, who produced the expert determination as to market rent which is the subject of dispute. Further, it appears likely that the parties will need to obtain expert reports. This is sufficient to indicate that the final determination of the actions is a considerable time off. I am satisfied that it would be unfair to Gouger Street to keep it out of its costs in these circumstances notwithstanding that if Diakou and Kelly & Co were ultimately successful they may obtain orders for costs which would exceed their liability for costs in relation to the trial of the preliminary issue.
Conclusion
I would order that Diakou and Kelly & Co pay the costs of and incidental to the determination of the preliminary issue, on a joint and several basis, forthwith, certified fit for senior counsel.