Forlyle Pty Ltd v Tiver - [2007] SADC 55

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
FORLYLE PTY LTD v TIVER & ORS
[2007] SADC 55
Ruling of His Honour Judge Tilmouth
17 May 2007
PROCEDURE - COSTS
General rule - Costs follow the event - discretion conferred by s42 of the District Court Act 1991 (SA) not fettered by Rules of Court.
Depriving successful party of costs - ordering successful party to pay part of opponent's costs.
District Court Act 1991 (SA) s42; Supreme Court Rules 101.02, referred to.
Copping & ORS v ANZ McCaughan & Anor (1994) 63 SASR 523; Cretazzo v Lombardi (1975) 13 SASR 4, applied.
Westsub Discounts Pty Ltd v Idaps Australia Ltd (No 2) (1990) 94 ALR 310, distinguished.
Waters v PC Henderson (Australia) Pty Ltd (1995) Unreported, Court of Appeal NSW, 6 July 1994, considered.

FORLYLE PTY LTD v TIVER & ORS
[2007] SADC 55
Introduction

The Court delivered judgment in this matter in relation to substantial issues of liability,[1] reserving to the parties the opportunity to make further submissions concerning the final terms of proposed declarations, as well as interest and costs.
[1] Forlyle Pty Ltd v Tiver and Tiver (2007) 247 LSJS 349, [2007] SADC 25, 9^th March 2007
Judgment was entered for the plaintiff in the liquidated sum of $42,500 plus interest to be assessed. A direction was also made for the balance of the sums held in the Suitors Fund relating to the within action be paid forthwith to the plaintiff. The Court otherwise dismissed the plaintiff’s action for a significantly larger award of damages. At the same time it dismissed the substantial portion of the case sought to be made out by the defendants.
Interest on judgment sum
Both parties did not quarrel with the terms of the proposed draft order for declarations, so that will be confirmed. As to the question of interest, they agreed a rate of 7% was applicable over a period of two years and they invited the Court to fix a lump sum. Judgment will be duly entered for the plaintiff in the sum of $42,500 plus interest of $6,000, accordingly.
The issue of costs
That leaves the question of costs, a question not as straightforward as it might at first seem. In order to appreciate the complexities, it is necessary to outline the issues once again. The parties came to a consent agreement to settle during the course of an arbitration of what might for present purposes be called a building dispute. The defendants, to adopt an expression used by their counsel at one point, “reneged” on the agreement, in their submission, because it unlawfully compromised future claims for latent defects, rendering the entire agreement invalid. That contention was rejected, although an offending portion was held to be capable of severance or properly the subject of declarations.
The proceedings were rendered more complicated by the fact that Forlyle pursued what was described as ‘Hadley and Baxendale’ damages. It failed in a claim for up to a further $250,000, for multiple reasons detailed in the judgment.
It can be seen then that the plaintiff succeeded in recovering awards for two sums in the event totalling a little more than about $100,000. It failed as to a major limb in damages, expressed in monetary terms. Something in the order of approximately two thirds of the trial was devoted to that additional issue. The position is further complicated by the fact that an extensive accounting report was prepared on behalf of the plaintiff and served on the defendants in relation to the failed claim. One of two heads of damage suggested therein was later abandoned. It became evident during the course of extensive and at times earnest submissions in relation to costs, that these reports proved to be costly disbursements.
On the other side of the equation, the defendants maintained until approximately a week before the trial, claims relating to alleged misrepresentations and common mistake, as further bases for avoiding the settlement agreement. Those allegations meant the plaintiff was obliged to employ alternative counsel, as previous counsel became compromised in the conduct of these proceedings, thereby increasing costs to the plaintiff. Indeed he gave evidence at the trial.
For their part the defendants doggedly pursued the invalidity claim, even though putting forward little by way of convincing authority showing why the offending portion could not be severed. They could just as effectively have preserved their position by paying the liquidated sums, whilst maintaining a limited position as to the effect of the agreement as it related to “future claims”.
To complicate things further, the plaintiff’s earlier application for summary judgment was dismissed by a Master of this Court in December 2005. Costs of that were referred to the trial Judge. It appears several hours were taken in arguing the matter and lengthy materials were duly assembled for the purpose. The Master refused the application, partly on the basis of allegations later withdrawn by the defendants and partly because of the question relating to the validity of the agreement as a whole. Further costs orders in and about “skirmishes as to future discovery” between the parties were made in October 2006, to be “in the cause”. That latter order means those costs are then disposed of as part and parcel of the general order for costs of the trial: Dubbo Refrigerated Co v Rudderford.[2]
[2] (1998) 14 WN (NSW) 180
The position of the parties could hardly be more disparate. For its part the plaintiff contends it has effectively “won” the action and therefore full costs should follow the event, as in the general rule. The defendants on the other hand say such an order will be most unfair, as in the result it succeeded on an important and significant aspect of the action, whilst the plaintiff lost on the dominate issue, occupying the majority of court time. Consequently they sought an order for 80% of their costs.
Costs ‘following the event’
Orders for costs are at the best of times very blunt instruments for dealing justice between parties to litigation. An award of costs is merely compensatory, made principally by way of restorative justice, rather than punitive: Latoudis v Casey[3] Ohn v Walton.[4] It is notorious that costs on a party-party basis, fall significantly short of the actual costs incurred. More importantly perhaps, as this case illustrates only too well, a blanket order awarding a successful party costs “following the event”, whilst convenient and relatively easy to tax and enforce, is one very often ignoring other issues materially influencing the course of the litigation. In the result rougher justice might be done on account of convenience or practicality than might otherwise be the case if a less simplistic and more discriminating approach was taken.
[3] (1990) 170 CLR 534 at 543 and 567
[4] 36 NSWLR 77 at 79
The starting point must be s42(1) of the District Court Act 1991 (SA), which vests a wide and unfettered discretion to award costs, a discretion nonetheless to be exercised judicially. This is identical in terms to section 40 of the Supreme Court Act 1935 (SA). Rule 101.02(1) however, provides that costs are to follow the event “unless otherwise ordered”.
It was put on behalf of the plaintiff that this Rule reflected an inevitable rule of practice, automatically applying unless there were “special circumstances” or “good reason” to depart therefrom. No such fetter or qualification appears in the Rules. No reason to impose a gloss of that kind is otherwise apparent. Indeed, the cases suggest that where time consuming issues of substance are clearly separable, trial courts have often attempted to differentiate between those on which a party was successful and those on which it failed, particularly when hardship or unfairness might flow from a bare order for costs to follow the event.
In Waters v PC Henderson (Australia) Pty Ltd[5] the Court of Appeal approved the annotation to Ritchie, on the NSW equivalent to R101.02:
Where the proceedings involve multiple issues the application of the rule that costs follow the event may involve hardship where a party succeeds on some issues and yet fails on others. Particularly is this so where, for example, a defendant succeeds on issues that occupied the bulk of the time taken by the proceedings. Nevertheless unless a particular issue or group of issues is clearly dominant or separable it will ordinarily be appropriate to award the costs of the proceedings to the successful party without attempting to differentiate between those particular issues on which it was successful and those on which it failed.
Reference is made to cases, some of which I have considered. They appear generally to support the principle which is stated in the Practice.
[5](1995) Unreported, Court of Appeal NSW, 6 July 1994 Mahoney JA (Kirby P and Priestly JA agreeing); BC9404952 at p5
It was held by the Full Court in Copping & Ors v ANZ McCaughan & Anor[6] that Rule 101.02(1) did not fetter the discretion vested by section 40 of the Supreme Court Act and hence it must follow, section 42 of the District Court Act. That is made clear in the judgment of King CJ:[7]
I cannot accept that r 101.02(1) has introduced into the Rules of this Court an old rule designed for jury trials. It exists in a very different environment. The language of the rule is different in that the power of the court to order otherwise is not conditional upon "good cause" as in the English r LV. More importantly the purpose of r101.02(1) is manifestly different from that of the English rule. The purpose of the English rule as explained by Lord Finlay was to fetter the discretion of trial judges who might not agree with the verdict of the jury and might reflect that disagreement in the costs order. There are no civil jury trials in this Court and that purpose can have no application. There is no discernible reason for imposing a fetter in this Court on the discretion of trial judges as to costs.
The existence of s40 is also an important, even controlling factor, in the construction of the rule. It is true that the section is expressed to be "subject to the rules". Nevertheless the legislative intention is plainly to confer on courts and judges an unfettered discretion as to costs. A construction of a rule of court which practically negates the statutory provision is not lightly to be adopted. It may well be that the rule, so construed, would be invalid. Where a statutory provision is made subject to Rules of Court, the rules may prescribe procedures which condition the operation of the statutory provision or limit the mode of its operation. They may even modify or exclude its operation in defined circumstances. But a general provision in a Rule of Court which substitutes a different rule across the board for that prescribed by the statute would seem to me to be invalid as repugnant to the statute.
There is a strong presumption against construing the rule in such a way and it is unnecessary to do so. Where costs are in the discretion of the court, the discretion must nevertheless be exercised judicially. A successful party has a reasonable expectation of obtaining his costs. The judge ought not to exercise his discretion against a successful party on grounds wholly unconnected with the cause of action: Donald Campbell & Co Ltd v Pollak [1927] AC 732. I think that r 101.02(1) does no more than express in the rules that well established principle. The reference to costs following the event is an expression of the general expectation that the successful party will get the costs. The phrase "unless the court otherwise orders" reflects the unfettered discretion of the judge to fashion the order for costs as he sees fit in the interests of justice. In my opinion the costs "by law are left to the discretion of the judge" within the meaning of s 50(2).
[6] (1994) 63 SASR 523
[7] at 527-528 (Mohr and Nyland JJ agreeing)
In Donald Campbell & Co Ltd v Pollak cited by the Chief Justice, the House of Lords confirmed the ‘absolute and unfettered discretion’ applying to orders for costs and specifically rejected the proposition that a successful party must succeed in costs except in defined circumstances as ‘difficult to reconcile with the statutes and rules…’.[8]
[8] [1927] AC at 811 per Viscount Cave LC
Consistently with these pronouncements, the practice is clearly not one automatically awarding costs to a successful party. Rule 101.02(1) simply represents a “default” position, as it were. Not infrequently such parties are deprived of their costs, sometimes by ordering them to pay an opponent’s costs: Junius and Kumar v Messenger Press and Ors.[9] There are also countless cases where successful defendants have been deprived of their costs.[10]
[9] (1999) 202 LSJS 297 at [6]. Upheld on appeal Junius and Kumar v Messenger Press and Ors [1999] SASC 484 (Duggan, Debelle and Bleby JJ)
[10] Detailed in Lunn is Civil Procedure South Australia (1987 Rules) Butterworths at paragraphs 101.02.15 and 101.02.20 respectively and in Rithie’s Uniform Civil Procedure (NSW), Butterworths, paragraphs 42.1.15 and 42.1.25.
It cannot therefore be accepted there is any particular threshold applicable, such as “good reason”, “special reason” or any akin expression, before triggering the exercise of the discretion to make an order other than one in which costs should follow the event. This has been the position in the Supreme Court for some time: Jurowski v Sallis,[11] Lacey v Schneider (No. 2).[12]
[11] (1984) 36 SASR 261
[12] (1988) 46 SASR 519
For exactly the same reasons there is no fixed principle against dividing costs as between issues, as noted by Bray CJ in: Cretazzo v Lombardi.[13]
The next matter is this. A successful party who has failed on certain issues may well not only be deprived of his own costs of those issues, but ordered in addition to pay his opponent's costs of them, and in this context "issue" does not mean a precise issue in the technical pleading sense, but any disputed question of fact or, in my view, of law: Foster v. Farquhar, per Bowen L.J., as he then was, at p. 570. In fact in that case the plaintiff, who succeeded to a substantial extent, was deprived of his costs and ordered to pay the defendant's costs in relation to certain specific disputed items of special damage on which he failed. Moreover it has been held by the House of Lords that the support of an extravagant claim by fraudulent acts or evidence may be good cause for depriving a successful plaintiff of his costs: Huxley v. West London Extension Railway Company.
Zelling J agreed with the Chief Justice adding “questions of costs call for the exercise of discretion which is not to be circumscribed by rules”. Jacobs J made this further comment (at p13):
There are, of course, many factors affecting the exercise of the discretion as to costs in each case, including in particular, the severability of the issues, and no two cases are alike. I wish merely to lend no encouragement to any suggestion that a party against whom the judgment goes ought nevertheless to anticipate a favourable exercise of the judicial discretion as to costs in respect of issues upon which he may have succeeded, based merely on his success in those particular issues.
This observation was picked up by the Full Court in Robinson v Australian Association of Social Workers Ltd.[14]
[13] (1975) 13 SASR 4 at 12
[14] (2000) 210 LSJS 73; [2000] SASC 239 at [13-14]
These principles have been widely accepted and applied elsewhere, for example in Westpac Banking Corp v Hilliard (No 2),[15] Burnie Port Corp Pty Ltd v Bank of Western Australia Ltd (No 3),[16] Electricity Supply Industry Superannuation (Qld) Ltd v Deputy Commissioner of Taxation,[17] Ruddock v Vadarlis,[18] Arian v Nguyen,[19] and McAuliffe v Vogler,[20] to cite a few.
[15] [2006] VSC 489; BC200610444 at [20]
[16] (2003) 12 Tas R 325 at 331 and 335
[17] [2002] FCA 1417
[18] (2001) 115 FCR 229; (2001) 188 ALR 143 at [10]
[19] (2001) [2001] NSWCA 5 at [42-44]
[20] (1992) 110 FLR 454 (NT)
It was strongly urged on behalf of the plaintiff however, that good or special reasons must first be shown before departing from the rule and the court was traditionally reluctant to divide issues in a cause, reliance being heavily placed on Westsub Discounts Pty Ltd v Idaps Australia Ltd (No2).[21] That decision specifically relates to payments into court. An examination of the reasons of Woodward J, does not bear out the proposition that courts are reluctant to divide issues so far as costs are concerned. To an extent his Honour embarked upon that very process.[22] Any such rule under those quite different circumstances, is obviously driven by other considerations, most notably “the policy that the parties to civil litigation should be induced to compromise” by making payments in to court: Westsub.[23]
[21] (1990) 94 ALR 310
[22] (1990) 94 ALR 319
[23] (1994) 94 ALR at 319
It has for a long time been accepted that one recognised situation where a successful plaintiff may be deprived of costs is where those costs relate to an issue on which the plaintiff has failed. Where the circumstances make it reasonable, orders are made against an unsuccessful party to bear the costs of litigating that portion of the case on which that party has failed: Hughes v Western Australian Cricket Association (Inc),[24] Inn Leisure Industries Pty Ltd v McCloy Pty Ltd (No. 2).[25]
[24] [1986] ATPR 48, 134 at 48, 136
[25] (1991) 28 FCR 172 at 173
Principles applied to the facts
As has been seen, the plaintiff pursued a separately identifiable cause of action occupying at least two thirds of the trial. It generated the need for the exchange of extensive and costly expert accounting reports. In the result these were in one respect abandoned and in another barely used in the trial. The maintenance of that cause of action locked the defendants into defending it. The plaintiff on two occasions, wrote what might be conveniently described as Calderbank[26] letters trying to break the deadlock, substantially but not quite in accordance of the ultimate orders made by the court. Their weakness lay in the fact that full costs were claimed, but they were nevertheless genuine efforts to settle: ACCC v Universal Music (No 2).[27] These were not accepted by the defendants because of their maintenance of what was ultimately found unjustified claim that the whole contract fell.
[26] Calderbank v Calderbank [1975] 3 WLR 586, Pirotta v Citibank Ltd & Ors (1998) 72 SASR 259, Morris v McEwen (2005) 92 SASR 281
[27] (2002) 201 ALR 618 at 631-632
No doubt the plaintiff was annoyed and if not frustrated by the failure of the defendants to pay monies due under the original building contract; even so the proper remedy always lay in interest. Insofar as it sought the additional head of damages, it seemed obvious these stemmed – if at all - from breach of the building contract rather than from the settlement. In any event that claim would always have struggled in view of the bare details provided by the plaintiff through Mr Packer of what was proposed with respect to the McKinnon Parade development.
A number of points can be made at this juncture. First, the plaintiff was entitled to the benefit of a consent judgment, which left it with no other alternative than to sue because of the intransigence of the defendants. It wrote two letters trying to break the deadlock, to which the defendants did not respond. As a consequence, a narrow legal argument delayed the plaintiff in obtaining its due. On the other hand, it overreacted in pursuing a claim for an exaggerated and speculative claim in damages, a claim that ultimately failed. That claim was separate and distinct. As mentioned, it is possible to attribute approximately two-thirds of court time to the failed damages limb.

To sum up, there are weighty arguments, as well as fault, on both sides. These have led to protracted litigation on unnecessary issues on both sides. Two attempts to provoke settlement, fell on deaf ears.
Conclusion
Doing the best one can in these divisive circumstances, judiciously exercising a rather blunt but discriminating discretion as to costs, the court considers each party should bear their own costs of the litigation, but that the plaintiff should pay the defendants’ costs of the disbursements incurred in the production of its accounting report in response to the claim for damages which failed at first instance. This order embraces the orders relating to discovery, the subsequent hearing in relation to the issue of costs as well as the failed claim for summary dismissal.
Orders
The orders of the Court then are:
1.Judgment be entered for the plaintiff in the sum of $48,500, including interest.
2.The Court directs the sums presently held in the Suitor’s Fund pursuant to the order of 30 June 2004, together with the interest earned thereon, be paid out of that fund to the credit of the plaintiff, forthwith.
3.The Court declares the settlement agreement of 4 April 2005, does not operate to exclude statutory warranties effected by s32 of the Building Works Contractors Act 1995 (SA) with respect to potential breaches of those warranties by Forlyle Pty Ltd that were not known by Mr and Mrs Tiver on or after 4 April 2005, with respect to the domestic building work contract dated 26 September 2002.
4.Each party bear their own costs of the proceedings, save and except that the plaintiff is to pay to defendants’ disbursements relating to the preparation of an accounting report with respect to the failed Hadley and Baxendale damages.