Fortron Automotive Treatments Pty Ltd v Jones and Ors (No.6)
[2013] FCCA 2045
•20 December 2013
FEDERAL CIRCUIT COURT OF AUSTRALIA
| FORTRON AUTOMOTIVE TREATMENTS PTY LTD v JONES & ORS (NO.6) | [2013] FCCA 2045 |
| Catchwords: COMMERCIAL AND CONSUMER LAW – Costs – claims of misleading and deceptive conduct and breach of fiduciary duty. |
| COSTS – Where multiple parties – apportionment – successful party only partly successful – whether costs to be reduced. |
| COSTS – Indemnity costs. |
| COSTS – Sanderson order. |
| Legislation: Corporations Act 2001 (Cth), s.182(1) Federal Circuit Court of Australia Act 1999 (Cth), s.79 Federal Court Rules [1976], O.23 r.11(4) |
| Cases cited: Fortron Automotive Treatments Pty Ltd v Jones & Ors (No.5) [2013] FMCA 171 |
| Applicant: | FORTRON AUTOMOTIVE TREATMENTS PTY LTD |
| First Respondent: | KENNETH JOHN JONES |
| Second Respondent: | TREBLEX AUTOMOTIVE PRODUCTS PTY LTD |
| Third Respondent: | SHEILA MARY JONES |
| Fourth Respondent: | WILLIAM PATRICK TULLY |
| Fifth Respondent: | HELEN GEORGINA TULLY |
| Sixth Respondent: | GAMMAR GROUPS (THAILAND) CO LTD |
| File Number: | PEG 172 of 2007 |
| Judgment of: | Judge Antoni Lucev |
| Hearing date: | 19 June 2013 |
| Date of Last Submission: | 19 June 2013 |
| Delivered at: | Perth |
| Delivered on: | 20 December 2013 |
REPRESENTATION
| Counsel for the Applicant: | Mr G Rabe |
| Solicitors for the Applicant: | Stables Scott |
| Counsel for the First to Fifth Respondents: | Mr R L Hooker |
| Solicitors for the First to Fifth Respondents: | Robert Grayden Legal |
| For the Sixth Respondent: | No appearance |
ORDERS
The applicant’s application as against the first, second, third and fifth respondents be dismissed.
The fourth respondent pay the applicant $225,190.01 in relation to the applicant’s claims against the fourth respondent for breach of fiduciary duty and breach of s.182(1) of the Corporations Act 2001 (Cth) by the fourth respondent, but otherwise the application as against the fourth respondent be dismissed.
The sixth respondent pay the applicant $130,537.60 in relation to the applicant’s claims against the sixth respondent for damages for breach of contract, monies due and freight costs, but otherwise the application against the sixth respondent be dismissed.
In relation to costs:
(a)the applicant pay the first and second respondents’ costs of the application;
(b)the applicant pay the fourth respondent’s costs of the application up to and including 9 July 2007;
(c)the fourth respondent pay 60% of the applicant’s costs of the application on and from 10 July 2007;
(d)the sixth respondent pay the applicant’s costs of the application;
(e)all costs are to be taxed by a Registrar of this Court in accordance with the costs scale under the Federal Court Rules applicable from time to time;
(f)the first and second respondents’ costs, and the third and fifth respondents’ costs pursuant to the orders of the Federal Magistrates Court of Australia dated 18 May 2009, are to be taxed as one bill; and
(g)the Court certifies for Senior Counsel for the applicant and the respondents for the occasions on which Senior Counsel appeared.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT PERTH |
PEG 172 of 2007
| FORTRON AUTOMOTIVE TREATMENTS PTY LTD |
Applicant
And
| KENNETH JOHN JONES |
First Respondent
| TREBLEX AUTOMOTIVE PRODUCTS PTY LTD |
Second Respondent
| SHEILA MARY JONES |
Third Respondent
| WILLIAM PATRICK TULLY |
Fourth Respondent
| HELEN GEORGINA TULLY |
Fifth Respondent
| GAMMAR GROUPS (THAILAND) CO LTD |
Sixth Respondent
REASONS FOR JUDGMENT
Background
In Fortron Automotive Treatments Pty Ltd v Jones & Ors (No. 2)[1] the Court upheld a submission of no case to answer in relation to the third and fifth respondents, Mrs Jones and Mrs Tully respectively, but dismissed a no case to answer submission in relation to the first, second and fourth respondents, Mr Jones, Treblex Automotive Products Pty Ltd[2] and Mr Tully.
[1] [2009] FMCA 322 (“Fortron (No. 2)”).
[2] “Treblex”.
In Fortron Automotive Treatments Pty Ltd v Jones & Ors (No. 3)[3] the Court concluded that:
a) the claim of breach of duty, both fiduciary and under s.182(1) of the Corporations Act, against Mr Tully is upheld;
b) although not specifically pleaded:
i) there was a breach of contract by Gammar by reason of its failure to provide reasonable notice of termination, of one month, of the 2003 Distribution Agreement to Fortron; and
ii) the Dear Valued Customer letter of 1 February 2005 was of itself misleading, although its being misleading was not pleaded separate from the alleged product substitution scheme;
[3] [2011] FMCA 467 (“Fortron (No. 3)”).
c) otherwise the application will be dismissed, save that the Court will hear from the parties as to:
i) whether anything arises in relation to the findings in sub-paragraph (b) above; and
ii) the appropriate order to be made against Gammar, in light of the finding in sub-paragraph (b)(i) above and its non-appearance and non-participation in these proceedings.[4]
[4] Fortron (No. 3) at para.181 per Lucev FM.
In Fortron Automotive Treatments Pty Ltd v Jones & Ors (No. 5)[5] the Court concluded that:
[5] [2013] FMCA 171 (“Fortron (No. 5)”).
a) Fortron’s claim for damages against Gammar has been made out as to:
i) damages for breach of contract in a sum equivalent to the average monthly profit lost (based on the Treblex invoices) for the period from December 2003 to February 2005 for a period of one month;
ii) the claim for monies due of $37,201; and
iii) the claim for freight costs of $29,318,
plus interest; and
b) Fortron’s claim for equitable compensation against Mr Tully has been made out in the total amount of $125,584, plus interest with interest calculated from the date of each of the separate amounts invoiced by Treblex.[6]
[6] Fortron (No. 5) at para.68 per Lucev FM.
The parties were unable to come to complete agreement with respect to proposed orders and costs arising from the Court’s judgments in Fortron (No. 3) and Fortron (No. 5), and it was necessary to hear the parties as to appropriate costs orders.
Costs generally
Fortron’s submissions
In relation to the principles as to costs generally in this case Fortron submitted that:
a)the general principles applicable to cases involving multiple parties are as follows:
i)costs are in the discretion of the court;
ii)costs should follow the event, except when it appears to the court that in the circumstances of the case some other order should be made;
iii)the general rule does not cease to apply simply because the successful party raises issues or makes allegations on which the successful party fails, but where that has caused a significant increase in the length or cost of the proceedings the successful party may be deprived of the whole or a part of its costs; and
iv)where the successful party raises issues or makes allegations improperly or unreasonably, the court may not only deprive the successful party of costs but order payment of the whole or a part of the unsuccessful party’s costs;[7]
[7] Leading Edge Events Australia Pty Ltd v Kiri Te Kanawa (No. 2) [2007] NSWSC 568 at para.5 per Bergin J (“Leading Edge”).
b)an applicant is entitled to significant damages where success against one of multiple parties is the result of the acceptance of the evidence of the witnesses called for the applicant;[8]
[8] Leading Edge at para.14 per Bergin J.
c)where, irrespective of an amendment, an action would have been vigorously resisted in any event because of another inter-woven issue or defence, there ought be no reduction in the quantum of costs;[9]
d)in NRMA Ltd & Ors v Morgan & Ors (No. 3)[10] it was said that:
... If a party fails on some issues, the circumstances may make it reasonable that he be deprived of the costs of those issues, or even be ordered to pay the other party's costs of those issues. For this purpose, issues may be issues in a pleading sense of bases of claim, or may be disputed questions of fact or law. But it must be remembered that parties should not be dissuaded by the risk of costs from canvassing all issues which might be material to the decision in the case, and unless a particular issue or group of issues is clearly dominant or separable from the balance of the proceedings it will ordinarily be appropriate to award the costs of the proceedings to the successful party without attempting to differentiate between the issues on which he was successful and those on which he failed. …[11]
e)in Dodds Family Investments Pty Ltd (formerly Solar Tint Pty Ltd) & Anor v Lane Industries Pty Ltd & Ors[12] the Full Court of the Federal Court said as follows:
… The propositions enunciated in that case [Hughes v Western Australian Cricket Association (Inc) (1986) 8 ATPR 40-748 at p 48,136 per Toohey J] are subject to the further consideration that justice may not be served if parties are dissuaded by the risk of costs from canvassing all issues which might be material to the decision in the case: Cretazzo v Lombardi (1975) 13 SASR 4 at 12. In Trade Practices Commission v Nicholas Enterprises Pty Ltd (No 3) (1979) 42 FLR 213; 28 ALR 201, Fisher J regarded the discretion to apportion costs as one to be exercised only in the most exceptional circumstances. Nevertheless he accepted that where a considerable part of the trial is taken up in determining issues upon which a party fails, it is a proper exercise of the discretion to reduce the costs allowed to that party. Generally speaking, and notwithstanding the considerations referred to by Toohey J and the other authorities mentioned above, the demands of the community for greater economy and efficiency in the conduct of litigation may properly be reflected in a qualification of the presumption that a successful party is entitled to all its costs. …[13]
f)it is not appropriate to reduce the quantum of costs where there is a significant or considerable overlap in the evidence and it is not possible to identify a significant body of evidence that related solely to the claim with respect to which a party was successful.[14]
[9] Leading Edge at para.13 per Bergin J.
[10] [1999] NSWSC 768 (“NRMA (No. 3)”).
[11] NRMA (No. 3) at para.24 per Giles J.
[12] (1993) 26 IPR 261 (“Dodds”).
[13] Dodds at 271-272 per Gummow, French and Hill JJ.
[14] Golden West Refining Corp Ltd v Daly Laboratories Pty Ltd (unreported, Federal Court of Australia, 16 February 1995, Carr J) (“Golden West”).
In relation to the application of the relevant principles in this case Fortron submitted that the following matters are relevant to the exercise of the Court’s discretion in this matter:
a)the same solicitors represented all respondents, other than Gammar which did not enter an appearance, at all material times;
b)all represented respondents elected to file the same defence and did so;
c)the causes of action against all represented respondents required substantially the same evidence to be adduced by Fortron;
d)the defences of all represented respondents relied on the same evidence;
e)the case put forward by Fortron and responded to by all represented respondents was a case in which one set of facts was relied on for the purposes of pursuing several causes of action against the represented respondents. The “whole story” needed to be told;[15]
f)the evidence that was essential to establish Fortron’s entitlement to damages against Mr Tully was no less than that adduced at trial.[16] Mr Tully’s breach of fiduciary duty occurred in the context of conduct on the part of all represented respondents in which they all worked co-operatively together to divert business away from Fortron for the benefit of Treblex;
g)the evidence required in order to support the successful breach of fiduciary duty claims by Fortron against Mr Tully, including evidence to establish the context referred to in the previous sub-paragraph, was the same evidence relied on in Fortron’s endeavour to prove the claims for misleading and deceptive conduct against the other represented respondents. It was necessary for this Court to review the majority of the evidence against all represented respondents for the purpose of determining all causes of action against all represented respondents,[17] and the Court did so at the close of Fortron’s case on the hearing of the first to fifth respondents’ no case to answer submissions;[18]
h)Fortron’s success against Mr Tully, as a result of which it is entitled to significant damages from Mr Tully, has been the result of the acceptance of the evidence of the witnesses called for Fortron.[19] All of Fortron’s evidence to prove misleading and deceptive conduct against all represented respondents – whether that evidence was required to put Mr Tully’s breach of fiduciary duty in its proper context or whether it was required to endeavor to prove misleading and deceptive conduct on the part of the other respondents – related to the “financial and marketing activities for Treblex”.[20] All the evidence adduced by Fortron against all represented respondents was adduced to prove that all represented respondents worked co-operatively together to divert business away from Fortron for the benefit of Treblex;
i)the finding in Fortron (No. 3) that Mr Jones and Mr Tully had no knowledge of the alleged product substitution scheme,[21] is not a finding that either Mr Jones or Mr Tully worked co-operatively together to divert business away from Fortron for the benefit of Treblex. That finding was that in doing so both Mr Jones and Mr Tully did not engage in misleading and deceptive conduct in the way in which Fortron had categorised misleading and deceptive conduct in its pleaded case;
j)even if the amendment to include the breach of fiduciary duty and breach of s.182(1) of the Corporations Act 2001 (Cth) claims[22] had been made earlier than March 2007, the only reasonable conclusion to be drawn from Mr Tully’s participation in the interwoven defence of all respondents from the outset is that the breach of fiduciary duty claims would have been vigorously resisted irrespective of whether it had been pleaded from the beginning or at any other time prior to the amendment actually being made.[23] While Mr Tully was successful in persuading the Court that the facts asserted against him did not amount to misleading and deceptive conduct, he was not successful in persuading the Court that those same facts were not critical to the finding of breach of fiduciary duty made against him;
k)in the First to Fifth Respondent’s Written Submissions filed on 1 February 2008 those respondents contended that the “defence of the [represented] Respondents is intrinsically interwoven with the claim brought by the Applicant against [the sixth respondent] Gammar”;[24]
l)it is not possible to compartmentalize parts of the evidence for the claims against Mr Tully and parts of the evidence for the claims against the other represented respondents so as to deprive Fortron of all of its costs against Mr Tully;[25] and
m)this is not a case where a considerable amount of time was taken up determining issues which had nothing or very little to do with the breach of fiduciary duty claims. It was necessary for Fortron to prepare and present its case against Mr Tully having regard to the context in which that breach occurred. There was a considerable overlap in the evidence adduced against all respondents and it is not possible to identify a significant body of evidence that related solely to the breach of fiduciary duty claims against Mr Tully.[26]
[15] Leading Edge at para.4 per Bergin J.
[16] Leading Edge at para.4 per Bergin J.
[17] Leading Edge at paras.4, 23 and 24 per Bergin J.
[18] In Fortron (No. 2) the Court upheld no case to answer submissions in respect of the third respondent, Mrs Jones, and the fifth respondent, Mrs Tully, but otherwise dismissed those submissions, which were only in relation to the misleading and deceptive conduct claims, in relation to Mr Jones, Mr Tully and Treblex.
[19] Leading Edge at para.14 per Bergin J.
[20] Fortron (No. 3) at para.177 per Lucev FM.
[21] Fortron (No. 3) at para.127 per Lucev FM.
[22] “breach of fiduciary duty claims”.
[23] Leading Edge at para.13 per Bergin J.
[24] Fortron (No. 5) at para.5 per Lucev FM.
[25] NRMA (No. 3) at para.24 per Giles J; Dodds at 271-272 per Gummow, French and Hill JJ.
[26] See Golden West and the authorities there cited.
In oral submissions Fortron submitted that the facts required to prove both the misleading and deceptive conduct and breach of fiduciary duty claims were, in the overall context of the litigation, the same, save that it was conceded (and properly so) that the expert evidence as to the allegedly substituted products was not necessary to prove the breach of fiduciary duty claims.[27] The matters which Fortron pointed to to prove that the facts required to be proved were the same for both the misleading and deceptive conduct and breach of fiduciary duty claims, included the following:
a)strategic advice concerning the sale, marketing and distribution of products in Thailand by Treblex;
b)the preparation of accounts and reports, importantly including a significant number of invoices for Treblex, which related to both aspects of the claim by Fortron;
c)preparation of export and compliance documentation by Treblex;
d)evidence of Treblex’s sales;
e)evidence of the fact that Mr Tully travelled to Thailand with Mr Jones, and what they did in Thailand in relation to Treblex’s business in Thailand;
f)the Dear Valued Customer Letter advising that Gammar was switching suppliers to Treblex from Fortron, which the Court also took into account in determining Mr Tully’s breach of fiduciary duty; and
g)that the claim for damages against Mr Tully was effectively the same whether the claim was misleading and deceptive conduct by reason of the alleged, but ultimately unproven, substituted product scheme, or the breach of fiduciary duty claims.
[27] Transcript 19 June 2013, p.8.
Mr Tully’s submissions
With respect to the principles as to costs generally in this case, Mr Tully submitted that:
a)pursuant to the ordinary rule, costs would normally follow the event,[28] and it is accepted that Mr Tully is liable to Fortron for at least a proportion of its costs;
[28] Ruddock & Ors v Vadarlis & Ors (No. 2) (2001) 115 FCR 229 at 234-235 per Black CJ and French J; [2001] FCA 1865 at para.11 per Black CJ and French J (“Vadarlis (No. 2)”).
b)the Court has power to award costs under s.79 of the Federal Circuit Court of Australia Act 1999 (Cth);[29]
[29] “FCCA Act”.
c)the Court has an unfettered discretion to determine by whom and to what extent costs are to be paid, save only that the Court’s power should be exercised judicially and should not be exercised against the successful party except for some reason connected with the case;[30]
[30] Vadarlis (No. 2) FCR at 234-235 per Black CJ and French J and 244-245 per Beaumont J; FCA at paras.9-10 per Black CJ and French J and para.43 per Beaumont J.
d)the discretion is wide enough to enable the Court, not only to deprive a successful party of costs, but also to make an order that the successful party pay the other party’s costs;[31]
[31] Verna Trading Pty Ltd v New India Assurance Co Ltd [1991] 1 VR 129 (“Verna”); Hifu Electronics Pty Ltd v Fujian Pacific Pty Ltd [1998] FCA 1730.
e)in some circumstances the usual rule will be found wanting and success on a portion of a claim may make it reasonable for the litigant to bear the expense of the portion in which the litigant failed. Sometimes too, an otherwise successful litigant may be ordered to pay the costs of the other party in respect to issues on which the litigant failed;[32]
[32] Cahill v Construction, Forestry, Mining and Energy Union (No. 4) (2009) 189 IR 304 at 327 per Kenny J; [2009] FCA 1040 at para.114 per Kenny J.
f)where there is a multiplicity of issues and mixed success has been enjoyed by the parties, a court may take a pragmatic approach in framing the order for costs, taking into consideration the success (or lack of success) of the parties on an issues basis. Generally, if such an order is made, it is reflected in the successful party being awarded a proportion of its costs but not the full amount;[33]
g)usually the circumstances in which a successful party is denied all or part of its costs have to do with its conduct of proceedings;[34]
h)costs may be refused where, for example, the applicant has made an exaggerated claim which has occupied a significant proportion of the proceedings and has succeeded only on a minor aspect of its original claim. Costs may be apportioned according to success or failure on particular distinct or severable issues. A trial judge may award only a proportion of the successful party’s costs if the conduct of that party unreasonably prolonged the proceedings;[35]
i)the question of apportionment of costs will not generally be relevant where a party succeeds completely in terms of the final orders it secured;[36]
j)so far as the law permits and is practicable, fairness should govern the disposition of costs;[37]
k)it is generally accepted that an order for costs may be reduced where a successful party is only partially successful;[38]
l)where two defendants are jointly represented by the same solicitor, and judgment with costs is given against one defendant and against the other, the successful defendant is, in the absence of any agreement between him and his co-defendant as to how their costs are to be borne inter se, entitled to recover from the plaintiff half the costs of the defence;[39]
m)the applicable ‘rule of thumb’ where a number of parties have the same representation and some parties are successful and others are not is that each successful party is only entitled to a proportion of the costs incurred on behalf of all, plus the costs, if any, incurred exclusively on their own behalf. The primary issue for determination in such a case is that of fairness between the parties, having regard to the manner in which the trial, or appeal, has been conducted;[40]
n)because of court delays and the high cost of litigation, courts should exercise the discretion to award costs of issues on which the parties fail in such a way that they will come to realise that they will not necessarily recover the whole of their costs of raising a discrete issue, and carefully consider what matters they will raise;[41] and
o)the power to adjust an order for costs by reference to particular issues upon which the successful party has failed, is properly exercised where there are discrete and severable issues upon which the generally successful party has failed, and which have added to the costs of the proceedings in a significant and readily discernible way.[42]
[33] Spotless Group Ltd v Premier Building and Consulting Pty Ltd & Anor [2008] VSCA 115 at para.15 per Redlich JA (“Spotless Group”); Hughes v Western Australian Cricket Association Inc (1986) 8 ATPR 40-748.
[34] Vadarlis (No. 2) FCR at 236 per Black CJ and French J; FCA at para.15 per Black CJ and French J.
[35] Vadarlis FCR (No. 2) at 236-237 per Black CJ and French J; FCA at para.15 per Black CJ and French J.
[36] Australian Trade Commission v Disktravel [2000] FCA 62 at para.4 per French, Kiefel and Mansfield JJ (“Disktravel”).
[37] Bowen Investments Pty Ltd v Tabcorp Holdings Ltd (No. 2) [2008] FCAFC 107 at para.5 per Finkelstein and Gordon JJ (“Bowen Investments”).
[38] Schmierer v Horan & Anor (No. 2) [2004] FMCA 95 at para.8 per Driver FM (“Schmierer”).
[39] Beaumont v Senior & Bull [1903] 1 KB 282.
[40] Ellingsen v Det Skandinaviske Compani [1919] 2 KB 567 at 569 per Bankes, Scrutton and Atkin LJJ.
[41] Commissioner of Australian Federal Police v Razzi (1991) 101 ALR 425 at 430 per Wilcox J.
[42] Amaca Pty Ltd (formerly James Hardie & Co Pty Ltd) v Patricia Margaret Hannell[as Executor of the Estate of David Richard Hannell (Dec)] [2007] WASCA 158(S) at para.7 per Martin CJ, Steytler P and McLure JA.
In relation to the application of the relevant principles in this case Mr Tully submitted that:
a)proceedings were originally commenced in the Federal Court in 2005 and transferred to this Court in August 2007;
b)Fortron’s Further Re-Amended Statement of Claim sought damages particularized at $254,389 plus interest, and further sought compensatory damages from Mr Tully in relation to the breach of fiduciary duty claims;
c)Fortron’s decision to proceed with an exaggerated claim that occupied a significant proportion of the proceedings should be recognised in the apportionment of costs;[43]
[43] Vadarlis (No. 2) FCR at 236-238 per Black CJ and French J; FCA at paras.15-18 per Black CJ and French J.
d)in the circumstances of this case costs should not simply follow the event;
e)Fortron has been successful as against Mr Tully in relation to the breach of fiduciary duty claims;
f)Fortron has otherwise been entirely unsuccessful in its claims against the first to fifth respondents;
g)the claims that Mr Tully successfully defended were severable and discrete;
h)the predominant case against the first to fifth respondents involved Mr Jones and Treblex allegedly inducing Gammar to breach its contract with Fortron, and involvement in a substituted product scheme whereby Treblex product was allegedly substituted for Fortron product. All of the first to fifth respondents were alleged to have been involved to varying degrees. A considerable amount of the 11 hearing days was devoted to Fortron seeking to prove the existence of the substituted product scheme and the alleged wrongdoing by the first to fifth respondents. A relatively minor part of the trial was dedicated to the breach of fiduciary duty claims;
i)Fortron has been wholly unsuccessful in its original claim against the first to fifth respondents, has been partially successful against Gammar, and has been successful in only a minor aspect of its Further Re-Amended Statement of Claim which included for the first time the breach of fiduciary duty claims;
j)although difficult to quantify precisely, it is submitted that Fortron should be allowed 30% of its costs against Mr Tully to reflect its degree of success, the proportion of the trial that was devoted to the issues concerning Mr Tully, and to achieve fairness and substantial justice in the circumstances. Similarly, Fortron should be allowed 30% of its costs against Gammar;
k)there is nothing to warrant a departure from the general rule that costs follow the event in relation to Treblex, Mr Jones, Mrs Jones and Mrs Tully;
l)Fortron should be required to pay the costs of Treblex, Mr Jones, Mrs Jones and Mrs Tully whereby the successful respondents will recover their costs on taxation proportionate to their involvement in the proceedings pursuant to the “rule of thumb”;
m)Fortron should be required to pay Mr Tully’s costs of the issues successfully defended; and
n)an order that Fortron pay 70% of Mr Tully’s costs would do justice to the parties and achieve substantial fairness.
In oral submissions Mr Tully submitted that the misleading and deceptive conduct and breach of fiduciary claims were separate, and to a large extent discrete. The matters which Mr Tully pointed to in oral submissions included the following:
a)whether costs were awarded, and in what apportionment, was a matter of reasonableness and substantial justice adopting a pragmatic approach, and the apportionment of costs by way of reduction did not require exceptional circumstances;[44]
b)the conduct of the successful party, and in particular an identification of what core issues were joined and dealt with at trial, needed to be identified;[45]
c)that Mr Tully was successful on a significant proportion of the pleaded claim against him;
d)the core issue in the claim by Fortron was the substituted product scheme claim, and that claim failed;
e)there is nothing unlawful about persons working together cooperatively to divert business away from one business to another, generally speaking;
f)substantial party-party costs of the application had already been incurred by March 2007 when the breach of fiduciary duty claims were made;
g)a significant part of the evidence which was at the heart of the finding of a breach of fiduciary duty against Mr Tully was evidence which was admitted, and required no evidence to be led by Fortron;
h)Mr Tully strongly contested the proposition that in determining what might be severable for the purposes of costs, that it was only the expert evidence that was severable; and
i)that the breach of fiduciary duty claims against Mr Tully were lesser or ancillary claims, and an examination of the Reasons for Judgment in Fortron (No. 3) and the transcript demonstrate the lesser or secondary nature of the breach of fiduciary duty claims vis-a-vis the misleading and deceptive conduct claim.
[44] Bowen Investments at para.5 per Finkelstein and Gordon JJ.
[45] Vadarlis (No. 2) FCR at 236 per Black CJ and French J; FCA at para.15 per Black CJ and French J.
Consideration – costs generally
Ordinarily, costs follow the event, but may be apportioned, and where a considerable part of a hearing is occupied in dealing with and determining issues on which a party fails, there may be a proportionate reduction in an award of costs. Apportionment is not a mathematical exercise, but an exercise of the Court’s discretion, and a matter of impression and evaluation.[46]
[46] Dodds at 271 per Gummow, French and Hill JJ.
Mrs Jones and Mrs Tully’s costs of the application were the subject of the Court’s order of 18 May 2009 providing for Fortron to pay their costs. It follows from the dismissal of the application against Mr Jones and Treblex that their costs are to be paid by Fortron.
Although Fortron was not wholly successful against Gammar, Fortron was successful to a significant degree in respect of parts of its claim, and in the complete absence of Gammar from the proceedings, the Court considers it appropriate that Gammar pay Fortron’s costs of the application as against Gammar.
What remains are the costs between Fortron and Mr Tully in relation to Fortron’s success on the breach of fiduciary duty claims and failure on the misleading and deceptive conduct claims.
Essentially, and setting aside truly ancillary claims, the application against Mr Tully by Fortron had two parts:
a)the misleading and deceptive conduct claim arising from the alleged product substitution, and in respect of which Fortron was wholly unsuccessful against Mr Tully, as well as against Mr Jones, Treblex, Mrs Jones and Mrs Tully; and
b)the breach of fiduciary duty claims in respect of which Fortron succeeded against Mr Tully.
On 10 July 2007 the Federal Court ordered that the Statement of Claim be further amended in terms of the Further Re-amended Statement of Claim filed 28 June 2007. In relation to the Further Re-amended Statement of Claim Fortron argued that it ought to be entitled to the costs of the matter preceding the filing of the Further Re-amended Statement of Claim because the respondents, and particularly in this regard Mr Tully, would have resisted the claim in any event because the factual basis for the Further Re-amended Statement of Claim including the breach of fiduciary duty claims was the same as the factual basis for the misleading and deceptive conduct substituted product scheme claim originally filed. Essentially, the submissions went that no matter at what stage the relevant amendment had been made the matter would have been equally vigorously defended. It is fundamentally unfair in the Court’s view for costs to be awarded to Fortron for a period prior to the amendment when the breach of fiduciary duty claims had not been made. It is not productive to retrospectively speculate as to what Mr Tully might have done had the breach of fiduciary duty claims been included from the outset of these proceedings. The simple fact of the matter is that they were not, and costs ought not be awarded to Fortron in respect of that portion of the proceedings where the only issue was one on which Fortron was ultimately wholly unsuccessful, not just against Mr Tully, but also other respondents. It follows, therefore, that to the extent that costs are payable to Fortron they will be payable only from 10 July 2007. It also further follows that Fortron ought to pay Mr Tully’s costs up until 9 July 2007.
What evidence is there then that there was caused to be a significant increase in the costs and length of these proceedings by reason of both the misleading and deceptive conduct and breach of fiduciary duty claims being argued by Fortron?
It is worth observing that whilst Fortron was unsuccessful in the misleading and deceptive conduct claim it was not a claim which was unarguable, and Mr Jones, Treblex and Mr Tully were not successful in having the Court find that they had no case to answer with respect to that aspect of the claim.[47]
[47] Fortron (No. 2).
The inter-relatedness of some of the relevant factual circumstances can be seen from the fact that with the same solicitor acting for them, Treblex, Mr and Mrs Jones and Mr and Mrs Tully filed a single defence to the claims made by Fortron.
In order to succeed on the breach of fiduciary duty claims against Mr Tully, the Court considers it was necessary to put that breach of fiduciary duty in its proper context, but that that context did not necessarily require the retelling of the “whole story”.[48] In that context, in order to determine the breach of fiduciary duty claims it was necessary to deal with some of the evidence, but certainly not the expert evidence in relation to the substituted product scheme. Further, Mr Tully did not operate alone: others were involved for and on behalf of Treblex. In that regard, Mr Tully’s conduct vis-a-vis Treblex needed to be examined, particularly as that conduct related to potential conflicts of interest between Mr Tully’s duties to Fortron and the activities that he undertook on behalf of Treblex.[49]
[48] Leading Edge at para.4 per Bergin J.
[49] Fortron (No. 3) at para.177 per Lucev FM.
In the Court’s view exceptional circumstances are not necessary to warrant an apportionment or reduction in costs,[50] but, in any event, there is nothing in the conduct of Fortron in the matter which brings it within the ambit of a case of exceptional circumstances. There is nothing in the conduct of the case which would disqualify Fortron from obtaining its costs in relation to its successful claim against Mr Tully, and, as the failure of Treblex, Mr Jones and Mr Tully on the no case to answer submission indicates, Fortron did not act unreasonably in raising all of the issues that it did raise.
[50] Bowen Investments at para.5 per Finkelstein and Gordon JJ.
This was not a case, like Schmeirer, where there were absolutely discrete and severable bankruptcy claims such that a distinct apportionment of costs was possible. Nor was it a claim like Verna where costs were affected by late notification and filing of a defence at the commencement of the actual hearing. In this case, it was on 10 July 2007 that the Court ordered that the Statement of Claim be amended in terms of the Further Re-amended Statement of Claim, some eight months before the hearing of the matter commenced.
This was not a case where a considerable part of the hearing was taken up with a discrete or severable issue or issues, save for the expert evidence with respect to the substituted product scheme, and save for that issue it is not practicably possible to “compartmentalise” the evidence.[51]
[51] Disktravel at para.4 per French, Kiefel and Mansfield JJ.
This was a case where Mr Tully lost on a central issue, and a central issue in respect of which there was a not inconsiderable body of evidence which overlapped with the misleading and deceptive conduct claim, and in respect of which Mr Tully can be characterised for that reason, and because of the nature and significance of the award of damages, as the “loser” in this case.[52]
[52] See Anheuser-Busch, Inc v Budejovicky Budvar, Narodni Podnik & Ors [2002] FCA 624 at paras.5-6 and 10-17 per Allsop J.
The Court starts from the position that Fortron having been successful against Mr Tully, Fortron would ordinarily be entitled to its costs. Costs are, however, in the discretion of the Court, particularly as to apportionment in circumstances where a party, whilst having been successful, has not succeeded on the entirety of its case against a respondent.[53] There were, as observed above, two major parts to Fortron’s claim against Mr Tully, being the misleading and deceptive conduct claim and the breach of fiduciary duty claims, with Fortron being unsuccessful on the former and successful on the latter. There is no dispute that the expert evidence in these proceedings was evidence related wholly to the unsuccessful misleading and deceptive conduct claim, and which served only to prolong the proceedings. When that evidence is examined, however, the evidence (of Dr Watcharotayankura, Ms Gloyn and Mr Edwards) took only one day of the 11 days of substantive hearing of this matter. The Court is cognisant of the fact that significant admissions were made in relation to the breach of fiduciary duty claims, but equally cognisant of the fact that it was necessary for Fortron to prove, as it did, that Mr Tully was “engaging in financial and marketing activities for Treblex”[54] and that he was engaged in an official capacity with Treblex at a time at which “Treblex was engaged in marketing and distributing a range of industrial and/or automotive products in Thailand, … [as] a direct competitor with Fortron, particularly in the automotive products, including Engine Flush, market in Thailand. In that regard, and in respect of a major product range for both Treblex and Fortron, there was direct competition between them in the market in Thailand.”[55] The evidence with respect to the financial and marketing aspects of Treblex’s activities, and the competition between Treblex and Fortron, overlapped the substituted product allegations which lay behind the misleading and deceptive conduct claim and the breach of fiduciary duty claims. Proof of those claims was applicable to both aspects of Fortron’s claims against Mr Tully. Hence, evidence as to the quantities of Treblex and Fortron products sold into Thailand during the relevant period, including Treblex’s invoices, and shipment details were all necessary evidence in both claims, and in relation to the successful claim with respect to breach of fiduciary duties, some of that evidence went directly to the issue of damages. There was also other evidence which was relevant in relation to the relationship between Mr Tully and Mr Jones as directors of Treblex, and their activities in Thailand in their capacities as Treblex directors, and including the financial and marketing activities about which evidence was given. Those activities extended to matters such as logos to be included on material, and the preparation of the Dear Valued Customer Letter, evidence of a draft of which was found on Mr Tully’s computer at least six months before it was handed to Dr Watcharotayangkura by Mr Jones.[56] There was also evidence which Fortron was required to lead as to what was said to other Fortron employees in the workplace by Mr Tully concerning Fortron’s commercial future.[57] Finally, the Court notes that the damages payable by Mr Tully are not insignificant.
[53] FCCA Act, s.79; Dodds at 271-272 per Gummow, French and Hill JJ.
[54] Fortron (No. 3) at para.177 per Lucev FM.
[55] Fortron (No. 3) at para.173 per Lucev FM.
[56] Fortron (No. 3) at para.77(e) per Lucev FM.
[57] Fortron (No. 3) at para.178 per Lucev FM.
In all the circumstances, the Court has come to the view that there is a not inconsiderable overlap between the evidence which was necessary to prove the breach of fiduciary duty claims and the evidence which was led in an endeavour to prove the alleged product substitution scheme. Having regard to the expert evidence, and allowing for the fact that more preparation might have been required to deal with that evidence than that evidence took up proportionately at hearing, and evaluating the remainder of the evidence having regard to the Court’s view that there is a not inconsiderable overlap between the evidence on the two parts of Fortron’s claim, the Court, taking a pragmatic approach[58] and as a matter of fairness, impression and evaluation, and in the exercise of its broad discretion with respect to costs, has come to the view that Mr Tully ought to pay 60% of Fortron’s costs from the time that leave was granted to file the Further Re-amended Statement of Claim.
[58] Spotless Group at para.15 per Redlich JA.
The Court has considered the question of costs as between Fortron and Mr Tully in its totality, and does not consider it appropriate, in all the circumstances, to make orders separately for Mr Tully to pay Fortron a portion of its costs in relation to those matters in respect of which Fortron was successful, and for Fortron to pay Mr Tully a portion of his costs in relation to those matters in respect of which Tully was successful. The Court has considered each of the competing claims and is satisfied that an order that Mr Tully pay 60% of Fortron’s costs for the period referred to is an appropriate order in all the circumstances.
Having regard to the fact that this matter was originally filed in the Federal Court, and the basis for previous costs orders (including the costs orders in the 18 May 2009 orders of this Court) all of the costs ought to be assessed upon the Federal Court scale of costs applicable from time to time. The costs of Mr Jones and Treblex, and the costs of Mrs Jones and Mrs Tully pursuant to the orders of 18 May 2009, are to be taxed as one bill. Further, insofar as Senior Counsel were engaged by the parties, there will, bearing in mind the length and complexity of the hearing, be certification for Senior Counsel on the occasions on which they appeared.
Indemnity costs
Fortron seeks that Mr Tully and Gammar, jointly and severally, do pay Fortron’s costs of the application up to 23 September 2006 on a party-party basis, and from 24 September 2006 on an indemnity basis. Although the minute of proposed orders seeks indemnity costs in relation to Gammar, Fortron’s written and oral submissions only addressed the position of Fortron vis-a-vis Mr Tully with respect to indemnity costs.
Fortron’s submissions
Fortron’s submissions on indemnity costs were as follows:
a)Fortron served an Order 23 Offer of Settlement[59] on Mr Tully on 22 September 2006 offering to settle the dispute between Fortron and Mr Tully by payment by Mr Tully of $100,000 to Fortron. At that time the breach of fiduciary duty claims against Mr Tully had not been made. Those claims were made by way of the Further Re-amended Statement of Claim as amended on 10 July 2007;
b)had Mr Tully accepted the Offer, then having regard to the facts pleaded against him at that stage, Fortron would have been estopped from thereafter successfully litigating any breach of fiduciary duty claims against him; and
c)in these circumstances, Mr Tully unreasonably rejected the Offer, and Fortron should be awarded indemnity costs against Mr Tully from 22 September 2006.
[59] “Offer”, being an offer of compromise under O.23 of the former (1976) Federal Court Rules (“Former FCR”).
Mr Tully’s submissions
Mr Tully’s submissions on indemnity costs were as follows:
a)the first to fifth respondents are not aware of the basis on which Fortron seeks indemnity costs against Gammar;
b)in relation to Mr Tully the claim for indemnity costs is premised on the Offer;
c)the Offer stated that Fortron offered to compromise “all its claims herein against the Fourth Respondent [Mr Tully]” on the basis of payment by Mr Tully to Fortron of the sum of $100,000;
d)at the time of the Offer, Fortron’s claim did not include breach of fiduciary duty claims, those claims only being made for the first time in the Further Re-amended Statement of Claim with effect from 10 July 2007;
e)Order 23 r.11(4) of the Former FCR applicable at the time of making the Offer provided that if:
i)an offer is made by an applicant and not accepted by the respondent; and
ii)the applicant obtains a judgment on the claim to which the offer relates not less favourable than the terms of the offer;
then unless the Court otherwise orders, the applicant is entitled to an order against the respondent for costs incurred in respect of the claim:
(A)up to and including the day the offer was made – taxed on a party and party basis; and
(B)after that day – taxed on an indemnity basis;
f)critically, the judgment must be obtained on the claim to which any offer relates;
g)at the time of the Offer, and its rejection by Mr Tully, Fortron’s claims were still evolving. At the date of the Offer the breach of fiduciary duty claims did not form part of Fortron’s Statement of Claim and did not form part of the “claim to which the offer relates”, and, therefore, O.23 r.11(4) of the Former FCR has no application;
h)Mr Tully’s conduct in rejecting the Offer was not unreasonable;
i)at the time it was rejected, Fortron was making substantial changes to its case; and
j)Fortron has been unsuccessful in the majority of its claims against Mr Tully and was only successful in relation to its previously un-pleaded claim.
Consideration – indemnity costs
Fortron’s application for indemnity costs against Mr Tully is based squarely on the terms of the Offer and the application of O.23 r.11(4) of the Former FCR.
The claim to which the Offer related was the misleading and deceptive conduct claim. The Offer preceded the breach of fiduciary duty claims, first made in the Further Re-amended Statement of Claim, by almost ten months. The judgment obtained against Mr Tully was, therefore, not one based on the claim to which the Offer related, as that judgment was only in relation to the breach of fiduciary duty claims. The Former FCR do not therefore apply to the Offer, and the Former FCR therefore provide no basis for the award of indemnity costs against Mr Tully. Further, the general principles with respect to indemnity costs, as they apply to the imprudent refusal of an offer of compromise,[60] do not assist Fortron, as it cannot be said that it was imprudent of Mr Tully to refuse to accept the offer of compromise “viewed in light of the circumstances which existed when the offer was rejected”,[61] and where Fortron was wholly unsuccessful on the claim as it stood at that time.
[60] Colgate-Palmolive Company & Anor v Cussons Pty Ltd (1993) 46 FCR 225 at 233-234 per Sheppard J.
[61] Facton Ltd (formerly known as G-Star Raw Denim KFT & Ors v Seo) (2011) 91 IPR 135 at 147 per Gordon J; [2011] FCA 344 at para.55 per Gordon J.
Fortron’s minute of proposed orders also seeks indemnity costs against Gammar on the same basis as against Mr Tully. The factual basis for such an order does not, however, exist. There was no offer of compromise made to Gammar as there was made to Mr Tully in September 2006. Significantly, the submissions by Fortron did not suggest to the contrary. Otherwise, having regard to the general principles with respect to indemnity costs, and the circumstances of this case, in particular the fact that Fortron was not wholly successful against Gammar, there is nothing which ought attract an award of indemnity costs in favour of Fortron. The mere fact that Gammar did not appear and did not participate in the proceedings is not of itself sufficient to constitute a proper basis for the award of indemnity costs. In any event, the final submissions made by Fortron did not suggest any proper basis, or indeed, any basis at all, for the making of an indemnity costs order against Gammar.
In all of the above circumstances, there will be no orders for the payment of indemnity costs by Mr Tully or Gammar.
Sanderson Order
Fortron’s submissions
Fortron made no written or oral submissions with respect to a Sanderson Order.
Mr Tully’s submissions
Mr Tully’s submissions with respect to the issue of a Sanderson Order were as follows:
a)in this case Fortron clearly could have maintained the action against Mr Tully and Gammar without involving the other parties;
b)Fortron originally commenced proceedings against twelve respondents, discontinuing against six prior to trial;
c)Fortron adopted a ‘scattergun’ approach to the joinder of respondents and sought to prove the existence of a ‘substituted product scheme’ to which all of the respondents were complicit;
d)Fortron’s approach has caused significant additional costs to be incurred and the unnecessary involvement of parties;
e)nothing in Mr Tully’s conduct can have caused Fortron’s approach to these proceedings;
f)the claims against Mrs Jones and Mrs Tully had no prospect of succeeding and were dismissed following the no case submission made on their behalf;[62]
g)the claims against Mr Jones, Treblex and Mr Tully, apart from the breach of fiduciary claims against Mr Jones, have also been unsuccessful;[63]
h)in light of the Court’s findings, the joinder of Mr Jones, Treblex and Mr Tully was unreasonable;
i)the claims that relate to the substituted product scheme, misleading and deceptive conduct, and inducing a breach of contract by Gammar, were not dependent or even connected with the claims on which Fortron was successful; and
j)there is no conduct by Mr Tully that could reasonably be considered to warrant the making of a Sanderson Order requiring Mr Tully to pay more than one set of costs.
[62] See Fortron (No. 2).
[63] See Fortron (No. 5).
Consideration – Sanderson Order
Where a plaintiff succeeds against only one of the defendants the Court may, in the exercise of its discretion as to costs, make an order (known as a Sanderson Order) against the unsuccessful defendant to pay the costs of the successful defendant directly to the successful defendant.[64]
[64] Sanderson v Blyth Theatre Company [1903] 2 KB 533; Central Goldfields Shire v Haley (No. 2) [2009] VSCA 203.
The principles governing the making of a Sanderson Order were summarised in Lackersteen v Jones (No. 2)[65] as follows:
a)it must have been reasonable and proper for the plaintiff to have sued the successful defendant;
b)the causes of action against two or more defendants need not be the same but they must be substantially connected or dependent the one on the other;
c)while it is essential to find that the plaintiff acted reasonably and properly, that alone is not sufficient. The Court must find something in the conduct of the unsuccessful defendant which makes it a proper exercise of discretion; and
d)in considering whether to make such an order, the Court should, in the exercise of its discretion balance two overall considerations of policy: the first, that an unnecessary multiplicity of actions should not be forced on litigants, so that the plaintiff who acts reasonably in joining two or more defendants should not be penalised or lose the fruits of his victory in costs on the basis that he should have either elected or taken separate actions; secondly, that an unsuccessful defendant should not have to pay more than one set of costs because he is unsuccessful.[66]
[65] (1988) 93 FLR 442 at 449 per Asche J (“Lackersteen (No. 2)”).
[66] Lackersteen (No. 2) at 449 per Asche J.
The Court will not make a Sanderson Order. Ultimately, the making of a Sanderson Order was not seriously pressed by Fortron. Had it been pressed, the Court would not have made such an order there being nothing in Mr Tully’s conduct which could reasonably be considered to warrant the making of a Sanderson Order.
Conclusions and orders
The Court has concluded that:
a)there ought to be a formal order of dismissal of the application in relation to Mr Jones, Treblex, Mrs Jones and Mrs Tully;
b)there ought to be orders requiring Mr Tully and Gammar to pay to Fortron the amounts agreed between them arising from the Court’s findings in Fortron (No. 5);
c)in relation to costs:
i)Fortron should pay Mr Jones and Treblex’s costs of the application;
ii)Fortron should pay Mr Tully’s costs of the application up to and including 9 July 2007;
iii)Mr Tully should pay 60% of the applicant’s costs of the application on and from 10 July 2007;
iv)Gammar should pay Fortron’s costs of the application; and
v)there should be no indemnity or Sanderson Order costs;
d)all of the costs are to be taxed by a Registrar of this Court in accordance with the costs scale under the Federal Court Rules applicable from time to time; and
e)the costs of Mr Jones and Treblex, and the costs of Mrs Jones and Mrs Tully pursuant to the orders of the Federal Magistrates Court of Australia dated 18 May 2009, are to be taxed as one bill;
f)the Court will certify for Senior Counsel for Fortron and the respondents (other than Gammar) for the occasions on which Senior Counsel appeared.
There will be orders accordingly.
I certify that the preceding forty-one (41) paragraphs are a true copy of the reasons for judgment of Judge Antoni Lucev.
Date: 20 December 2013
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