Galati v Deans (No 2)
[2023] NSWCA 252
•24 October 2023
Court of Appeal
Supreme Court
New South Wales
Medium Neutral Citation: Galati v Deans (No 2) [2023] NSWCA 252 Hearing dates: On the papers Date of orders: 24 October 2023 Decision date: 24 October 2023 Before: White JA; Basten AJA Decision: (1) With respect to the costs of the appeal, order that the respondents pay 50% of the appellant’s costs in this Court.
(2) With respect to the costs of the plaintiff’s statement of claim in the Equity Division, order that the defendants pay 30% of the plaintiff’s costs of that proceeding, noting that:
(i) interlocutory costs orders made in the Equity Division are not affected; and
(ii) order 4 made in the Equity Division as to the costs of the fourth amended cross-claim is not affected.
Catchwords: PRACTICE AND PROCEDURE – costs – whether costs should follow the event – identifying “event” – party obtaining relief unsuccessful on certain issues – whether to be deprived of proportion of costs – reassessing costs of trial
Legislation Cited: Civil Procedure Act 2005 (NSW), s 98
Supreme Court Act 1970 (NSW), s 45AA
Uniform Civil Procedure Rules 2005 (NSW), r 42.1
Cases Cited: Baker v Towle [2008] NSWCA 73
Bostik Australia Pty Ltd v Liddiard(No 2) [2009] NSWCA 304
Bowen Investments Pty Ltd v Tabcorp Holdings Ltd(No 2) [2008] FCAFC 107
Cellarit Pty Ltd v Cawarrah Holdings Pty Ltd (No 2) [2018] NSWCA 266
Galati v Deans [2023] NSWCA 13
Oikos Constructions Pty Ltd t/as Lars Fischer Construction v Ostin (No 2) [2021] NSWCA 98
State of New South Wales v Stanley [2007] NSWCA 330
Category: Costs Parties: Dominic Gerardo Galati (Appellant)
Robert Paton Deans (First Respondent)
Fishbank Development Corporation Pty Limited (Second Respondent)
TRHS Pty Ltd (Third Respondent)
Felan’s Fisheries Pty Ltd (Fourth Respondent)
Trading Australia Pty Ltd (in liq) (Fifth Respondent)Representation: Counsel:
Solicitors:
P Herzfeld SC / G Drew (Appellant)
G K Burton SC / P Barham (First to Fourth Respondents)
Harris Friedman Lawyers (Appellant)
FCB Workplace Law (First to Fourth Respondents)
File Number(s): 2021/264875 Decision under appeal
- Court or tribunal:
- Supreme Court
- Jurisdiction:
- Equity Division
- Citation:
Galati v Deans [2021] NSWSC 1094
- Date of Decision:
- 1 September 2021
- Before:
- Ward CJ in Eq
- File Number(s):
- 2016/360462
JUDGMENT
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THE COURT: On 15 February 2023 the Court delivered a judgment in these proceedings. [1] Mr Galati was partly successful in his appeal, but the circumstances warranted the parties being given an opportunity to file and exchange written submissions as to the appropriate costs orders to be made, both in this Court and below. The parties availed themselves of that opportunity, each identifying the orders proposed and the basis of the proposal.
1. Galati v Deans [2023] NSWCA 13.
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In the meantime, however, one judge in the original hearing, Macfarlan JA, had retired. Two judges may deal with outstanding issues in an appeal where that situation arises, pursuant to s 45AA of the Supreme Court Act 1970 (NSW), with the consent of the parties. That consent was sought and obtained.
Proposed orders
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There is a large disparity between the orders sought by each party, both in relation to the costs of the appeal and the costs of the trial. Mr Galati asserted that he had enjoyed success in respect of the primary issue in dispute and should obtain 80% of his costs of the appeal and 75% of his costs of the trial. The first to fourth respondents, being the active parties in resisting the appeal, sought orders with respect to the first and second respondents, being Mr Deans and his corporate entity, Fishbank Development Corporation Pty Ltd, but sought no orders with respect to any costs incurred by the third and fourth respondents. With reference to the first and second respondents, the primary orders sought with respect to the costs of the appeal was that Mr Galati pay their costs up to 6 September 2022 and thereafter each bear his or its own costs of the appeal.
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With respect to the costs of the trial, the respondents first submitted that there should be no interference with interlocutory costs orders. Although the appellant sought an order that he be paid 75% of his “in globo costs in the proceedings below” there was no challenge to the interlocutory costs orders. The reference to “in globo” assessment was meant to encompass the statement of claim and the proceedings on the cross-claim. With respect to the final orders, the first and second defendants at trial sought an order that the plaintiff pay them either 75% or, 50% of their costs of the statement of claim. The appellant was unsuccessful in challenging aspects of the cross-claim on which the respondents had been successful at trial and the Court should not, therefore, disturb existing costs orders in favour of the first and second respondents in relation to the cross-claim.
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The submissions helpfully identified the principal authorities dealing with the allocation of costs where the parties have had mixed success and failure. It is convenient to establish the appropriate principles before addressing the costs of the appeal and, finally, the costs of the trial.
Legal principles
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The broad and unfettered discretion as to costs conferred by s 98 of the Civil Procedure Act 2005 (NSW) is expressly rendered subject to rules of court. The general rule applying to a hearing determined on the merits is that “the court is to order that the costs follow the event unless it appears to the court that some other order should be made as to the whole or any part of the costs”: Uniform Civil Procedure Rules 2005 (NSW), r 42.1. Rule 42.1 has been construed on the basis that “the event” which costs should prima facie follow can be identified as a judgment for the plaintiff or the defendant on the claim. [2]
2. Baker v Towle [2008] NSWCA 73 at [11]; Cellarit Pty Ltd v Cawarrah Holdings Pty Ltd (No 2) [2018] NSWCA 266 at [8] applied in Oikos Constructions Pty Ltd t/as Lars Fischer Construction v Ostin (No 2) [2021] NSWCA 98 at [11] (White JA, Basten and Macfarlan JJA agreeing).
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In applying this principle, it need not be assumed that each trial or appeal involves a singular “event”. That was not the case in relation to the present trial or the current appeal. There were entirely separate questions as to the beneficial interests in the shares held by TRHS Pty Ltd in Felan’s Fisheries Pty Ltd and a claim for disgorgement of part of a secret commission obtained by one party in relation to the acquisition of those shares.
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Further, even in relation to a particular matter, such as the determination of the beneficial ownership of the shares, it may be appropriate to allocate costs or limit the costs recoverable by the successful party where a clearly dominant issue has been determined against it, or where there are clearly separable issues on some of which it has failed. [3] On the other hand, as stated in Bostik Australia Pty Ltd v Liddiard (No 2):[4]
“Where there are multiple issues in a case the Court generally does not attempt to differentiate between the issues on which a party was successful and those on which it failed. 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.”
3. State of New South Wales v Stanley [2007] NSWCA 330 at [18] (Hislop J, Beazley and Tobias JJA agreeing).
4. [2009] NSWCA 304 at [38] (Beazley, Ipp and Basten JJA).
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The Court has a broad discretion, to be exercised according to the purpose of compensating, at least in part, the costs reasonably incurred by a successful party in establishing its rights, subject to the need to accord fairness to each party in the particular circumstances of the case. [5]
5. Bowen Investments Pty Ltd v Tabcorp Holdings Ltd (No 2) [2008] FCAFC 107 at [5] (Finkelstein and Gordon JJ).
Application of principles
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In this Court, as the appellant correctly submitted, the primary focus was upon the claim in relation to the beneficial ownership of the shares in Felan’s Fisheries. Grounds 1, 2 and 3 related to this claim. Ground 1 asserted that the trial judge should have found an express trust in relation to the shares; ground 2 asserted that the trial judge should have upheld a claim for a constructive trust, and ground 3 sought an inquiry as to equitable compensation or an account of profits, although that was the form of relief which flowed from a cause of action based on a breach of fiduciary obligations by Mr Deans. Ground 3 was not pressed, and one aspect of ground 2, dealing with an allegation of estoppel was not pressed.
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For the purposes of the costs of those aspects of the appeal, the “event” on which the appellant was successful, was the declaration of the beneficial ownership in the shares. The conclusion that the claim should be upheld on the basis of a resulting trust, was, as the respondents contended, not that initially advanced by the appellant. Nonetheless the precise characterisation of the trust is not determinative of how the costs of the issue should be borne. The finding by one member of the Court that the relief should be granted on the basis of a common intention constructive trust demonstrated the potential overlap in the way that the evidence could reasonably be analysed. Further, although the appellant was unsuccessful in his challenge to the dismissal by the trial judge of a claim of an express trust, that did not constitute a relevantly severable item which should result in the diminution of costs which should otherwise be awarded with respect to the principal issue on the appeal. Similarly, although the late abandonment of a ground such as the reliance on estoppel, might, if it were a severable item give rise to some diminution of costs, to reflect the fact that the defendant had otherwise been required to consider and address in written submissions that aspect of ground 2, it did not constitute a sufficiently significant additional element to warrant a diminution of the ordinary costs order in respect of that matter.
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Ground 4 addressed the cross-claim which was, as noted above, a challenge to the order of the primary judge that the appellant disgorge 50% of an amount characterised as a secret commission. That was an entirely separate matter from the ownership of the shares and one with respect to which the appellant was unsuccessful. Accordingly, the costs of the appeal, which should otherwise be payable by the appellant, must be discounted by an amount referrable to his failure in respect of that matter.
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The appellant submitted that the issue on which he succeeded, namely the constructive or common intention trust, accounted for 80% of the resources expended by the parties on the appeal. This calculation allowed for the fact that a large part of the consideration of the evidence and the background circumstances of the case would have been incurred in any event. The figure, it was submitted, was confirmed by the rough proportions of the part of the reasons of the Court disposing of the appeal, 76-78% of which related to that issue. That figure may have been a fraction higher if it included the discussion of an express trust, with respect to which the appellant was unsuccessful.
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Such calculations should be treated as impressionistic rather than arithmetical. For example, an assessment of the length of the judgment devoted to one issue rather than another provides a potentially misleading impression of the manner in which the resources of the parties would have been expended. Indeed, it may not reflect the importance of each issue to the Court. Dismissal of an aspect of the appeal can often be dealt with briefly if the Court’s conclusion was, in effect, that the trial judge was correct for the reasons which she gave.
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The proportion proposed by the appellant should be reduced, but not by a significant amount. A fair assessment of the time the parties devoted to the primary issue on the appeal is 75%.
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That leaves a question as to the remaining 25%, which is primarily ascribed to the second matter, on which the appellant was unsuccessful. As explained in Oikos Constructions at [28], where “an otherwise successful plaintiff has failed on a severable or dominant issue such that it is not appropriate that the plaintiff receive all of his or her costs, in deciding how the discretion as to costs should be exercised to achieve fairness … the perspective of both parties should be considered”.
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Given that this analysis turns on there being two separate matters, rather than an assessment of issues in relation to a single matter, the appropriate calculation would require the appellant to pay the respondent’s costs of the matter on which he was unsuccessful. Thus, the appellant should not only not recover his costs as to 25% of the costs incurred by him on the appeal, but he should pay 25% of the respondent’s costs. Rather than require an assessment of those separate sets of costs, the appropriate order is that the respondents pay 50% of the appellant’s costs of the appeal.
Costs of trial
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It is considerably more difficult for the appeal court to determine and apportion the costs of the trial. However, the respondent’s submission that there should be no order interfering with the interlocutory costs orders should be accepted.
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The trial proceeded over nine days in December 2020. With respect to Mr Galati’s statement of claim, the trial judge ordered that the claim be dismissed with costs. That order has been set aside, but the order as to the cross-claim has not been set aside.
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The appellant submitted that 30% of trial time was spent in cross-examination of witnesses relevant to the claim for the shares and about 25% was spent on issues on which Mr Galati did not succeed “either on appeal or in the proceedings below, and the cross-claim”. With respect to submissions of the parties, the appellant submitted that his written submissions were equally divided between matters on which he succeeded and matters on which he did not, but that his oral submissions were substantially directed to the beneficial ownership of the shares. On the other hand, he accepted that the time spent by the respondents in oral submissions at least were weighted in favour of the issues on which Mr Galati was not successful, but only to the extent of 60%.
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The respondents, in contrast, submit that existing order 4 dealing with the cross-claim, should stand and that the appellant should pay 75% of their costs of the statement of claim. That assessment turned primarily on the proposition that the primary judge had identified eight issues as arising under the appellant’s statement of claim and that the appellant had been successful in overturning the outcome only in respect of two issues, and “for reasons different from and not contended by him in the primary hearing”.
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While it is true that the primary judge identified eight issues arising under the statement of claim,[6] the issues were not all of equal importance and those on which the appellant succeeded were clearly of primary importance. Further, there were undoubtedly different ways in which the fiduciary obligations and the legal consequences of breach could be presented, but the proceedings in this Court did not support the conclusion that the appellant was successful on a ground which had not been argued before the primary judge.
6. Galati v Deans [2021] NSWSC 1094 at [25].
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As is not uncommonly the case, the issues on appeal tend to be more refined and less expansive than those run at trial. There were aspects of the trial on which the appellant was not successful, which were not reagitated on appeal. It may also be accepted that much of the evidence presented at trial would have been presented had the issues been limited to those on which the appellant was ultimately successful on appeal. Nevertheless, it is apparent that, even putting the cross-claim to one side, the time devoted by way of preparation and hearing to the trial would likely have been significantly reduced had the issues in dispute been limited to those on which the appellant was successful, being the claim for a half-interest in the shares held by TRHS.
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There is no apparent basis upon which to award the respondents 75% of their costs of the statement of claim at trial. Nor, on the other hand, should the appellant be awarded 75% of his “in globo costs”, a term which appeared to include the costs of the cross-claim.
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As the appellant has been successful on the primary issue litigated on his statement of claim, he should obtain part of his costs. Nevertheless, it would be unfair to the respondents, required to defend those and other aspects of his claim, and successfully did so, that they should pay the whole of the costs of the trial of the statement of claim.
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As to appropriate apportionment, there can be no doubt that this Court is in a far weaker position than the trial judge may have been in making an appropriate assessment. Nevertheless, neither party suggested that the costs of the trial should be remitted for consideration by the trial judge. Indeed, given that the trial took place in December 2020, it is likely that the trial judge’s advantage would by now be significantly reduced. A broad-brush assessment suggests that the appellant should receive 30% of his costs of his statement of claim.
Orders
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The Court makes the following orders:
With respect to the costs of the appeal, order that the respondents pay 50% of the appellant’s costs in this Court.
With respect to the costs of the plaintiff’s statement of claim in the Equity Division, order that the defendants pay 30% of the plaintiff’s costs of that proceeding, noting that:
interlocutory costs orders made in the Equity Division are not affected; and
order 4 made in the Equity Division as to the costs of the fourth amended cross-claim is not affected.
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Endnotes
Decision last updated: 24 October 2023
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