Haynes, Francis Verner v Top Slice Deli Pty Ltd

[1995] FCA 1109

CATCHWORDS

COSTS - application successful - cost ordinarily follow the event - applicants found to have contributed to their losses - whether this should be reflected in a costs award - whether successful respondent should get the costs from unsuccessful respondent - whether circumstances warrant either a Bullock order or a Sanderson order

Trade Practices Act 1974

Gould v Vaggelas [1985] 157 CLR 215
Hughes v Western Australian Cricket Association Inc & Ors [1986] ATPR 40-748
Lackersteen v Jones (No 2) [1988] 93 FLR 442
X & Y (by her Tutor X) v Pal & Ors (unreported Mahoney, Clarke, Meagher JJA, New South Wales Court of Appeal, 7 June 1991)
Sanderson v Blythe Theatre Company [1903] 2 KB 533
Bullock v London General Omnibus Co [1907] 1 KB 264

FRANCIS VERNER HAYNES & ANOR v TOP SLICE DELI PTY LTD & ORS
No. NG 61 of 1994

EINFELD J

SYDNEY

22 DECEMBER 1995

IN THE FEDERAL COURT OF AUSTRALIA )
NEW SOUTH WALES DISTRICT REGISTRY )  No. NG 61 of 1994
GENERAL DIVISION                    )

Between:FRANCIS VERNER HAYNES & JACQULYN DION HAYNES

Applicants

And:TOP SLICE DELI PTY LIMITED

ACN 008 627 781
  First Respondent

TOP SLICE DELI SYSTEMS PTY LIMITED ACN 008 636 119

Second Respondent

ROSS TRIMBOLI

Third Respondent

JOHN J DELLAVEDOVA

Fourth Respondent

GREGORY C A HOLLANDS

Fifth Respondent

JOHN W BEARD

Sixth Respondent

FRANCIS VERNER HAYNES & JACQULYN DION HAYNES

First Cross Respondents

TOP SLICE DELI SYSTEMS PTY LIMITED ACN 008 636 119

First Cross Claimant

JOHN J DELLAVEDOVA

GREGORY C A HOLLANDS

JOHN W BEARD

Second Cross Claimants/
  Third Cross Respondents

TOP SLICE DELI SYSTEMS PTY LIMITED ACN 008 636 119

TOP SLICE DELI PTY LIMITED

ACN 008 627 781

ROSS TRIMBOLI

Second Cross Respondents/
  Third Cross Claimants

MINUTE OF ORDERS

1. The first, second and third respondents are to pay 75% of the costs of the applicants on a party and party basis, as assessed or taxed.

1. The applicants are to pay the costs of the first cross claim on a party and party basis, as assessed or taxed.

1. The applicants are to pay the costs of the fourth, fifth and sixth respondents on a party and party basis, as assessed or taxed.

Note: Settlement and entry of orders are dealt with in accordance with Order 36 of the Federal Court Rules.

EINFELD J

SYDNEY

22 DECEMBER 1995

IN THE FEDERAL COURT OF AUSTRALIA    )
NEW SOUTH WALES DISTRICT REGISTRY    )    No. NG 61 of 1994
GENERAL DIVISION                    )

Between:FRANCIS VERNER HAYNES & JACQULYN DION HAYNES

Applicants

And:TOP SLICE DELI PTY LIMITED

ACN 008 627 781
  First Respondent

TOP SLICE DELI SYSTEMS PTY LIMITED ACN 008 636 119

Second Respondent

ROSS TRIMBOLI

Third Respondent

JOHN J DELLAVEDOVA

Fourth Respondent

GREGORY C A HOLLANDS

Fifth Respondent

JOHN W BEARD

Sixth Respondent

FRANCIS VERNER HAYNES & JACQULYN DION HAYNES

First Cross Respondents

TOP SLICE DELI SYSTEMS PTY LIMITED ACN 008 636 119

First Cross Claimant

JOHN J DELLAVEDOVA

GREGORY C A HOLLANDS

JOHN W BEARD

Second Cross Claimants/

Third Cross Respondents

TOP SLICE DELI SYSTEMS PTY LIMITED ACN 008 636 119

TOP SLICE DELI PTY LIMITED

ACN 008 627 781

ROSS TRIMBOLI

Second Cross Respondents/
  Third Cross Claimants

REASONS FOR JUDGMENT

EINFELD J   SYDNEY              22 DECEMBER 1995

The applicants were the franchisees of a delicatessen known as 'Top Slice Deli' in Goulburn.  By their application and statement of claim filed 7 February 1994, as later amended, the applicants sought relief against the respondents for misleading and deceptive conduct concerning the likely profitability of the business.  The first and second respondents are the companies which contracted with the applicants and the third respondent is one of their directors.  I shall generally refer to this group of respondents as Top Slice.  The fourth to sixth respondents are the accountants who, relevantly to this matter, supplied a cash flow analysis to the bank that agreed to finance the applicants' business venture (the accountants).

Reasons for judgment on the substantive issues of this case were published on 2 June 1995.  The application against Top Slice was allowed but dismissed against the accountants.  A cross claim by Top Slice against the applicants was also allowed.  The judgment is now on appeal to a Full Court.  Costs of the trial, the subject of this judgment, were reserved pending written submissions.

The applicants' costs

The applicants seek their costs on a party and party basis from Top Slice.  The relevant principles to be applied in a determination of costs were summarised by Justice Toohey in Hughes v Western Australian Cricket Association Inc & Ors [1986] ATPR 40-748 and adopted by the New South Wales Court of Appeal in X & Y (by her Tutor X) v Pal & Ors (unreported Mahoney, Clarke, Meagher JJA, 7 June 1991) where the principles were encapsulated at page 3 in the following terms:

Costs are in the discretion of the court.  This discretion must be exercised judicially.  The principles which bear on its exercise are generally: (1)  Ordinarily, costs follow the event;  (2)  In particular circumstances it may be reasonable to require that a litigant who has succeeded only upon a portion of his claim should bear the expense of litigating the other portion or portions; and  (3)  Circumstances may dictate that a successful party who has failed on certain issues may not only be deprived of the costs in those issues but may be ordered as well to pay the other party's costs of them.

Top Slice propose that they should pay only one half of the applicants' costs.  Their submissions can be broadly categorised in three parts.  Firstly they submit that the applicants were unprepared for the litigation.  They highlight that the applicants did not make their ultimately successful claim regarding the misrepresentation of a weekly take home figure until January 1995, and that they were not in a position to quantify their trading losses until the end of the evidence.  Top Slice emotively refer to the applicants' "scatter gun" approach to the litigation, stressing that the applicants finally
succeeded on only one of the five misrepresentations pleaded.  Secondly, Top Slice submit that the applicants unreasonably joined the accountants, further complicating the litigation.  Finally, they emphasise that the applicants were ultimately found to have contributed to their own losses.

As regards the first line of attack, there are, as mentioned in the principal judgment, a host of reasons why pleadings are amended, even at late notice.  It is true that the claim in relation to the weekly take home figure should have presented itself early as an important feature of the case and should have been pleaded much earlier.  However, the substance of the claim was certainly not a surprise to the respondents.  Additionally, despite a concentrated assault on the applicants' calculation of trading losses, I came to the conclusion that Top Slice's criticisms were not made out.  In the circumstances of this case, I do not believe that this is a reason to deny the applicants their costs.

It is a very narrow interpretation of the judgment in the case to say that only one of the pleaded misrepresentations succeeded.  The judgment said at page 16:

In my view the important representation is that concerning the $2000 a week net profit after all commitments.  If that representation was made, then the others are of minimal significance...

Whilst it was determined that the alleged representations as to turnover and profit margins were made, it was not necessary to
decide whether they were misleading as the primary representation of $2000 a week take home profit was clearly made and was clearly misleading.

Having regard to the way in which the matter proceeded, it is also not correct to say that the applicants adopted a 'scatter gun' approach to the litigation to the extent that it should reflect negatively on the issue of costs.  The applicants are entitled to submit alternative and successive claims to the Court, notwithstanding that in all likelihood some will not be significant if others are proved.  A costs penalty may ensue in a circumstance where the claims are unreasonably multitudinous or trite, or designed to frustrate a sensible defence, but this was not such a case.

As far as the second category is concerned, I believe that the complications, at least in so far as they relate to Top Slice, arose from the respondents' conduct, not the applicants'.  Just prior to the commencement of the hearing, Top Slice and the accountants, who had previously been represented by the same lawyers, parted company in that respect.  The commencement of the hearing was delayed for two days to permit the new lawyers for the accountants to be adequately instructed.  It was not for the applicants to point out any potential conflicts of interest as might upset the retention of one legal representative for all respondents.  Despite its ultimate failure, the applicants' case against the accountants was not frivolous or unreasonably put.  A novel argument is not necessarily an unreasonable one.  This proposition is also not grounds for denying the applicants their costs as against Top Slice.

On the other hand, the submission that a costs award should reflect the finding that the applicants contributed to their own losses does have merit.  On the basis of the principles set forth in X & Y, that factor weighs against the applicants.  Having regard to the time taken at the hearing on the various issues, I order that Top Slice pay 75% of the applicants' costs.

The accountants' costs

The applicants claimed that because they were able to raise finance on the basis of a cash flow supplied by the accountants to the bank, admitted at the hearing to have been relied upon by the bank in approving the finance, the accountants were liable for damages. I dismissed the claim on the basis that it was outside the scope of section 82 of the Trade Practices Act 1974 (the Act) because it was too remote. In light of that conclusion, it was unnecessary to determine if the cash flow did breach section 52 of the Act.

The accountants submitted that they have been entirely successful and deserve their costs. The applicants submitted that Top Slice should pay the accountants' costs, either directly (a Sanderson order: Sanderson v Blythe Theatre Company [1903] 2 KB 533), or by indemnifying the applicants in respect of those costs (a Bullock order: Bullock v London General Omnibus Co [1907] 1 KB
264).  The principles underlying each order are enunciated in Lackersteen v Jones (No 2) [1988] 93 FLR 442 at 449 and Gould v Vaggelas [1985] 157 CLR 215 at 229 respectively. I understand these decisions to mean that the discretion is to be exercised in favour of those orders if the conduct of the unsuccessful respondents was such that it would be just in the circumstances to impose some liability for the costs of the successful respondents on the unsuccessful respondents.

These are not appropriate circumstances for the making of either a Sanderson or a Bullock order.  The claim against the accountants failed on a point completely unrelated to Top Slice's behaviour, namely that it was simply outside the scope of the Act.  It is beside the point that the figures for the cash flow were provided by Top Slice to the accountants because, regardless of Top Slice's behaviour, the claim against the accountants would have failed.

The applicants submitted that if a Sanderson or Bullock order was not made, it would be appropriate that the costs awarded should reflect the loss of Court time and the lengthening of the hearing for a range of reasons associated with the accountants including the very late separation of the legal representation of the respondents.

This matter was heard on an expedited basis as the applicants were threatened with bankruptcy.  All parties contributed to the ramshackle way in which the matter proceeded before the Court. 
The pleadings were amended late to include the determinative misrepresentation, the respondents changed their legal representation on the eve of the hearing after all parties had told the directions Judge that the case was ready for an expedited hearing, a 'no case' submission was made by the accountants which failed, and late witnesses were called without the prior filing of their statements as ordered by the Court.  However, to my mind no one thing significantly altered the length and costs of the trial so as to precipitate an award of costs for particular days or particular issues.  The applicants brought the accountants before the Court without legal justification and failed through no fault or action of Top Slice or the accountants themselves.  Accordingly the applicants should pay the accountants' costs on a party and party basis.

The applicants' request for additional findings

The applicants also seek a finding on whether or not the cash flow supplied to bank was misleading and deceptive, firstly as a discretionary basis for awarding a Sanderson order and secondly, to avoid the potential for the matter to be remitted by the Full Court for a new trial on the point.

In light of my decision regarding the Sanderson order, it is not necessary to deal with the applicants' first submission.  On their second point, the applicants posed the following scenario:

For example, were there to be an appeal by the unsuccessful respondents and a cross-appeal by the
applicants raising the s 82 issue and were a Full Court to determine that any loss did not fall outside s 82, the issue of liability in respect of the projected 42% gross profit margin included in the cash flow might not be able to be resolved without the Full Court sending the matter back for a new trial on that issue.

My preference is to await the decision of the Full Court because, as it seems to me from the appeal notices, the case is fully open for final determination by the Full Court which can rule on the gross profit margin represented by Top Slice as well as I can.  It would not be appropriate for me to try to second guess the Full Court.

The first cross claim

Top Slice were successful in their cross claim against the applicants, though not, as they submit, entirely, because some claimed interest and indemnity costs under the contract were not upheld.  However, their substantial success clearly entitles them to some costs.   On the other hand, as the applicants point out, minimal time was spent on this cross claim as its quantum was conceded early on.  Top Slice should have their costs of this cross claim but it will be for the parties to agree or the taxing offer to rule on what separate or specific costs were incurred on this part of the case.

The second and third cross claims

No submissions were made in favour of any orders for costs on these claims.

Counsel and solicitors for the  I. Davidson instructed by

applicantP. Meckiff of R.J. McCarthy & Co

Counsel and solicitors for the  I. Lawry then G. Rich
first, second and third             instructed by J. Memmolo
respondents  of Romano & Co

Counsel and solicitors for the  G. O'L. Reynolds instructed
fourth, fifth and sixth             by K. Emmanuel agent for

respondents  Snedden Hall & Gallop

Date of hearing                6, 8, 10, 27 February, 2, 7, 9, 10 March 1995

Written submissions            26 June 1995
completed

Date of Judgment  22 December 1995