Hexiva Pty Ltd v Lederer (Costs)

[2006] NSWSC 1259

CITATION:	Hexiva Pty Ltd v Lederer (Costs) [2006] NSWSC 1259
HEARING DATE(S):	3 November 2006
JUDGMENT DATE :	27 November 2006
JURISDICTION:	Equity Division
JUDGMENT OF:	Brereton J
DECISION:	Order that the second defendants pay 50% of plaintiffs’ costs, up to and including 25 September 2006; and whole of plaintiffs’ costs, from and after 26 September 2006. Order that plaintiffs pay 50% of second defendant’s costs, up to and including 25 September 2006. Order pursuant to Civil Procedure Act, s 101, that interest be paid on the amounts payable under orders 1 and 2.
CATCHWORDS:	COSTS – costs of separate issues – where plaintiffs abandon primary claims at commencement of trial but succeed on alternative claim – where defendant amends late to raise limitation defence to which plaintiffs attribute decision to abandon primary claims – where primary claims always had poor prospects – setting off of costs entitlements not necessarily appropriate where one party represented and other not – interest on costs.
LEGISLATION CITED:	Civil Procedure Act 2005 (NSW), s 101 Limitation Act 1969 (NSW), ss 14, 15 Uniform Civil Procedure Rules 2005 (NSW), Schedule 5
CASES CITED:	Anglo-Cyprian Trade Agencies Ltd v Paphos Wine Industries [1951] 1 All ER 873 Australian Development Corporation Pty Ltd v White Constructions (ACT) Pty Ltd (in liq) [2002] NSWSC 280 Beoco Limited v Alfa Laval Co Limited [1995] QB 137 Cachia v Hanes (1994) 179 CLR 403 Cretazzo v Lombardi (1975) 13 SASR 4 Dodds Family Investments Pty Ltd v Lane Industries Pty Ltd (1993) 26 IPR 261 Grogan v Thiess Contractors Pty Ltd [2000] NSWSC 1101 Harris v Digital Pulse Pty Ltd (2006) 56 NSWLR 298 Hexiva Pty Ltd v Lederer [2006] NSWSC 318 Hughes v Western Australia Cricket Association Inc (1986) ATPR 40-748, 48,136 Lahoud v Lahoud [2006] NSWSC 126 Lipkin Gorman v Karpnale Limited [1989] 1 WLR 1340 (CA) Mobile Innovations Ltd v Vodaphone Pacific Limited [2003] NSWSC 423 Murrihy v Radio 2UE Sydney Pty Ltd [2000] NSWSC 318 NRMA Limited v Morgan (No 3) [1999] NSWSC 768 Puntoriero v Water Administration Ministerial Corporation [2002] NSWSC 217 Trade Practices Commission v Nicholas Enterprises Pty Ltd (No 3) (1979) 28 ALR 201 Walters v PC Henderson (Aust) Pty Ltd (NSWCA, 6 July 1994, unreported Waterman v Gerling Australia Insurance Co Pty Ltd [2005] NSWSC 1111
PARTIES:	Hexiva Pty Ltd (P1) Robert Wechsler (P2) Katie Wechsler (P3) Hexiva Pty Ltd as Trustee Katie Wechsler Family Trust (P4) Paul Lederer, Richard Slazenger & Douglas Hamiltom as Executors & Trustees of the late Andrew Lederer (D1) Michael Du Maurier (D2)
FILE NUMBER(S):	SC 2626/2000
COUNSEL:	Mr Sahade (Ps) Ms Sharp (D1) Mr Hallen SC w Mr Hodgson (D2)
SOLICITORS:	Oliveri Legal P/L (Ps) Landerer & Co (D1) PricewaterhouseCoopers Legal (D2)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

BRERETON J

Monday 27 November 2006

2626/00 Hexiva Pty Limited & Ors v Lederer & Ors (Costs)

JUDGMENT

1 HIS HONOUR: On 30 October 2006, I directed that the plaintiffs bring in Short Minutes to give effect to the judgment which I delivered that day, for which purpose I appointed Friday 3 November 2006, at which time I would also hear any argument as to costs. Short Minutes were duly brought in, and on 3 November I resolved some remaining issues between the parties as to the form of those minutes. The orders of the court are contained in the document entitled Short Minutes of Order initialled by me, dated 3 November 2006 and placed with the papers.

2 Both the plaintiffs and the Fiala Estate have made application in respect of costs.

3 The plaintiffs seek orders to the effect that:

· Hexiva pay 75% of the Fiala Estate’s costs of the claim from the commencement of the proceedings until the filing of the original defence on 14 August 2001;

· thereafter until the amendment of the defence to raise the limitation issue on 9 August 2006 the Fiala Estate pay 50% of Hexiva’s costs of the claim;

· thereafter until and including the first day of the hearing on 25 September 2006 Hexiva pay 75% of the Fiala Estate’s costs of the claim;

· from 26 September 2006 until judgment the Fiala Estate pay 100% of Hexiva’s costs of the claim; and

· the Fiala Estate pay the whole of Hexiva’s costs in respect of the Fiala Estate’s cross-claim.

4 The Fiala Estate seeks orders to the effect that:

· the plaintiffs pay its costs of the claim up to and including 25 September 2006, except those incurred in relation to those parts of the Estate’s affidavits that were read at the hearing and those parts of the defence that were relied on at the hearing;

· the plaintiffs pay the Estate’s costs of the cross-claims between the defendants (for, in effect, indemnity or contribution), and of the first amended cross-claim regarding the claim for $1,344,737;

· interest be payable on those costs from the date on which they were paid by the Estate;

· its costs on the indemnity basis, to the extent that they are not recovered from the plaintiffs, be paid out of the estate. This was not opposed by the plaintiffs;

· the Estate pay the plaintiffs’ costs of the claim from 28 September 2006 to judgment; and

· the Estate pay the plaintiffs costs of the first amended cross-claim regarding the claim for interest.

5 From these competing positions, may be distilled a substantial amount of common ground, namely:

· that the Fiala estate should pay the plaintiffs’ costs of the proceedings after the first day of the final hearing; · that Hexiva (if not all the plaintiffs) should bear a portion of the Fiala Estate’s costs up to and including the first day of the final hearing; and

· that the executors of the Fiala Estate should be indemnified by the Estate in respect of their costs, to the extent that they are not recovered from the plaintiffs.

6 Of the issues which require resolution, one can be the subject of immediate disposition, namely whether any liability for the costs of the Fiala Estate should extend to the plaintiffs other than Hexiva. I conclude that it should. The proceedings were originally instituted by Hexiva alone. Dr Wechsler and Mrs Wechsler were added as plaintiffs as a result of doubts as to who was “the third partner”. They acted in the same interest, and all stood to benefit by the other’s success. Ultimately, I do not understand there to have been serious dispute that any costs order affecting the plaintiffs should be for the benefit of, or against, all of them, as the case may be.

7 That leaves two contentious issues: first, what proportion of the Fiala Estate’s costs of the proceedings up to and including the first day of the final hearing should be borne by Hexiva; and secondly, whether there should be an order for interest in respect of paid costs as sought by the Fiala Estate.

Pre-trial costs

8 When these proceedings were commenced, and at all times until the first day of the final hearing, the focus of the plaintiffs’ claim was the so-called “unauthorised loans”. Their claim involved allegations that the advances made by the George Street Partnership to the Lederer-Fiala Partnership were made in breach of the fiduciary obligations owed to them as partners by Mr Lederer and Mrs Fiala, and that there had been no binding and enforceable agreement made in December 1994. Ultimately, the plaintiffs abandoned their claim in respect of the “unauthorised loans”. They did so effectively at the last moment, on the first day of the final hearing. The claim which they ultimately prosecuted successfully at trial was for breach of the December 1994 agreement, which in the pleadings and evidence appeared very much an alternative fall-back position, receiving minor attention until the trial. Thus although ultimately successful, the plaintiffs succeeded on only a small part of the case which they originally brought.

9 Although the starting point is that the plaintiffs, having been successful, are entitled to their costs, and that it is for the defendants to establish a basis for departing from that rule, a successful plaintiff who has failed on certain issues may be deprived of costs on those issues, or even ordered to pay the defendant’s costs on them [Hughes v Western Australia Cricket Association Inc (1986) ATPR¶ 40-748, 48,136]. This course, while open, is one on which the court embarks with hesitancy [Mobile Innovations Ltd v Vodaphone Pacific Limited [2003] NSWSC 423, [4]; Cretazzo v Lombardi (1975) 13 SASR 4, 16; Dodds Family Investments Pty Ltd v Lane Industries Pty Ltd (1993) 26 IPR 261; Trade Practices Commission v Nicholas Enterprises Pty Ltd(No 3) (1979) 28 ALR 201; Walters v PC Henderson (Aust) Pty Ltd (NSWCA, 6 July 1994, unreported); NRMA Limited v Morgan(No 3) [1999] NSWSC 768]. From these cases emerge consistent themes 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; but that it may be appropriate to award costs of a separate issue where a clearly definable and severable issue, on which the otherwise successful party failed, has occupied a significant part of the trial [Waterman v Gerling Australia Insurance Co Pty Ltd [2005] NSWSC 1111, [10]]. Where a plaintiff makes a late amendment which substantially alters the case the defendant has to meet and without which the action would have failed, the defendant is entitled as a rule to the costs of the action down to the date of the amendment, at least in the context of late amendments which result in some slight measure of success for a plaintiff, where the true victor, having regard to the case as a whole, has been the defendant [Beoco Limited v Alfa Laval Co Limited [1995] QB 137, [154]; Anglo-Cyprian Trade Agencies Ltd v Paphos Wine Industries [1951] 1 All ER 873; Lipkin Gorman v Karpnale Limited [1989] 1 WLR 1340 (CA); Murrihy v Radio 2UE Sydney Pty Ltd [2000] NSWSC 318; Waterman v Gerling, [11]-[18]].

10 The abandonment of the breach of fiduciary claims did not involve any compromise or settlement, and the considerations which ordinarily result in the court making no order as to costs when proceedings are settled are not relevant. The abandonment was no less than a capitulation on the issues to which it related. However, the circumstance that the plaintiffs abandoned at the beginning of the trial those aspects of their claim which were not pursued should not be regarded as any more significant than had those claims been pursued and lost at trial. Parties and their advisers should not be discouraged from abandoning claims that they ultimately come to view as untenable by the risk of costs outcomes more adverse than were they to persist unsuccessfully in those claims. The case should be approached on the basis that plaintiffs were unsuccessful on the abandoned issues, but the abandonment itself adds nothing.

11 As can been seen from the judgment of 30 October 2006, the circumstances in which the advances were made, and the circumstances of the December 1994 agreement, were not entirely irrelevant to the claim as ultimately prosecuted. However, although there was some overlap between the factual context of those aspects of the plaintiffs’ claim which were ultimately pursued, and those which were abandoned, the manner in which the original claims were made and prosecuted raised issues far more extensive than those which were ultimately litigated at the final hearing, and necessitated the incurring of costs which would not have been necessary had the plaintiffs’ claim originally been framed as it ultimately was pressed in a much more limited and confined manner. I do not think that there is any room for doubt that the claims for breach of fiduciary duty in respect of the “unauthorised loans” necessitated a considerable amount of work, and incurred considerable costs, on both sides, which would have been avoided, had the claims been limited as they ultimately were. That has additional significance in this case, where there had been a settlement of the dispute about the unauthorised loans in the December 1994 agreement. The ultimate success of the plaintiffs has been by suing on the very agreement the denial of which was an essential basis of their earlier claims. In this case, the nature and extent of the issues on which the plaintiffs failed are such that justice requires that the plaintiffs not only be deprived of at least some of their costs on the issues on which they failed, but pay at least some of the Fiala Estate’s costs of those issues. The plaintiffs’ acceptance that they should bear at least some of the Fiala Estate’s pre-trial costs effectively acknowledges that view.

12 I have concluded that this should apply only to a proportion – albeit a large proportion – and not all of the costs of the issues on which the plaintiffs failed, because I accept that the plaintiffs’ decision to abandon their case on the “unauthorised loans” was due, in part, to the defendants being permitted to raise, by a relatively late amendment, a Limitation Act defence. On 9 February 2006, the Lederer Estate advised the plaintiffs by letter that it proposed to amend its defence, including by raising a limitation defence. It filed a notice of motion seeking leave to amend on 17 March 2006. On 23 March 2006, I gave leave to the Lederer Estate to amend its defence to raise, in answer to any claim for equitable relief, a time bar by analogy with Limitation Act 1969 (NSW), s 15(1). The Lederer Estate’s defence already contained a plea of Limitation Act, s 14, and of laches. In the judgment of 23 March 2006 [HexivaPty Ltd v Lederer [2006] NSWSC 318], I said:

31 Proposed paragraph 57A will make those issues relevant in a different legal way, but it raises what is, in essence, a legal defence which will not depend on the facts. Whether in fact s 15(1) is capable of application by analogy at all will be a matter for debate at the trial.

32 In terms of prejudice, Dr Wechsler argues that if indeed the new defence is fatal, the plaintiffs may have wasted a great deal of time and costs which could have been avoided had it been pleaded earlier. If that turns out to be the case - and indeed, if having considered paragraph 57A over the next week or so, Dr Wechsler decides that it is appropriate to discontinue the proceedings (and I am not suggesting that he should) - but if he were to decide that 57A appeared fatal to the plaintiffs' case, then he might have a strong argument on questions of costs arising upon any such discontinuance. But I do not see how the introduction of this essentially legal defence at this stage occasions prejudice which cannot be met by an appropriate costs order.

13 On 31 May 2006, the Fiala Estate forwarded to the plaintiffs a proposed defence to third amended statement of claim, raising a defence by analogy with Limitation Act, s 15. Leave to file that defence was granted on 27 July 2006. Had that defence been raised at the outset, a significant portion of the costs which were incurred by both sides on the abandoned issues may have been avoided.

14 The force of the argument that the late raising of the limitation defence had the effect of wasting costs which had been incurred up to that point is deprived of some of its strength by several matters. First, there is the circumstance that, although notice of it was given, at least by the Lederer Estate, as early as 9 February 2006, and although other limitation defences had already been pleaded by the Lederer Estate, the claims against it were not abandoned by the plaintiffs until the commencement of the hearing. Secondly, as Mr Hallen SC submits, regard should be had to the plaintiffs’ prospects of success, absent a limitation defence, on their claims in respect of the unauthorised loans, their denial of the December 2004 agreement, and their claim for exemplary damages. While I am not prepared to conclude that their case on the unauthorised loans was otherwise hopeless, the evidence which I have heard in the substantive proceedings enables me to make a sensible assessment of the plaintiffs’ prospects of success on their denial of the December 1994 agreement (on the validity of which their ultimate success was founded), and I accept that on that issue they had little prospect of success; failure on that issue would have meant failure in respect of the “unauthorised loans”. The claim for exemplary damages for breach of fiduciary duty also faced a serious legal obstacle [see Harris v Digital Pulse Pty Ltd (2006) 56 NSWLR 298]. I accept that these matters significantly diminish, though they do not completely extinguish, the significance of the late amendment to raise the limitation defence.

15 In principle, therefore, the plaintiffs should pay a proportion of those costs incurred by the Fiala Estate costs up to the commencement of the trial that were attributable to the abandoned part of the proceedings, whereas the Estate ought to pay so much of the plaintiffs’ costs as were attributable to those aspects of the proceedings which survived and on which the plaintiffs succeeded.

16 However, making costs orders in respect of specific issues and leaving it to an assessor to determine whether costs relate to that issue is time-consuming and unsatisfactory. What is called for is a broad, holistic assessment of a just apportionment of liability for costs. In this case, the relevant considerations are:

· the plaintiffs’ ultimate success, on a part of its original claim, which was all that was pursued at trial;

· the plaintiffs’ failure on a substantial part of its original claim, which was abandoned at the commencement of the trial, and which always had poor prospects;

· the Estate’s late amendment to raise a limitation defence, which reduced still further the plaintiffs’ prospects on the case which they abandoned;

· the plaintiff’s success on the only parts of the cross-claim that were really litigated.

17 As a broad holistic assessment, I think about three-quarters of the pre-trial phase was occupied with the abandoned claims, and one-quarter with those on which the plaintiffs ultimately succeeded. In that overall assessment, I have taken into account the first cross-claim, and the cross-claims for contribution or indemnity between the Fiala Estate and the Lederer Estate which arose out of the abandoned claims. Accordingly about 75% of the pre-trial costs were attributable to those parts of the case that the plaintiffs ultimately abandoned, and 25% to those parts that they ultimately pressed and on which they succeeded. Prima facie, that would suggest that the plaintiffs should pay 75% of the Fiala Estate’s pre-trial costs, while the Fiala Estate should pay 25% of the plaintiff’s pre-trial costs. However, I would regard about one-third of the costs attributable to the abandoned claims as occasioned by the failure promptly to raise the limitation defence; thus of the 75% attributable to the matters which the plaintiffs abandoned, about one-third – 25% of the whole – should be regarded as having been occasioned by the failure to plead the Limitation Act at an earlier stage. As a result, the Fiala Estate should pay 50% of the plaintiffs’ pre-trial costs, and the plaintiffs should pay 50% of the Fiala Estate’s pre-trial costs.

18 Ordinarily, to avoid having to assess multiple bills, the court would net off those entitlements, and make no order in respect of pre-trial costs. But in this case, whereas the Fiala Estate has been represented by lawyers throughout and will have incurred substantial costs, the plaintiffs have been unrepresented for most of the relevant period, and prima facie would be entitled to recover only disbursements [Cachia v Hanes (1994) 179 CLR 403]. In those circumstances, it would not do justice between the parties to take the broad approach, having found that each should be responsible for 50% of the other’s pre-trial costs, and to set them off one against the other and make no order.

19 Accordingly, I will order that the Fiala Estate pay 50% of the plaintiffs’ pre-trial costs, and that the plaintiffs pay 50% of the Fiala Estate’s pre-trial costs.

Interest on costs

20 The Fiala Estate has sought an order (pursuant to Civil Procedure Act 2005 (NSW), s 101), that interest be paid on any amount payable under any costs order made in favour of the Fiala Estate. Civil Procedure Act, s 101, relevantly provides:

(4) The court may order that interest is to be paid on any amount payable under an order for the payment of costs.
(5) Interest under subsection (4) is to be calculated, at the prescribed rate or at such other rate as the court may order, as from:
(a) the date or dates on which the costs concerned were paid, or
(b) such later date as the court may order.

21 An order under s 101 for interest on costs recognises and compensates the costs creditor for having been out of pocket as a result of having to pay their lawyers’ costs and disbursements, and there is no requirement before such an order is made that the circumstances of the case be out of the ordinary [Grogan v Thiess Contractors Pty Ltd [2000] NSWSC 1101, [10], [12]; Australian Development Corporation Pty Ltdv White Constructions (ACT) Pty Ltd(in liq) [2002] NSWSC 280, [17], [23]-[25]; Puntoriero v Water Administration Ministerial Corporation [2002] NSWSC 217, [10]; Lahoud v Lahoud [2006] NSWSC 126, [82]-[83]]. Not much if any evidence is required in support of such an application: it can be inferred from the nature of commercial litigation that parties are likely to have had to pay some amounts of costs and disbursements as the litigation progresses and in any event an order can be framed in such a way that interest will run only from the date on which there has been a payment [Lahoud v Lahoud, [80]-[81]].

22 While this is much more obviously so in respect of the Fiala Estate, which has been legally represented throughout, than in the case of the plaintiffs, who were self-represented for much of the time, the plaintiffs were represented by lawyers when proceedings were instituted, and it is possible that they have paid costs, or incurred disbursements.

23 Accordingly, the costs orders in both directions should be the subject of an order for interest.

Orders

24 My orders are:

1. Order that the second defendants pay:

(a) 50% of the plaintiffs’ costs of the proceedings (including of the first cross-claim), except insofar as they relate solely to the case against the first defendants or insofar as any other costs order made in these proceedings otherwise provides, up to and including 25 September 2006;

(b) the plaintiffs’ costs of the proceedings (including of the first cross-claim), except insofar as they relate solely to the case against the first defendants or insofar as any other costs order made in these proceedings otherwise provides, from and after 26 September 2006.

2. Order that the plaintiffs pay 50% of the second defendant’s costs of the proceedings (including all cross-claims) up to and including 25 September 2006.

3. Order pursuant to Civil Procedure Act, s 101, that interest be paid on the amounts payable under orders 1 and 2, as follows:

(a) Interest shall be payable on 50% of that proportion, of each amount of costs and disbursements allowed on assessment which was actually paid by the costs creditor, which the total amount of costs and disbursements allowed on assessment to the costs creditor in connection with these proceedings bears to the total amount of costs and disbursements which the costs creditor has paid or is liable to pay as between practitioner and client in connection with these proceedings;

(b) Interest shall be payable at the rates set out in Uniform Civil Procedure Rules 2005 (NSW), Schedule 5, from the date of payment by the costs creditor of each amount of costs and disbursements actually paid by it, until the costs debtor has paid the amount due to the costs creditor under any costs order made in these proceedings, or any further order relating to interest on costs in these proceedings;

(c) For the purpose of this order, the costs creditor is the party having the benefit of any costs order in these proceedings, and the costs debtor is the party liable to pay costs under any costs order in these proceedings;

(d) There be liberty to apply in the event of any difficulty arising in the implementation of this order.

4. Order that the second defendant’s costs on the indemnity basis of the proceedings including all cross-claims, to the extent that they are not recovered from the plaintiffs, be paid or retained out of the Fiala Estate.

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