HM&O Investments Pty Ltd v Ingram

[2012] NSWSC 1225

Supreme Court

New South Wales

Medium Neutral Citation:	HM&O v Ingram [2012] NSWSC 1225
Hearing dates:	26/09/2012
Decision date:	26 September 2012
Jurisdiction:	Equity Division - Commercial List
Before:	McDougall J
Decision:	See at [28].
Catchwords:	[COSTS] - general rule that costs follow event; exceptions to the - costs assessed on the indemnity basis - interest on costs - whether "event" in favour of the plaintiff - whether delinquent conduct to justify the making of an order for costs on the indemnity basis - whether interests of justice demand that interest should run on costs.
Legislation Cited:	Civil Procedure Act 2005 (NSW) Uniform Civil Procedure Rules 2005 (NSW)
Cases Cited:	Ingot Capital Investment v Macquarie Equity Capital Markets (No. 7) [2008] NSWSC 199 Lahoud v Lahoud [2006] NSWSC 126
Category:	Procedural and other rulings
Parties:	HM&O Investments Pty Limited (First Plaintiff) Teach & Play Pty Limited (Second Plaintiff) Bradley Phillip Ingram (First Defendant) Glenda Louise Ingram (Second Defendant)
Representation:	Counsel: D M Loewenstein (Plaintiffs) G Curtin SC (Defendants) Solicitors: Owen Hodge Lawyers (Plaintiffs) TressCox Lawyers (Defendants)
File Number(s):	2009/297464

Judgment

1. HIS HONOUR: I gave judgment in these proceedings on 31 August 2012 [2012] (NSWSC 958). I shall not repeat what I said in those lengthy reasons as to the nature of the proceedings and the issues that were raised and decided.

1. The plaintiffs' claim was for damages of $4.8 million together with stamp duty and acquisition costs (in respect of their purchase of the defendants' business), together with interest. I found that the plaintiffs were entitled to damages of $10,000, including interest, and no more. That finding was based on a discrete and minor part of the plaintiffs' claim.

1. In relation to costs, I expressed the tentative view (at [244]) that the plaintiffs had in substance failed and that the defendants should have their costs.

1. Today, the plaintiffs submit that they should have their costs on the basis that costs should follow the event (see UCPR r 42.1). Alternatively, and bearing in mind the general discretion as to costs provided by s 98 of the Civil Procedure Act 2005 (NSW), the plaintiffs submit that each party should pay their own costs.

1. The defendants seek their costs, and an order that they be assessed on the indemnity basis. Further, the defendants seek interest on costs.

1. The plaintiffs submit that there was an "event" in their favour: namely,

judgment for the sum of $10,000. To my mind, the assessment of the relevant "event", for the purposes of r 42.1, must be undertaken as a matter of substance, not as a matter of form. I do not accept that a judgment for $10,000, inclusive of interest, in full answer to and discharge of a claim for close to ten million dollars (once interest is taken into account) represents any degree of success. On the contrary, I consider that it represents effectively a loss.

1. Thus, looking at the question as one of substance, I do not think that there is a relevant "event" in favour of the plaintiffs.

1. If that assessment were wrong, then nonetheless the general discretion provided by s 98 would entitle the Court to come to the same view, and in the exercise of that discretion I would do so.

1. Thus, subject to a number of individual considerations, I remain of the view that the defendants have in substance succeeded and should have their costs.

1. However, there are particular matters to which Mr Loewenstein of counsel referred. One was the fact that his clients had made an allegation of misleading or deceptive conduct, which allegation had been denied.

1. At the end of the day, there is no doubt that the defendants made, in substance, the fundamental representations, as to compliance with the applicable Australian Standard, alleged by the plaintiffs. In saying that, I disregard the absurd and repetitive complexity with which the representation case was pleaded. It was never an issue (nor could it be) that the representations were made, to the extent that they were contained in the documentary material which on any view was given by or on behalf of the defendants to the plaintiffs.

1. Nor is there any doubt, having regard to the findings of the referee adopted by consent, that as to seven of the 31 items of equipment in question, the representations were misleading or deceptive.

1. Thus, as the proceedings evolved (and they did so with painful slowness), the question was what followed from those, eventually, uncontroversial facts.

1. I came to the view that the plaintiffs had conspicuously failed to prove reliance. That view was based on a number of things. One is that I did not find the relevant witnesses called by the plaintiffs to be impressive. The other was that the plaintiffs had failed to call a witness who in my view was relevant to the question of reliance.

1. Thus, the plaintiffs failed in their fundamental case, and failed to substantiate their claim for return of the purchase price, acquisition costs and interest thereon.

1. Nonetheless, I found that there were costs incurred (or to be incurred) by the plaintiffs, which would not have been incurred had the equipment been compliant in its entirety, as represented, and not non-compliant as to some seven items. That is how I came to the assessment of $10,000 in damages. I repeat that in my view that is, in the context of these proceedings, a nominal award: perhaps, the 21st century equivalent of a farthing.

1. The courts have long cautioned against splitting cases up into discrete issues. Nonetheless, I think, in considering the general discretion as to costs, I should not put out of mind entirely the consideration that there was a discrete hearing, pursuant to the order for reference, on the question of compliance. In that discrete hearing, compliance was in issue as to each and every one of the 31 items of equipment. The plaintiffs succeeded as to seven and failed as to 24. One may say, conversely, that the defendants failed as to seven, and succeeded as to 24.

1. In my view, it is appropriate to recognise that relative degree of success and failure in respect of the costs of the reference. I come to that view because, as I have said, the reference was a discrete event and the costs in respect of it can be isolated, and quantified either through the process of agreement or through the process of assessment.

1. A broad brush way of doing that is to order the defendants to pay one quarter of the plaintiffs' costs of the reference, including of the costs paid or payable to the referee.

1. Returning to the proceedings at large, I remain of the view that, subject to what I have just said, the defendants should have their costs. There is, however, an exception. The defendants qualified someone to give what was represented to be expert evidence as to the value of the business. In my view, that expert evidence was entirely useless, because (as it appeared in the course of cross-examination), the expert in question, Mr Bridger, had not attempted to value the business. What he had sought to do was to replicate the approach to assessment and value undertaken by the plaintiffs. See at [212], [213]. I do not think that it is appropriate to order the plaintiffs to bear any part of the costs incurred in respect of Mr Bridger's evidence.

1. In circumstances where there will be costs payable each way, it is in my view appropriate that the costs should be set off. It is also appropriate, in my view, that the amount payable by the defendants to the plaintiffs pursuant to the judgment to be entered should be set off against costs payable by the plaintiffs to the defendants.

1. I turn to the claim for indemnity costs. Mr Curtin of senior counsel relied on criticisms that I had made of the way in which the plaintiffs presented their case. I do not think that those criticisms, considered individually or jointly, amount to sufficiently delinquent conduct to justify the making of an order for costs on the indemnity basis. Further, I think, there is substance in Mr Loewenstein of counsel's response (for the plaintiffs) that the criticisms that I had made of his client's approach to the case could be applied, in substance, to many details of the defendants' presentation of their case.

1. It is hard to escape the impression that each of the parties decided to serve the other as they themselves had been served. In those circumstances, whilst there is room for criticism of the approach taken by each, I do not think that the criticisms that can be made justify the ordering of costs on the indemnity basis.

1. Finally, there is an application for interest on costs. Mr Loewenstein submitted that such costs should only be ordered in exceptional circumstances. I do not think that this is correct.

1. The question of interest on costs is approached on the basis that costs orders made by the Court should more fully compensate the party in whose favour costs are ordered. That approach was outlined by Campbell J in Lahoud v Lahoud [2006] NSWSC 126, and followed by me in Ingot Capital Investment v Macquarie Equity Capital Markets (No 7) [2008] NSWSC 199.

1. In my view, particularly having regard to the delay between commencement of these proceedings and resolution, and having regard to the fact that the resolution was protracted by events that have been recounted in earlier judgments and need not be recounted now, it is appropriate to order interest on costs.

1. Because I propose to order a set off of costs, justice demands that interest should run on costs (to the extent that they are payable) incurred by each party. If I were not to make the like order in favour of the plaintiffs, to the extent that they should have their costs, then the set off would work a significant injustice.

1. For those reasons, and bearing in mind that I have not yet entered judgment, I make the following orders:

1. Direct entry of judgment for the plaintiffs against the defendants in the sum of $10,000 including interest to today's date.

2. Stay execution of that judgment until assessment of or agreement as to costs payable pursuant to the following orders.

3. Subject to and without prejudice to all costs orders hitherto made:

(a) order the defendants to pay one quarter of the plaintiffs' costs of the reference including of the cost paid or payable to the referee;

(b) otherwise make no order as to the costs of the reference;

(c) order that the plaintiffs otherwise pay the cost of the proceedings excluding the cost of the reference and excluding all costs referable to the expert, Mr Bridger, including fees paid or payable to him;

(d) order that costs be set off;

(e) order that there be set off against costs otherwise payable to the defendants the amount of $10,000 payable by the defendants to the plaintiffs pursuant to the judgment directed to be entered today.

4. In respect of all costs ordered to be paid either pursuant to order 3 or otherwise, order that the party liable to pay those costs pay to the party entitled to receive them interest on those costs (including disbursements):

(a) at the rate from time to time applicable set out in UCPR r 36.7;

(b) on the allowed percentage of each amount of costs and disbursements actually paid by that party; and

(c) from the date of payment by that party of each such amount of costs and disbursements until the costs due under these orders have been paid or otherwise satisfied.

Note.

(d) the allowed percentage is a percentage calculated as 100Y/X.

(e) X is the total amount of costs and disbursements which that party has paid or is liable to pay in connection with these proceedings; and

(f) Y is the total amount of costs and disbursements payable to that party pursuant to the orders of this court as agreed, assessed, or otherwise fixed.

(Counsel addressed.)

5. Order for the avoidance of doubt, that there is also to be set off against costs otherwise payable to the defendants the amount of $40,000.00 paid by the plaintiffs to the defendants pursuant to the court's order of 12 January 2012.

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Decision last updated: 11 October 2012