Khuu and Lee Pty Ltd v Micropos Pty Ltd (No 2) - [2010] SADC 18

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
KHUU AND LEE PTY LTD v MICROPOS PTY LTD AND OTHERS (NO 2)
[2010] SADC 18
Reasons for Ruling of His Honour Judge Robertson
10 February 2010
PROCEDURE - COSTS
Costs – Action for breach of Section 52 of Trade Practices Act 1974 (Cth) and Section 9 of Fair Trading Act 1999 (Vic) arising from the sale of a retail Point of Sale computer system – Alternative claim for breach of conditions of fit for purpose and merchantable quality implied by Goods Act 1958 Part I (Vic) – claims under Trade Practices Act and Fair Trading Act dismissed – damages awarded to Plaintiff for breach of implied conditions – Plaintiff seeks costs of action on party and party basis – Plaintiff seeks part of costs against successful defendant
Held: Plaintiff to receive fifty percent of party and party costs of action
Plaintiff's application for costs against successful defendant dismissed.
District Court Act 1991 (SA) s 42, referred to.
Cretazzo v Lombardi (1975) 13 SASR 4; Inn Leisure Industries Pty Ltd (prov liq apptd) v DF McCloy Pty Ltd (No 2) (1991) 28 FCR 172, applied.
Byrns v Davie [1991] 2 VR 568; Arian v Nguyen [2001] NSWCA 5, considered.

KHUU AND LEE PTY LTD v MICROPOS PTY LTD AND OTHERS (NO 2)
[2010] SADC 18
Introduction

The Plaintiff brought proceedings against Micropos Pty Ltd (“Micropos”), Trong Mac (“Mr Mac”) and Ning Lan Zheng (“Ms Zheng”) seeking damages from Micropos for misleading or deceptive conduct under Section 52 of the Trade Practices Act 1974 (Cth) (“TPA”) and Section 9 of the Fair Trading Act 1999 (Vic) (“FTA Vic”) and damages under Section 9 of the FTA (Vic) against Mr Mac and Ms Zheng. The misleading or deceptive conduct claims were founded on alleged misrepresentations made by Ms Zheng and Mr Mac, as employees of Micropos (“the Misrepresentation Claim”).
As an alternative claim, the Plaintiff sought damages from Micropos, solely, arising from a contract for sale of a POSWorld Point of Sale Retail System, a system which consisted of hardware and software suitable for use in a small to medium retail grocery supermarket. The Plaintiff alleged that conditions of reasonably fit for purpose and merchantable quality implied in the Contract of Sale by the Goods Act 1958 (Vic) Part I had been breached by Micropos. It sought damages arising from the breaches (“the Sale of Goods Claim”).
After a long trial I dismissed the Plaintiff’s Misrepresentation Claim against all three Defendants. In the Sale of Goods Claim I awarded the Plaintiff $47,307.56 damages for the breach by Micropos of the implied conditions of reasonably fit for purpose and merchantable quality.
The matter came on for further hearing before me to determine the outstanding issues of interest, costs and some other ancillary orders.
Submissions by Counsel
Mr Morcombe QC, Counsel for the Plaintiff, sought the costs of the entire action on a party and party basis. He submitted, in the alternative, that if an order was not made in those terms then in addition to a percentage of the costs which may be awarded the Plaintiff should receive costs on a number of discrete issues. For the purpose of these Reasons it is not necessary to identify the discrete issues to which he referred. Mr Morcombe QC also sought an order that Ms Zheng pay a percentage of the costs awarded to the Plaintiff in addition to the liability of Micropos for costs.
Mr Pennell submitted that the Plaintiff was entitled to its costs of the Sale of Goods Claim. He also submitted that the Defendants Mr Mac and Ms Zheng, as successful parties, were entitled to their costs in the Misrepresentation Claim. He submitted that there could be no order for costs against Mr Mac or Ms Zheng in the Sale of Goods Claim as neither of them were parties to that part of the proceedings. Mr Pennell also submitted that Micropos was entitled to its costs on the Misrepresentation Claim. However, he submitted that if orders of the nature described were made it would make for a difficult and costly taxation of costs and that should be avoided. Mr Pennell submitted a practical approach should be adopted. Accordingly, he submitted that there should be no order for costs in favour of Micropos, Mr Mac and Ms Zheng and that the Plaintiff receive fifty percent of its costs of the entire action on a party/party basis.
Legal Principles
The principles regarding the exercise of the discretion to award costs are settled.
The commencing point is Section 42 of the District Court Act 1991. Sub-section (1) provides:
(1) Subject to subsection (2) and the rules, costs in any proceedings in the Civil Division will be in the discretion of the Court and may be awarded against any person (whether a party to or a witness in the proceedings or not).
Whilst Rule 6 DCR 263(1) of the District Court Civil Rules 2006 provides that as a general rule, costs follow the event it is not in dispute that the Court has a general discretion to award costs with the caveat that the discretion must be exercised judicially.[1]
[1] Cretazzo v Lombardi (1975) 13 SASR 4 at 11
The discretion to award costs is a wide one. The relevant principles regarding the exercise of the discretion are helpfully set out by French J in the Federal Court in Inn Leisure Industries Pty Ltd (prov liq apptd) v DF McCloy Pty Ltd (No 2):[2]
As Toohey J said in Hughes v Western Australian Cricket Association (Inc) [1986] ATPR 48,134 at 48,136, the discretion must be exercised judicially. His Honour referred in a summary way to the effect of decisions of Australian and English courts and made the following points:
‘(1)    Ordinarily, costs follow the event and a successful litigant receives his costs in the absence of special circumstances justifying some other order.
(2)     Where a litigant has succeeded only upon a portion of his claim, the circumstances may make it reasonable that he bear the expense of litigating that portion upon which he has failed.
(3)     A successful party who has failed on certain issues may not only be deprived of the costs of those issues but may be ordered as well to pay the other party's costs. In this sense, issue does not mean a precise issue in the technical pleading sense, but any disputed question of fact or law.’
Those principles are subject to the caveat referred to by his Honour and expressed by Jacobs J in Cretazzo v Lombardi (1975) 13 SASR 4 at 12, where it was said that trials occur daily in which a party, who in the end is wholly or substantially successful, nevertheless fails along the way on particular issues of fact or law:
‘The ultimate ends of justice may not be served if a party is dissuaded by the risk of costs from canvassing all issues however doubtful which might be material to the decision of the case. There are of course many factors affecting the exercise of the discretion as to costs in each case including, in particular, the severability of the issues and no two cases are alike. I wish merely to lend no encouragement to any suggestion that a party against whom the judgment goes ought nevertheless to anticipate a favourable exercise of the judicial discretion as to costs in respect of issues upon which he may have succeeded based merely on his success in those particular issues.’
[2] (1991) 28 FCR 172 at 173; see also Cretazzo v Lombardi (supra) at 12
Approach to be Taken
Mr Pennell submitted that whilst some of the evidence was relevant to both the Misrepresentation Claim and the Sale of Goods Claim a fair apportionment of time in the Trial was that fifty percent was taken up by the Misrepresentation Claim and fifty percent was taken up on the Sale of Goods Claim. Accordingly, relying upon the approach taken by Gobbo J in Byrns v Davie[3] Mr Pennell submitted that the Plaintiff should only receive fifty percent of its costs of the entire action. As I mentioned earlier, it was submitted that this was a practical broad axe approach designed to avoid a costly taxation which would likely arise where the parties were awarded costs on that part of the claim upon which they were successful.
[3] [1991] 2 VR 568
In his Reply, Mr Morcombe QC stated that he was attracted to the approach suggested by Mr Pennell but submitted that the Plaintiff should receive a greater proportion of its costs than fifty percent. He did not suggest a specific percentage. Mr Morcombe continued to seek a cost order against Ms Zheng.
I am also attracted to the approach suggested by Mr Pennell. I am mindful of the observations of Bray CJ in Cretazzo (supra):[4]
“Nevertheless, I think it is desirable to avoid complicated and expensive taxations even at the cost of something less than perfect justice ….”
[4] at 14
This was a case where it is appropriate to order that the Plaintiff pay the costs of Micropos, Mr Mac and Ms Zheng on part of the claim. Mr Mac and Ms Zheng were Defendants in the Misrepresentation Claim only. As successful litigants they were each entitled to their costs. Because the litigation was so clearly defined in two parts, namely the Misrepresentation Claim and the Sale of Goods Claim, it is appropriate that an order be made for the Plaintiff to pay the costs of Micropos in the Misrepresentation Claim. There is a considerable intermingling of evidence with respect to both claims. It would make for a difficult and expensive taxation. It is for these reasons that I consider that the proposition put by Mr Pennell is attractive.
It is difficult to be precise regarding the division of time between the two claims. In my view a division of 50/50 is a fair one.
In the written Outline of Submission of the Plaintiff, it is submitted that the evidence concerning the causes of action against Ms Zheng and Mr Mac (including that of quantum) “… took at most 1/10^th of the Trial (an estimate of say, 7 days.)” It is not entirely clear, but if it is suggested that the Misrepresentation Claim took up only 1/10^th of the Trial, then I totally reject it. A substantial portion of the Trial was taken up with the Misrepresentation Claim.
Application for Ms Zheng to Pay Costs
I turn to the question of whether I should order that Ms Zheng should pay a percentage of the Plaintiff’s costs. Mr Morcombe QC relied upon passages from a decision of the Court of Appeal in New South Wales of Arian v Nguyen.[5] That was a case where the Trial Judge awarded a small sum of damages for the Plaintiff’s injuries, which were alleged, during the course of trial, to be extensive. Her Honour, Sidis DCJ ordered that the Plaintiff pay the Defendant’s costs indicating that her findings that the Plaintiff’s “conscious exaggeration” and his “conscious effort to deceive (both the Defendant and the Court) in respect of the claims made” led her to make the exceptional order regarding costs.
[5] [2001] NSWCA 5
The Court of Appeal made the following comments regarding misconduct on the part of a litigant which lengthens proceedings unnecessarily or otherwise causes the costs to increase:[6]
37    The making of an order that a successful party pay his or her opponent's costs requires strong justification and exceptional circumstances must exist before a party will not only be deprived entirely of costs but also required to pay part of the opponent's costs.
Where a party raises issues or makes allegations improperly or unreasonably, this may constitute misconduct such that the court may not only deprive it of its costs but order it to pay the whole or a part of the unsuccessful party's costs.
38    It is rare for a successful party who is guilty of misconduct in the litigation to be ordered to pay the unsuccessful opponent's costs where the misconduct does not lengthen the proceedings unnecessarily, cause unnecessary issues to be canvassed or otherwise cause the costs of the litigation to be increased. Indeed, the court's entitlement to depart from the usual order that costs follow the event has sometimes been said, in effect, to be subject to the qualification that the misconduct in question occasioned unnecessary litigation and expense. In other cases, however, this qualification has not been mentioned. On balance, it seems to me that while delay and increased expense brought about by improper conduct in the course of the litigation are highly relevant factors in the discretion to depart from the usual order as to costs, they are not essential to the exercise of that discretion. It would, in any event, be very unusual for misconduct of that kind not to cause unnecessary delay and expense.
39    In the present case, the learned trial judge did not expressly find that the appellant's conscious exaggeration and efforts to deceive caused increase expense and delay, but such consequences were the inevitable result of the appellant's improper conduct. In any event, as I have pointed out, having found that the appellant was guilty of serious dishonesty in the conduct of the trial, the order made was within her Honour's discretion.
(citations omitted)
[6]    at paras 37-39
In my view, the passage in Arian to which I have referred does not express any novel principles regarding the awarding of costs. It is simply an illustration of the exercise of the wide discretion which a court has in awarding costs in proceedings. In the circumstances described in the passage, the Court of Appeal affirmed that a Court, acting judicially, may penalize a successful party in the awarding of costs.
It was submitted that there was misconduct on the Defendants part in the conduct of the case (especially Ms Zheng) in that evidence was fabricated regarding the Maxtor copying process and the existence of the 31 May version of the executable file for the purpose of challenging the reliability of the date and contents of the 30 June version of the executable file. It was submitted that it was in the Defendants’ power to admit that Micropos supplied the 30 June version. Mr Morcombe submitted that the time of the trial was prolonged because of the evidence relating to these two issues. Accordingly, an order was sought against Ms Zheng that she pay a percentage of the Plaintiff’s costs. The percentage sought was not identified.
With regard to the Maxtor copy of the executable file issue there was much confusion during the course of the Trial. Initially Micropos did not accept that the 30 June version was one produced by Micropos. I accepted Ms Zheng’s evidence that she could not understand how the Micropos System could have so many errors (as outlined by Mr Heyworth) and she was seeking an explanation for it. Micropos, later in the Trial, accepted that the 30 June version was a Micropos version but was at a loss to explain some of the errors described by Mr Heyworth, such as those described in Paragraphs 217 and 220 of his Report. She speculated that it could possibly be the Maxtor copy. Mr Heyworth said that the Maxtor copy replicated the 30 June executable file but there were some instances that the executable file P26, during demonstration, did not produce the precise error described by Mr Heyworth in his Report. The executable file in P26 was a Maxtor copy. I thought Ms Zheng was clutching at straws in directing attention to the Maxtor copying but I do not see this issue of such a nature that it could be described as misconduct which extended the length of the Trial. There was no suggestion that her evidence regarding the Maxtor copy was fabricated.
I found that the date of 31 May of the version of the executable file produced by Micropos during the course of the Trial was not valid. I found that the so-called 31 May version was produced after the 30 June 2004 version. The 31 May version was used by Micropos in the Trial to challenge the accuracy of the date of the 30 June version of the executable file located by Mr Heyworth on the System and to challenge some of the functions of the 30 June version recorded by Mr Heyworth in his Report. It is clear that the evidence of Ms Zheng regarding the authenticity of the date of the 31 May version and its contents prolonged the Trial. I did not accept her evidence regarding the 31 May version. The evidence regarding this version can be described as misconduct which prolonged the Trial.
Whilst I have reached this conclusion there are a number of difficulties which stand in the way of the submission on behalf of the Plaintiff that Ms Zheng should be ordered to pay a percentage of the Plaintiff’s costs.
The submission seemed to be founded, in part, on the proposition that Micropos did not have the assets to meet a costs order. That was the state of the submission contained in the Plaintiff’s written Outline of Submissions handed up to me during Mr Morcombe QC’s address. There was insufficient evidence to support such a submission. Mr Morcombe in the course of his oral submissions, amended the submission to “may” not have any assets to meet the costs. It seems to me that even after that amendment the state of the evidence produced by the Plaintiff does not support that submission.
In any event, in my opinion, the state of the financial position of Micropos is not a relevant factor in the exercise of the discretion regarding the application of the Plaintiff seeking an order for costs against Ms Zheng.
In my opinion, the position of Mr Morcombe QC of having embraced the suggestion by Mr Pennell, that Micropos be ordered to pay one half of the Plaintiff’s costs of action, whilst still maintaining the application for costs against Ms Zheng, is difficult to justify.
The submission by Mr Pennell that the appropriate order be that Micropos pay fifty percent of the Plaintiff’s costs of the entire action carries with it the proposition that there be no order for costs of Ms Zheng and Mr Mac, the successful litigants in the Misrepresentation Claim, and the costs of Micropos who succeeded on the Misrepresentation Claim issue. The effect of the Plaintiff’s position, if such an order is made, is that it obtains benefit of not having to pay Ms Zheng’s costs (and Mr Mac’s costs) but it seeks benefit of the order against Ms Zheng to pay costs. I understood that the submission by Mr Pennell that Micropos pay fifty percent of the Plaintiff’s costs of action was to cover the entire costs issue. In other words, all entitlements to costs would be subsumed in that order.
Whilst much of Ms Zheng’s (and Mr Mac’s) costs in the Misrepresentation Claim would be the same as the costs of Micropos, it seems to me that there would be some costs which were particular to Ms Zheng (and Mr Mac).
In my view the outcome I have described militates against making the order sought by the Plaintiff.
However, there are additional reasons why my discretion should not be exercised to make such an order.
In my Reasons for Judgment I was highly critical of the evidence of Mr Khuu and the evidence of Ms Zheng. I thought both were untruthful at times. I felt that some of Mr Khuu’s evidence was exaggerated. For example, some considerable time was taken up regarding the reason why the four POS Terminals destined for the Central Market store were not installed. I found that Mr Khuu had not been truthful in his evidence regarding the reason for the four POS Terminals remaining at the Warehouse. Another example is that I thought Mr Khuu exaggerated when giving evidence of the frequency run time errors.
With regard to the Plaintiff’s claim for damages I thought Mr Khuu exaggerated the Plaintiff’s alleged loss at times. Furthermore in some of the heads of damage, there was insufficient evidence produced to prove the loss. This must have been apparent before the claim was presented during the hearing but the Plaintiff persisted with the claim.

All of these factors I have mentioned caused the Trial to be prolonged. It could be open to the Defendant to seek an order for costs against Mr Khuu. He was the alter ego of the Plaintiff. This situation is the type which Bray CJ in Cretazzo (supra)[7] said a Court should try and avoid. It seems to me that once particular issues or subjects are selected for special attention in considering the award of costs the position becomes complicated leading to extra costs being involved in the taxation.
[7] at 14
Another factor standing in the way of the Plaintiff’s application is that Ms Zheng was not a party in the Plaintiff’s Sale of Goods Claim. The Plaintiff’s application is founded upon Ms Zheng being a party. Ms Zheng was a party in the proceedings because of the Plaintiff’s Misrepresentation Claim. The evidence regarding the 31 May version was relevant to the issue of whether the 30 June 2004 was the last version of the executable file and source of the contents of the executable file. This was an important issue because Mr Heyworth’s Report was based upon the 30 June executable file. The Report was the foundation relied upon by the Plaintiff in its Sale of Goods Claim. The 31 May version had relevance in the Misrepresentation Claim in that it was relevant to the credit of Ms Zheng and to the submission regarding the incremental development of the executable files. I rejected the Plaintiff’s contention on the latter point. I rejected Mr Khuu’s evidence regarding the misrepresentation allegations. I accepted the evidence of Ms Zheng regarding the misrepresentation allegations.
As Ms Zheng was not a party to the Sale of Goods Claim, then the Plaintiff’s application falls at the threshold. In the decision of Arian the Court was considering the issue of costs between the parties to the proceedings. That made the exercise simpler. That is not the case here.
I am aware that Section 42 of the District Court Act provides that a witness can be ordered to pay costs. That was not the basis upon which the application was made. No submissions were put forward in support of an order against Ms Zheng as a witness. It is not necessarily the case that factors relevant to considering costs against a witness would be similar to factors relevant to costs against a party. In any event, for the reasons I referred to above, it would not be an appropriate exercise of the discretion to order that Ms Zheng pay costs in her capacity as a witness.
The application of the Plaintiff for Ms Zheng to pay a percentage of the Plaintiff’s costs is refused.
I order that the Defendant Micropos Pty Ltd pay fifty percent of the Plaintiff’s party and party costs.
There will be no order for costs in favour of the Defendants Micropos Pty Ltd, Trong Mac and Ning Lan Zheng.
With regard to the Plaintiff’s claim for interest of $16,833.07 the Defendant Micropos Pty Ltd does not challenge it. Accordingly, there will be an order that the Defendant Micropos Pty Ltd pay to the Plaintiff the sum of $16,833.07 by way of interest.
The total judgment in favour of the Plaintiff against the Defendant Micropos Pty Ltd is therefore for the sum of $64,140.63 inclusive of interest.
There will be an order for the return by the Plaintiff to the Defendant Micropos Pty Ltd of the various items of hardware and software identified in the Minutes of Order handed to me and they will be returned in accordance with the terms of the Minutes of Order which I propose to initial