Lovick & Son Developments Pty Ltd v Doppstadt Australia Pty Ltd (No 3)
[2013] NSWSC 135
•27 February 2013
Supreme Court
New South Wales
- Amendment notes
Medium Neutral Citation: Lovick & Son Developments Pty Ltd & Anor v Doppstadt Australia Pty Ltd & Anor (No 3) [2013] NSWSC 135 Hearing dates: 18 February 2013 Decision date: 27 February 2013 Jurisdiction: Equity Division Before: Slattery J Decision: Interest payable on judgment sum of $254,468.80 from 1 March 2005 up to the date of judgment. Defendants to pay 40% of plaintiffs' costs.
Catchwords: PROCEDURE: interest - whether plaintiffs' procedural delay warrants a reduction in the rate of interest under Civil Procedure Act 2005 or the time from which interest is to be calculated - costs - whether costs should follow the event or whether some other costs order should be made. Legislation Cited: Civil Procedure Act 2005; Uniform Civil Procedure Rules 2005; Cases Cited: Lovick & Son Development Pty Ltd & Anor v Doppstadt Australia Pty Ltd & Anor [2012] NSWSC 529; Lovick & Son Development Pty Ltd & Anor v Doppstadt Australia Pty Ltd & Anor (No 2) [2012] NSWSC 1579; Sherborne Estate No 2 [2005] NSWSC 1003; Rae v Beddison Corporation Pty Limited (No. 2) [2009] NSWSC 178, Cullen v Trappell (1980) 146 CLR 1; Daniels v Anderson (1995) 37 NSWLR 438; Bennett v Jones (1977) 2 NSWLR 355; MBP (SA) Pty Limited v Gogic (1991) 171 CLR 657; Grincelis v House (2000) 201 CLR 321; Clark v Foodland Stores Pty Ltd [993] VR 382; ICT Pty Ltd v Sea Containers Limited [2006] NSWSC 1280; Kalls Enterprises Pty Limited (in liquidation) and Ors v Baloglow & Anor (No 3) [2007] NSWCA 298; Beoco Kidd v Alfa Laval Co Ltd [1995] QB 137; James v Surf Road Nominees Pty Limited (No 2) [2005] NSWCA 296; Sydney Ferries v Morton (No 2) [2010] NSWCA 238; Lahoud v Lahoudd [2006] NSWSC 126; Drummond & Rosen Pty Ltd v Easy (No 2) [2009] NSWCA 331 Category: Costs Parties: First Plaintiff: Lovick & Son Developments Pty Ltd
Second Plaintiff: Engineering Pty Ltd
First Defendant: Doppstadt Australia Pty Ltd
Second Defendant: Raymond James DavisRepresentation: Counsel:
Solicitors:
Plaintiffs:- T.J. Tancred, Whiteley, Ironside & Shillington
Defendants:- M. Flaherty, Michael Flaherty Solicitor
File Number(s): 2006/255184 Publication restriction: No
Judgment
This is my third judgment in these proceedings. The Court's principal judgment decided liability issues: Lovick & Son Development Pty Ltd & Anor v Doppstadt Australia Pty Ltd & Anor [2012] NSWSC 529. The Court's second judgment dealt with issues of damages: Lovick & Son Development Pty Ltd & Anor v Doppstadt Australia Pty Ltd & Anor (No 2) [2012] NSWSC 1579. This third judgment deals with issues of costs, interest and the calculation of the precise judgment sum to be entered. Events, persons and things are referred to in this judgment in the same way as they are in both the principal judgment and in the damages judgment. The Court's findings in those judgments are not repeated in this judgment.
Initially, the parties sought the Court's determination of five issues: (1) the effect of income taxation on the judgment sum; (2) the time from which interest on the judgment sum should be calculated; (3) the appropriate costs orders; (4) dissolution of the existing orders for security for costs; and, (5) a stay upon the Court's orders. In the course of oral submissions at the hearing on Monday 18 February 2013 a consensus developed between the parties about the way the Court should deal with issues (4) and (5). This consensus is recorded first, before the Court's analysis of issues (1), (2) and (3).
The plaintiffs provided security for costs on 1 December 2006. They now ask for that security to be released. The defendants submit that the Court should not yet consider revoking the existing order for security for costs, until the Court's final costs orders are known. This judgment makes final costs orders in the plaintiffs' favour. A costs order has not been made in favour of the defendants. There is no basis, therefore, to continue the existing security for costs order, and it will be dissolved. But the defendants submitted that the present position with the security paid on account of costs should be preserved for a further period of 28 days. The plaintiffs did not oppose this. Should the defendants appeal, this 28 day period will give them a sufficient opportunity to seek further general stay orders, including a stay upon the order I now propose to make an order dissolving the 1 December 2006 security for costs orders.
The defendants also sought a 28 day stay on the enforcement of any money judgment entered as a result of these reasons. The plaintiffs accepted that any money judgment in their favour should not be enforced for 28 days. This period will provide sufficient time for the defendants, if they wish, to appeal and then seek a stay in the Court of Appeal on the judgment, and the orders made with these reasons. The appropriate way to achieve this is by deferring the entry of judgment. That is the order made at the conclusion of these reasons.
These reasons now deal with the remaining three issues: the effect of taxation on the judgment sum, the time from which, and rate at which, interest should run on the judgment sum, and the appropriate costs order.
(1) The effect of taxation on the judgment sum
The defendants submit that the Court's final award of $254,468.80 made in the damages judgment (at [40]) should be discounted on account of the incidence of income tax. The defendants point out that Engineering's statement of financial performance for the year ending 30 June 2004 is a basis to infer that Engineering was paying income tax on its operating revenue in that financial year. The defendants submit therefore that in 2004-2005 Engineering would have had to pay income tax at the time at the applicable company rate of taxation of 30%, on the awarded $254,468.80. The defendants submit in consequence that Engineering has really only been deprived of $178,128.00 (being 70% of the damages awarded of $254,468.80).
But the plaintiffs' answer to this submission is persuasive. I accept the plaintiffs' contention that a successful plaintiff is ordinarily entitled to an award of damages without deduction for taxation, unless the judgment is itself established to be not taxable in the plaintiff's hands: see Sheller and Clarke JJA's discussion of the effect of Cullen v Trappell (1980) 146 CLR 1 in Daniels v Anderson (1995) 37 NSWLR 438 at 586B. The situation is otherwise if the earnings or profits lost would have been taxable, if the plaintiff had received them, but the damages awarded are not taxable, such as in an award for loss of earning capacity in an action for personal injuries, the situation in Cullen v Trappell itself. But that is not this case.
Ordinarily the Court must be satisfied about two matters before discounting an award of damages for lost income on account of taxation: (1) that the damages award itself must not be taxable; and (2) that the tax that would have been payable on the lost income can be determined with certainty.
Here there is no basis on the evidence for the Court to conclude that the award of $254,468.80 in the Court's damages judgment will not be taxable in the plaintiffs' hands. The $254,468.80 award is calculated on account of lost income. It can be assumed to attract a liability for income tax, unless the defendants demonstrate otherwise. The defendants have not established that this judgment sum will not be taxable in the plaintiffs' hands, either by expert evidence or reference to income tax law and practice. It is therefore unnecessary for the Court to consider the secondary question, of whether the defendants have established the applicable tax rate. Therefore the principal judgment sum of $254,468.80 will not be discounted on account of the incidence of taxation. Interest up to judgment will be calculated on that full amount, not on a reduced amount.
(2) The time from which and rate at which interest should run
The parties were at issue about two matters in relation to the calculation of interest on the judgment sum of $254,468.80. These two matters arise out of the defendants' submission that there has been delay in the plaintiffs bringing the action to trial; delay which should result in a reduction in the interest up to judgment. The first matter is a question of law: whether Courts may reduce the rate of interest awarded or the time over which interest is calculated under Civil Procedure Act 2005 s 100 on account of a plaintiff's delay. The second is a matter of discretion: if a Court has the power to adjust the interest awarded on account of a plaintiff's delay, whether in the circumstances of this case such an adjustment should be made. In the result, in this section the Court concludes that it does have the power to make such an adjustment but that one should not be made.
The principles governing the effect of a plaintiff's procedural delays in litigation on the Court's exercise of its discretion to award Civil Procedure Act s 100 interest are well established. An award of interest should not be refused merely for the purpose of penalising delay: Bennett v Jones [1977] 2 NSWLR 355. The purpose of the provision is to compensate the plaintiff for being out of its money: MBP (SA) Pty Limited v Gogic (1991) 171 CLR 657 at 5663, and Grincelis v House (2000) 201 CLR 321 at [16]. Mere delay in bringing or prosecuting proceedings will not usually provide a compelling basis for refusing an award of interest, because the plaintiff has still been out of the plaintiff's money; but protracted and unreasonable delay, especially where significant differences exist between Court interest rates and prevailing commercial rates of interest, may justify a discretionary reduction either in the rate of interest or in the period over which interest is awarded: Clark v Foodland Stores Pty Ltd [1993] VR 382 at 389, 394, 396, 398 and ICT Pty Ltd v Sea Containers Limited [2006] NSWSC 1280 at [14]-[19]. But the question is one of injustice to the defendant. Unreasonable delay, and amounts of interest at a high rate (in excess of commercial rates) "may mean that the defendant is unjustly left as the source of the plaintiff's investment income". Kalls Enterprises Pty Limited (in liquidation) and Ors v Baloglow & Anor (No 3) [2007] NSWCA 298. Thus, in some limited circumstances an adjustment to the rate of interest or to the period over which the interest accrues is permissible.
The second question is whether any such interest adjustments are warranted in the circumstances of this case. The defendants say that the plaintiffs have unreasonably delayed the bringing on of their claim. The plaintiffs conceded some delay, but dispute that their delay warrants any adjustment to the interest to which they are entitled. There is much to be said for the defendant's criticism of the time that the plaintiffs have taken to get this case to trial. But it is not easy for the defendants to establish that such delay was unreasonable such that it warrants any adjustment to a compensatory award of interest to the plaintiffs. A short outline of the procedural delay on which the defendants rely, gives background to this interest dispute. Aspects of the information exchanged during this period of delay are also relevant to the later issue of the appropriate costs order.
The Plaintiffs' delay. The plaintiffs are undoubtedly responsible for substantial delays in commencing and prosecuting these proceedings. The misrepresentations the plaintiffs relied upon in this case took place in the period November 2003 - January 2004. The damages the plaintiffs ultimately established, relate to a loss of income in the period February 2004 to February 2005. The plaintiffs commenced proceedings in 2006. The proceedings did not come on for final hearing until December 2010. The hearing concluded in June 2011 after written submissions and a session of oral submissions. The principal delay for which the defendants allege the plaintiffs are responsible took place in the period 2006 - 2010. During that period of over four years there was considerable change to the plaintiffs' case, which will be considered more closely in relation to issues of costs.
In their original statement of claim the plaintiffs claimed in contract against the defendants under alleged express warranties, Sale of Goods Act warranties and collateral warranties. A component of these claims comprised a contention that the defendants had warranted that the Doppstadt AK430K could process at least 200 cubic metres per hour of green waste. But the whole of the plaintiffs' contract case was abandoned at the beginning of the final hearing. The plaintiffs then only continued to rely upon the defendants' alleged misleading and deceptive conduct. In the principal judgment the Court found that the defendant did not make the representation alleged that the AK430K could produce an output of at least 200 cubic metres per hour of green waste: principal judgment at [145]. So a contract case based upon the output representation would have failed in any event. Some of the defendants' procedural engagement with the plaintiffs' case in the period 2006 and 2010 related to dealing with the plaintiffs' contract case.
Not until 23 November 2010 did the plaintiffs first notify the defendants of the outline of the damages claim on which the plaintiffs ultimately succeeded. The plaintiffs' final damages contention was that the defendants' misleading conduct caused the plaintiffs to purchase the Doppstadt AK430K, rather than the Peterson machine; and, that the plaintiffs' loss is the difference between the profit that Engineering would have made using the Peterson machine compared to the profit that was actually made using the Doppstadt AK430K between February 2004 and February 2005. There was a contest in November 2010, just before the hearing began, about whether the plaintiffs should be allowed to advance this amended claim for damages. The Court permitted the claim to proceed, in a judgment given on 26 November 2010, but only on terms and with liberty granted to the defendants to file further material.
The defendants also point out that particulars of how this new loss of profits claim was being put, and the material in support of this claim was only provided on the weekend before the trial, and that not all the materials were fully supplied until during the second week of the trial.
The delay in the plaintiffs ultimately formulating and supporting the case on which they succeeded meant that the defendants were required to respond shortly before and during the trial to material provided between 25 November 2010 and 10 December 2010 to meet the plaintiffs' amended case.
This history founds the defendants' contention: having regard to the delay and the overall conduct of the plaintiffs' case and the plaintiffs' last minute amendments, pre-judgment interest ought be calculated only from Friday 10 December 2010, being the Friday of the second trial week, when the plaintiffs finally formulated their claim and finally served all the material upon which they relied.
Exercising the discretion. The plaintiffs' incapacity to formulate the case on which it ultimately succeeded until a short time before trial, and its abandonment of many causes of action, was unsatisfactory. Indeed, it was so unsatisfactory it leads to a reduction in the costs to be awarded to the plaintiffs. But substantial though that delay was, it is an insufficient basis on its own for the Court to make adjustments to either the rate of interest up to judgment or to the date from which such interest is to be calculated. The defendants have not established a principled basis for making such adjustments. They have not, for example, demonstrated by reference to financial evidence, comparing commercial interest rates with Civil Procedure Act s 100 interest rates, that there is any long term disadvantage to the defendants from interest being awarded to the plaintiffs during this period under Civil Procedure Act s 100, contrasted with available commercial rates.
Moreover, the defendants have not established that the plaintiffs' delay in advancing the claim they ultimately made was unreasonable. The claim the plaintiffs ultimately put was one supported by detailed lay and expert evidence. Most of the evidence so prepared was admitted into evidence and the plaintiffs relied upon it at trial. The defendants put on detailed responses to this evidence. I have little doubt that a very significant time was required to prepare all the lay and technical evidence in support of the plaintiffs' case as it was presented. Moreover the plaintiffs faced the challenge of proving causation of their claimed loss and of proving the misleading nature of a large number of representations.
It is important to distinguish between the reasonableness or unreasonableness of the time involved in preparing the case that the plaintiffs did present, from the reasonableness or unreasonableness of the plaintiffs pleading then abandoning parts of their case, which was costly to the defendants. As to the latter, the plaintiffs' conduct was unreasonable and will result in a reduction in the costs orders in their favour. As to the former, once the plaintiffs' costs are reduced, I am not prepared to conclude that there was excessive unreasonable delay in bringing on for trial the plaintiffs' case as amended. This is principally because the evidence presented in support of this amended case would in any event have taken some years to prepare, plead and then present at trial.
But the precise amount of interest has not yet been calculated. The plaintiffs have proffered a general calculation of interest for a period of 8.54 years from 1 August 2004 to 18 February 2013 at 9.06% (said to be the average rate of interest over that period), leading to a resultant total interest calculation of $196,888. But the interest calculation should be undertaken more precisely than this. When undertaken the calculation should commence on 1 March 2005, not 1 August 2004 as the plaintiffs submit. It is not easy to determine with any precision when between February 2004 and February 2005 the plaintiffs' loss actually occurred. Using a mid-point date such as August 2004 wrongly assumes the loss was evenly distributed throughout the period. The better course in my view, in these circumstances, is for interest to run from the end of the period. The date will be 1 March 2005.
At the conclusion of these reasons the Court directs the parties to provide a calculation of interest, in accordance with these reasons, using the prescribed rate from time to time under Civil Procedure Act s 100, from 1 March 2005 up to the date of this judgment.
Many of the defendants' submissions on the question of delay are more effectively deployed as contentions in relation to costs rather than in relation to interest, as the next section of these reasons shows.
(3) The appropriate costs order
The plaintiffs sought an order for costs on the ordinary basis. The defendants contest this claim. The defendants really advance arguments in five areas: (1) that the position of Developments and Engineering should be distinguished, and an order for costs made against the unsuccessful Developments; (2) that the plaintiffs' procedural conduct of and lack of success on much of their claim warrants an order for costs in the defendants' favour; (3) that the amount upon which the plaintiffs were successful warrants an order for costs in the defendants' favour under Uniform Civil Procedure Rules 1995 ("UCPR") r 42.34; (4) that the plaintiffs' costs should be capped under Civil Procedure Act s 98(4)(d); and (5) that the plaintiffs should not have interest on their legal costs. The defendants are successful on a number of these contentions. But, for the reasons which follow, a limited order for costs will still be made in the plaintiffs' favour.
(1) Developments v Engineering. The defendants point out that Developments claimed the difference between the purchase price and the salvage value of the Doppstadt AK430K. They argued: that this case that Developments put has now failed; that Developments never advanced sufficient evidence to support such a case; and therefore, that Developments should pay the defendants' costs of its claim, even if Engineering has a costs order made in its favour. But these contentions encounter a number of obstacles.
First, the defendants' submission on this issue is overly simplistic. The defendants submit that because Developments did not establish on the evidence the difference between the purchase price and the salvage value of the Doppstadt AK430K, there must be a judgment for the defendants against Developments. It is true that the plaintiffs established neither the difference between the purchase price of the Doppstadt AK430K and its actual value at the time of purchase, nor its salvage value. That does not mean there must be a verdict for the defendants against Developments. Mr Lovick controlled both companies, Engineering and Developments. The defendants' misleading conduct caused him to have Developments effect the purchase of the Doppstadt AK430K instead of the Peterson machine and to lease the Doppstadt AK430K to Engineering rather than the Peterson. Whilst it is true that Engineering suffered the loss of income rather than Developments, the Court's findings are sufficient for the Court to infer that Developments was leasing to Engineering an asset of less income-earning potential with the AK430K than it would have with the Peterson, which was eventually acquired in February 2005. I am prepared to infer that this difference in income earning capacity as demonstrated by Engineering's loss is sufficient to infer that Developments suffered a nominal loss such that the defendants should not have a judgment against it.
Secondly, the defendants' present submission runs counter to the way the case was conducted. As the damages judgment explained, at [14]-[16], on Mr Lovick's side Developments and Engineering were treated, as between them as accounting for the whole beneficial ownership of and rights to income from the AK430K. The defendants did not conduct the case or cross-examine in a way that distinguished the two entities. In particular the defendants did not put a case to suggest that the simple three-step relationship between Developments and Engineering with respect to the two machines would have been different on any scenario: namely (1) Developments acquires the machine, (2) Developments leases the machine to Engineering, and (3) Engineering contracts the machine to third parties. It was not suggested in the defendants' case, for example, that Engineering would not have taken the Peterson on lease from Developments on the same terms as the AK430K. Had such a thing been put, it would presumably have been open to the plaintiffs to contend that Developments might have earned income from the Peterson without leasing it to Engineering. But no attempt was made to separate the two entities in this way, or in any other way, in the contest between the parties.
Thirdly, even if the defendants were to have judgment against Developments, the costs result would not differ. In the way the case was run on both sides it is impossible to separate out costs incurred in relation to Developments' claim rather than Engineering's claim. Nor can the abandoned causes of action, nor the failed causes of action be readily apportioned to Developments or Engineering. For the purposes of assessing appropriate costs order the two plaintiffs would have to be treated as one unit in practical terms.
(2) Plaintiffs' conduct of the proceedings. The parties strongly contested the consequences that should follow from the plaintiffs delay in conducting these proceedings. Some of that delay has been outlined in relation to the issue of interests above.
The overall procedural course of the proceedings has been described in relation to interest costs. But both parties referred the Court to extensive additional materials on the issue of costs. It has only been necessary to refer in these reasons to some of this material, for the purpose of deciding issues of costs.
The plaintiffs sought orders for costs in their favour, on the basis that costs should follow the event. The defendants contended that the plaintiffs should pay the defendants' costs of the proceedings up to 10 December 2010, by which time all the additional material relating to the plaintiffs' amended case had been served on the defendants. The defendants contended that the plaintiffs abandonment of much of its damages case by the end of the trial justified a costs order in their favour before this date on Beoco Kidd v Alfa Laval Co Ltd [1995] QB 137 at 154 principles. Neither argument is wholly persuasive. And for the following reasons, the Court concludes that the defendants should pay 40% of the plaintiffs' costs of the proceedings.
The defendants submit that the plaintiffs have succeeded on only a fraction of the amount originally claimed, and that the resulting judgment is well within District Court jurisdiction. The factual basis for the defendants' contention is correct. In their early claim the plaintiffs claimed $1.8 million on a July 2006 calculation of loss, for (i) costs in attempting the repair the AK430K, (ii) downtime costs, and (iii) for lost or reduced profits from missing out on or inefficiently performing land clearing and green waste contracts with the AK430K. The plaintiffs served their amended damages case in damages schedules on 30 November 2010 and 1 December 2010 claiming: $877.938 on the basis of an alleged promise that the AK4304 would have minimum capacity output of 120 m3 per house; and $374,078 for the profit differential between a Peterson and an AK430K purchase for the period February 2004 to February 2005 (the case on which the plaintiffs succeeded); and some other additional incidental expenses in the sum of $448,761.21.
The plaintiffs made further amendments to their damages claim on 7 December 2010: the output represented in claimed loss was amended up to $932,674; the Peterson-related loss to $477,129; and the additional expenses loss was abandoned. Then with final written submissions the plaintiffs claimed that the evidence supported a Peterson-related claim to damages of $563,765.
On any measure the plaintiffs have fallen far short of the amount they originally claimed: Before calculation of interest their damages award of $254,468.80 is only approximately 14% of their originally claimed $1.8 million. Leaving aside the various changes made to the plaintiffs' case and their several abandoned causes of action, the defendants have been remarkably successful in defeating most of a very substantial claim for damages against them. This factor itself indicates that a reduction in the plaintiffs' costs may be warranted.
That marked differential between claim and result is an indicator of wasted costs. A significant part of the plaintiffs' damages evidence (supporting a loss in general contracting income and repair costs) was abandoned, after the defendants had already expended financial resources on meeting it. The defendants rightly complain that they have wasted resources on this abandoned damages case: in October 2010 Engineering issued subpoenas and Notices to Produce to the Defendants for material to support the plaintiffs' then damages claim; the defendants had to read and respond to the plaintiffs' original damages evidence from Mr Lovick (affidavit of 8 September 2009) and Mr Brander (affidavit sworn October 2010); the defendants incurred the costs of expert accounting reports from Mr Gritte (dated 23 February 2010 and 22 November 2010) to respond to the plaintiffs' damages case; and the plaintiffs served folders of documentary material relevant to their ultimately abandoned damages case, as late as November 2010. All of this put the defendants to substantial wasted expense, when the plaintiffs' original damages claims were abandoned. Not all the energy and resources committed to this material was wasted: Engineer's actual trading figures and supporting documents for FY4 and FY03 were still relevant. But much of it was wasted: there was no use any longer for analysis of repair costs or comparable green waste contracting figures. After this wasted expenditure the defendants were then required to rapidly adjust to the plaintiffs' amended case, the compression of which, in preparation has its own tendency to markedly increase costs to a quickly responsive defendant.
The defendants rightly complain that some adjustment should be made for the cost effects of these changes to the plaintiffs' damages case. The plaintiffs' abandonment of several causes of action can be put to one side for a moment. Its effect should be separately assessed. But the plaintiffs' changed damages case warrants either some costs order in favour of the defendants or a diminution in the costs awarded to the plaintiffs.
But how is this adjustment best achieved? When the damages case was changed the Court reserved (on 8 December 2010) for later consideration the question of the costs thrown away by reason of the amendments to the plaintiffs' damages case. These costs would include all the argument time on the amendments. In these circumstances, where the effect on the defendants is so great, this is a difficult and costly exercise in itself. It will only delay further costs assessment. A more cost efficient measure of the impact on the defendants is required. But the defendants should have the costs thrown away by the amendments and the Court's orders will take that into account.
The defendants' answer to this conundrum is to suggest that the plaintiffs pay their costs up to 1 December 2010. But that defendants' suggestion has its own problems. Principally it does not take sufficient account of what happened to the plaintiffs' liability case. The plaintiffs abandoned its causes of action, under the Sales of Goods Act and for breach of collateral warranty. The plaintiffs were successful in establishing that the defendants engaged in misleading conduct about the capability and performance of the AK430K, but unsuccessful in establishing misleading conduct in relation to the machine's output. The defendants say that this outcome should be reflected in a costs order that the defendants only be required to pay 50% of the plaintiffs' costs in relation to liability after 1 December 2010.
But it is very difficult to quarantine damages evidence from liability evidence for this kind of order to be workable. Moreover, the abandonment of liability aspects of these various causes of action and the loss of some of the misrepresentation claims wasted comparatively little of the defendants' legal resources. The contract claims and the lost misrepresentation claims were embedded in the plaintiffs' evidentiary narrative to which the defendants responded with their own competing narrative. Even if the contract case had never been pleaded the plaintiffs' liability evidence would still very much have presented as it did. Nor would omission of the pleaded representations, which the plaintiffs failed to establish were misleading, have much reduced the volume and burden of liability evidence.
This disparity between the effects of wasted damages evidence and wasted liability evidence means that it is not suitable to apply, as the defendant urges, that the Court should, the costs approach demonstrated in cases such as Beoco Ltd v Alfa Laval Co Ltd ("Beoco") [1995] QB 137. In Beoco, a case with technical issues such as this one, the plaintiff only succeeded on an amendment made at the commencement of the trial; and, the Court of Appeal awarded the defendant the costs of the action up to the date of the amendment, with the plaintiff to have its costs thereafter. Despite Beoco having some analogies with this case, the Beoco approach would unfairly penalize the plaintiffs, Developments and Engineering, by depriving them of the costs of preparing and presenting prior to trial a liability case on most of which they succeeded. The approach would also be unfair to the defendants who were continuing to extricate themselves from the plaintiffs' abandoned damages case even after 1 December 2010.
The solution here is to apportion costs. This works efficiently on later costs assessment. The result is necessarily broad brush, but the aim is to overcome the problems presented by the other approaches. Moreover, the authorities accept that apportionment in these circumstances is a matter of impressionistic, discretionary evaluation where mathematical precision is not to be expected: James v Surf Road Nominees Pty Limited (No 2) [2005] NSWCA 296, and Sydney Ferries v Morton (No 2) [2010] NSWCA 238.
In my view, the appropriate costs order in the circumstances of this case is to order that the defendants pay 40% of the plaintiffs' costs of the proceedings. This order takes into account all the considerations discussed above. It also takes account of the plaintiffs' claim for monies incurred as a result of the discharge of the order for security for costs, such that no separate further order is needed in respect of these expenses.
But another consideration the defendants raised was the duplication of plaintiffs' costs occasioned by the plaintiffs' changes of solicitors. There has undoubtedly been some such duplication. But it is not taken into account in reaching this 40% apportionment. The extent of such duplication is far less obvious to a trial judge than it will be to a costs assessor, who may well reduce the gross award of costs because of duplication. The 40% order will then apply to the costs figure the assessor reaches after the costs assessor has dealt with the effects of costs duplication.
(3) The operation of UCPR r 42.34. The defendants argue that the plaintiffs should be deprived of their costs because they received a verdict of less than $500,000. UCPR r 42.34 requires the Court to approach making a costs order on the basis that an order will not ordinarily be made unless the Court is satisfied that the commencement and continuation of the proceedings was warranted in the Supreme Court, rather than in the District Court.
There is a short answer to this. UCPR r 42.34 was introduced in September 2010, only approximately three months before the hearing. It may apply to the orders now to be made, but the Court should be mindful of the timing of its introduction. An equivalent rule did not exist when proceedings were commenced. By the time the rule was introduced the proceedings were already listed for hearing in the Supreme Court, and transfer to the District Court was then impractical without incurring the costs of other vacated hearing. Moreover, UCPR r 42.34 does not prohibit the making of a costs order in favour of a plaintiff in the Supreme Court where a judgment is less than $500,000; it merely provides that "an order for costs may be made, but will not ordinarily be made unless proceedings in the Supreme Court, rather than the District Court is warranted." Apart from the complexity of these proceedings warranting action in the Supreme Court, the fact that proceedings had been conducted for approximately four years before the rule was introduced take this case outside the ordinary application of the rule in any event.
(4) Cap on costs. The defendants argue that any costs order in the plaintiffs' favour should be capped. The plaintiffs' costs-related evidence suggests that they are claiming legal costs totalling $636,558.27. The defendants submit that such an amount of costs is disproportionate to the claim made, and is disproportionate to the sum ultimately ordered to be paid. The defendants submit, in the circumstances, that this therefore becomes an appropriate situation for the Court to order the plaintiffs' costs to be capped pursuant to Civil Procedure Act s 98(4)(d), so as to provide that the proportion of any assessed costs to which they are entitled do not exceed a specified amount.
But the plaintiffs' conduct of the proceedings has already resulted in the Court awarding them only 40% of their costs. These costs orders mean that the plaintiffs will only receive 40% of a claimed $636,558.27. But it would in my view be unjust to cap the plaintiffs' costs beyond what limits have been placed already on the plaintiffs' award. The Courts have been reluctant to impose arbitrary limits on the amount of costs recovered to meet concerns of proportionality of costs after proceedings are concluded, unless Court costs scales exist to warrant the lower recovery, or other misconduct has occurred warranting costs reduction: see for example Sherborne Estate No. 2 [2005] NSWCC 1003, and Rae v Beddison Corporation Pty Limited (No .2) [2009] NSCWC 178.
(5) Interest on costs. The plaintiffs submit they are entitled to interest on costs. The relevant principles are clear. There is no requirement to establish any special circumstances in order to justify an order for the payment of interest on costs: Lahoud v Lahoudd [2006] NSWSC 126, per Campbell J and Drummond & Rosen Pty Ltd v Easey (No. 2) [2009] NSWCA 331 at [4], per Macfarlan JA. The defendants were not realistically able to resist the order for interest on costs. So an order is provided for below to award interest on costs. But it will not be clear until a costs assessment takes place just exactly when the plaintiffs paid their legal costs and disbursements. Therefore, the precise dates on which interest on these costs payments should run cannot yet be calculated. This calculation can be dealt with in final orders consequent thereon.
Conclusions and orders
In summary, the result of these reasons is the following: on the three principal issues argued: (1) no adjustment should be made to the judgment sum for the incidence of taxation; (2) interest should run on the judgment sum from the time that sum first became fully outstanding in about March 2005; and (3) the defendants should pay 40% of the plaintiffs' costs of these proceedings, with the total sum of costs payable (exclusive of interest) not otherwise being capped.
On the two subsidiary issues, the Court will order that the 1 December 2006 orders for security for costs be dissolved. And I will direct that the entry of judgment in accordance with these reasons be delayed for 28 days from today.
In the result therefore the Court will order and direct:
1. The judgment for the plaintiffs against the defendants in the sum of $254,468.80, plus interest calculated in accordance with order 2.
2. The defendants shall pay the plaintiffs interest on the said sum of $254,468.80 between 1 March 2005 and 27 February 2013 at the rates prescribed from time to time under Civil Procedure Act s 100.
3. Direct the parties to agree upon and provide to my associate the calculation of interest required by Order 2, by 6 March 2013.
4. Dissolve the orders made on 1 December 2006 ordering the plaintiffs to provide security for the defendants' costs of the proceedings.
5. Order the defendants to pay 40% of the plaintiffs' costs of these proceedings, as agreed or assessed.
6. Order the defendants to pay interest at the rates prescribed under Civil Procedure Act s 100 on amounts of costs actually paid by the plaintiffs.
7. Order that the plaintiffs may not enter judgment in accordance with these orders until 27 March 2013.
Amendments
28 February 2013 - removed comment
Amended paragraphs: 27
Decision last updated: 28 February 2013
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