Metalicus Pty Ltd v Metwholesale Pty Ltd (No 2)
[2011] VSC 157
•13 May 2011
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
COMMERCIAL COURT
LIST C
No. 1121 of 2010
| METALICUS PTY LIMITED (ACN 127 957 653) | Plaintiff |
| v | |
| METWHOLESALE PTY LIMITED METRETAIL PTY LIMITED (ACN 109 507 904) | Firstnamed Defendant Secondnamed Defendant |
---
JUDGE: | CROFT J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 10 March 2011 (by written submissions) | |
DATE OF JUDGMENT: | 13 May 2011 | |
CASE MAY BE CITED AS: | Metalicus Pty Ltd v Metwholesale Pty Ltd & Anor (No 2) | |
MEDIUM NEUTRAL CITATION: | [2011] VSC 157 | |
---
COSTS – General principles applicable – Extent to which usual costs orders ought to be departed from in circumstances where resolution of substantive matters in dispute in the interests of both parties – Costs incurred in application for leave to amend pleadings of and occasioned by and thrown away in consequence of amendment – Supreme Court Act 1986, s 24(1) - Civil Procedure Act 2010, s 20 – Supreme Court (General Civil Procedure) Rules 2005, order 63 and also rule 36.01 – Oshlack v Richmond River Council (1998) 193 CLR 192 – Donald Campbell & Co v Pollak [1927] AC 732 – Chen v Chan [2009] VSCA 233 – O’Neill v TD Williamson Aust Pty Ltd (No 2) [2008] VSC 430.
---
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr D.B. Studdy SC with Mr S.J. Maiden | Minter Ellison |
| For the Defendants | Mr J.P. Moore | Clayton Utz |
HIS HONOUR:
Background
On 22 February 2011, I published my reasons for decision in this proceeding.[1] In so doing, I reserved the question of costs and reserved costs and said that I would hear the parties both in relation to the question of costs and the final form of orders flowing from these reasons.[2] These questions are now addressed on the basis of further submissions of the parties.
[1]Metalicus Pty Ltd v Metwholesale Pty Ltd & Anor [2011] VSC 2.
[2]Ibid [76].
Position of the parties in relation to orders
The plaintiff sought orders in the form attached as Annexure A.
The plaintiff submitted that the orders sought follow the form of paragraphs D, E, F, H and N of the plaintiff’s prayer for relief (but with slight syntactical changes). It was said that proposed declaration 1(e), which is drawn from paragraph N of the prayer for relief, has been modified slightly to give it more clarity and to clarify (consistently with the Court’s reasons) that the movement in unrealised stock and profit occurred in the pre-completion period (that is, the period which ended on 2 December 2007, the day before completion of the Sale Agreement).
The defendants did not raise any issues with respect to paragraphs 1(a) to (d) of the orders proposed by the plaintiff, but did submit that the order proposed in paragraph 1(e) was inappropriate.
As indicated in the plaintiff’s submissions, the proposed order contained in paragraph 1(e) of Annexure A is drawn from paragraph N of the prayer for relief. As the defendants submit, the plaintiff went to trial with the pleadings seeking the following declaration:
“N.A declaration that on a proper construction of the Amended Agreement including paragraph 1(a)(ii) of Schedule 7 to the Amended Agreement that when calculating the Normalised EBITDA the consolidated EBITDA of the Businesses was required to be adjusted by eliminating the movement in unrealised profit in stock in the Retail Business between 30 June 2007 and 30 June 2008 in the amount of $378,860.”
Reference was also made by the defendants to paragraph [75] of my reasons for decision:
“75. I accept the plaintiff’s submissions that if the unrealised profit in stock were to be calculated in the manner the defendants contended for the defendants would receive a windfall. Consequently, I am of the opinion that the plaintiff has established the basis for the declaration sought in paragraph N of the prayer for relief, but that the court is not able, on the evidence available, to determine the relevant sum of money for the purposes of this declaration in accordance with the Amended Agreement. I accept the submissions of the defendants that the determination of this sum is a matter for determination in accordance with clause 10 of the Amended Agreement and, in particular, for determination by the Independent Accountant under sub-clause 10.6 should this be required.”
It follows, on the basis of these reasons, that paragraph 1(e) of the proposed orders should read:
“(e) (including paragraph 1(a)(ii) of Schedule 7 to the Amended Agreement) that when calculating the Normalised EBITDA the consolidated EBITDA of the Businesses is required to be adjusted by eliminating the movement in unrealised profit in stock in the Retail Business between 30 June 2007 and 30 June 2008 in the amount to be determined by the Independent Accountant under clause 10.6 of the Amended Agreement.”
The defendants also sought a declaration, not listed in the declarations set out in paragraph [77] of my reasons, in the following terms:
“(A)The Independent Accountant (when appointed) has jurisdiction to determined Normalised EBITDA under the Business Sale Agreement dated 2 November 2007 between the plaintiff and the defendants (Agreement), and the Business Sale Agreement between the plaintiff and the defendants as amended by deed of variation made on 18 December 2008 and restated (Amended Agreement).”
The defendants noted that this paragraph was paragraph A of the defendants’ counterclaim and that the application for that relief was set down for trial, as specified in paragraph 1(c) of my orders of 20 August 2010.
The defendants submitted that the plaintiff did not press its claims for declarations relating to the asserted want of jurisdiction of the Independent Accountant, which were in declarations A to C of the plaintiff’s statement of claim. It was noted that the declarations that the plaintiff did press at trial were paragraphs D, E, F, H, I, J, K, N and N1 of its prayer for relief.[3] Nevertheless, it was submitted that the plaintiff did not abandon the allegations that the defendants’ request to the Institute of Chartered Accountants on 22 February 2010 “was void and of no effect”.[4] The defendants submitted that no basis for that allegation was established at the trial and that it is plain that in the circumstances that have occurred, the Independent Accountant does have jurisdiction to determine Normalised EBITDA. In this respect, the defendants made reference to the following, as relevant facts:[5]
“(a)those pleaded by the plaintiff itself in paragraphs 1 to 7, 12, 13, 14, 15, 16, 19(a) and 20 of the statement of claim, all of which were admitted by the defendants, and which establish the contractual preconditions to the referral ‘by either party to the Independent Accountant’, as provided for in clause 10.6 of the Agreement (as amended);
(b)the letter from the Institute of Chartered Accountants dated 3 March 2010 stating that it would appoint an independent accountant once a deed of release and indemnity was executed by the parties.[6] That letter established that, contrary to the allegation by the plaintiff in the particulars to paragraph 21 of the statement of claim, the Institute does nominate persons to act as experts in contractual disputes.”
[3]See transcript (27 September 2010), 2.21.
[4]See further amended statement of claim (as it existed at the time of trial), paragraph 21.
[5]Defendants’ submissions as to orders, including costs, [4].
[6]Court Book 566 to 569, referred to in paragraph 27(i) of the affidavit of Derrick Alan Krowitz sworn 27 September 2010.
It was submitted by the defendants that, for some reason, despite the existence of the letter from the Institute of Chartered Accountants dated 3 March 2010, the plaintiff has maintained in the various versions of its statement of claim (all but the first of which was filed after the date of the Institute’s letter of 3 March 2010) that the defendants’ request to the Institute was “void and of no effect”. In these circumstances, it was submitted that the defendants’ claim for the declaration contained in paragraph A of their counterclaim must succeed, and that the declaration should be made.
In response, the plaintiff submitted that there was no reason for the declaration sought by the defendants. It was said that the plaintiff accepts that the Independent Accountant has jurisdiction, the trial proceeded on that basis and that, in any event, acceptance of the jurisdiction of the Independent Accountant is made clear by the declarations sought in paragraph 1(e) of Annexure A of the plaintiff’s submissions.
As I understand the plaintiff’s submissions, its view is that the worst that might follow from the making of the declaration sought by the defendants is that it is unnecessary, for the reasons indicated in the plaintiff’s submissions. In my opinion, having regard to the complexities that have arisen in these proceedings, partly as a result of lack of clarity in the Amended Agreement and also in dealings between the parties, it is desirable to resolve any doubt in relation to the jurisdiction of the Independent Accountant. Accordingly, I will make the declaration sought by the defendants.
General costs principles
The jurisdiction of the Court as to costs is conferred by sub-s 24(1) of the Supreme Court Act 1986 (Vic), in the following terms:
“24(1) Unless otherwise expressly provided by this or any other Act or by the Rules, the costs of and incidental to all matters in the Court, including the administration of estates and trusts, is in the discretion of the Court and the Court has full power to determine by whom and to what extent the costs are to be paid.”
This general discretion must be exercised in accordance with Order 63 of the Supreme Court (General Civil Procedure) Rules 2005 (“the Rules”).
The usual order as to costs is an award of costs to the successful party on a party and party basis.[7] This position was reaffirmed and the basis for it discussed by McHugh J in Oshlack v Richmond River Council[8]. It is helpful for present purposes to note the following statements of McHugh J in that case in relation to the usual order as to costs:
“[67] The expression the ‘usual order as to costs’ embodies the important principle that, subject to certain limited exceptions, a successful party in litigation is entitled to an award of costs in its favour. The principle is grounded in reasons of fairness and policy and operates whether the successful party is the plaintiff or the defendant. Costs are not awarded to punish an unsuccessful party. The primary purpose of an award of costs is to indemnify the successful party.[9] If the litigation had not been brought, or defended, by the unsuccessful party the successful party would not have incurred the expense which it did. As between the parties, fairness dictates that the unsuccessful party typically bears the liability for the costs of the unsuccessful litigation.
[68] As a matter of policy, one beneficial by-product of this compensatory purpose may well be to instil in a party contemplating commencing, or defending, litigation a sober realisation of the potential financial expense involved. Large scale disregard of the principle of the usual order as to costs would inevitably lead to an increase in litigation with an increased, and often unnecessary, burden on the scarce resources of the publicly funded system of justice.
[69] The traditional exceptions to the usual order as to costs focus on the conduct of the successful party which disentitles it to the beneficial exercise of the discretion. In Anglo-Cyprian Trade Agencies Ltd v Paphos Wine Industries Ltd,[10] Devlin J formulated the relevant principle as follows:
‘No doubt, the ordinary rule is that, where a plaintiff has been successful, he ought not to be deprived of his costs, or, at any rate, made to pay the costs of the other side, unless he has been guilty of some sort of misconduct.’
…”
[7]Oshlack v Richmond River Council (1998) 193 CLR 72 at [67]-[69] (McHugh J).
[8](1998) 193 CLR 72 at 97, [67]-[70].
[9]Latoudis (1990) 170 CLR 534 at 543 per Mason CJ, at 562-563 per Toohey J, at 566-567 per McHugh J; Cachia v Hanes (1994) 179 CLR 403 at 410 per Mason CJ, Brennan, Deane, Dawson and McHugh JJ.
[10][1951] 1 All ER 873 at 874.
The pedigree of this position is a long one, as is indicated, for example, by the decision of the House of Lords in Donald Campbell & Co v Pollak.[11] The speech of the Lord Chancellor, Viscount Cave is, in my view, of more particular relevance in the present circumstances, indicating, in more general terms, matters that might be considered as a basis for departing from the usual rule. Viscount Cave said:[12]
“’… But there is such a settled practice of the Courts that in the absence of special circumstances a successful litigant should receive his costs, that it is necessary to show some ground for exercising a discretion by refusing an order which would give them to him. The discretion must be judicially exercised, and therefore there must be some grounds for its exercise, for a discretion exercised on no grounds cannot be judicial. If, however, there be any grounds, the question of whether they are sufficient is entirely for the judge at the trial and this Court cannot interfere with his discretion. On the authorities as they now stand the line between cases tried before a jury and cases tried by a judge is very fine.’ Atkin LJ took a more decided view, saying: ‘In the case of a wholly successful defendant, in my opinion the judge must give the defendant his costs unless there is evidence that the defendant (1) brought about the litigation, or (2) has done something connected with the institution or the conduct of the suit calculated to occasion unnecessary litigation and expense, or (3) has done some wrongful act in the course of the transaction of which the plaintiff complains … I am aware of the inconvenience of fettering by rules the exercise of what in terms appears to be an unfettered discretion’”.
[11][1927] AC 732.
[12][1927] AC 732 at 809-10.
This approach was confirmed by the Court of Appeal, which set out the relevant principles with respect to the award of costs, with particular reference to the circumstance where there has been mixed success and apportionment of costs might be contemplated. As to these circumstances, the Court of Appeal said, in Chen v Chan:[13]
[13][2009] VSCA 233 (Maxwell P, Redlich JA and J. Forrest AJA), at [10].
“10. The contentions of the parties raise a number of questions relevant to costs orders on appeal. The principles relevant to these questions can be summarised as follows:
(1)The general rule is that costs should follow the event. Absent disqualifying conduct, the successful party should recover its costs even where it has not succeeded on all heads of claim.[14]
(2)The Rules of Court[15] permit significant flexibility in determining questions of costs. In particular, the Court is entitled to examine the realities of the case and will attempt to do ‘substantial justice’ as between the parties on matters of costs.[16]
(3)Where there is a multiplicity of issues and mixed success has been enjoyed by the parties,[17] a Court may take a pragmatic approach in framing the order for costs, taking into consideration the success (or lack of success) of the parties on an issues basis. Generally, if such an order is made, it is reflected in the successful party being awarded a proportion of its costs but not the full amount.[18]
(4)A Court may, when fixing costs in a claim where there has been mixed success, take into account complications which it considers will arise in the taxation of costs, as part of its consideration of the overall interests of justice.
(5)Where a Court determines to make an order apportioning costs, then it does so primarily as ‘a matter of impression and evaluation,’[19] rather than with arithmetical precision, having considered the importance of the matters upon which the parties have been successful or unsuccessful, the time occupied and the ambit of the submissions made, as well as any other relevant matter.
(6)Where a number of parties have had the same representation, there is a ‘rule of thumb’[20] as to the apportionment of costs, namely that, where some of those parties have been successful and others have not, each successful party is only entitled to his or her proportion of the costs incurred on behalf of all, plus the costs, if any, incurred exclusively on his or her behalf. The primary issue for determination in such a case is that of fairness as between the parties, having regard to the manner in which the trial, or appeal, has been conducted.
(7)Usually, an order for costs will be made on a party/party basis.[21] But an order for costs on a solicitor/client or indemnity basis may be made where special or unusual circumstances have been demonstrated,[22] for example, by establishing misconduct in the proceeding, that the proceeding was brought for an ulterior purpose, or that it was patently unreasonable to institute, or maintain, the proceeding. Special circumstances may also include the making of an allegation of fraud which is not proved.[23]”
[14]Ritter v Godfrey [1920] 2 KB 47; Oshlack v Richmond River Council (1998) 193 CLR 72, 97-8 (McHugh J); 124 (Kirby J).
[15]Supreme Court (General Civil Procedure) Rules 2005 (Vic) r 63.04 at first instance and r 64.24 on appeal.
[16]Spotless Group Limited v Premier Building and Consulting Pty Ltd and Northern Suburban Properties Pty Ltd (‘Spotless’) [2008] VSCA 115, [14].
[17]McFadzean v Construction Mining and Energy Union (2007) 20 VR 250 (‘McFadzean’) [157]–[158].
[18]Spotless [15]; Hughes v Western Australian Cricket Association Inc (1986) 8 ATPR 40–748, 48, 136; Pricom Pty Ltd v Sgarioto (Unreported, Supreme Court of Victoria, Eames J, 24 April 1995), McFadzean [2007] VSCA 289, [152].
[19]Major Engineering Pty Ltd v Helios Electroheat Pty Ltd (No 2) [2006] VSCA 114, [5].
[20]Currabubula Holdings Pty Ltd and Paola Holdings Pty Ltd v State Bank of New South Wales [2000] NSWSC 232, [90]. For a comprehensive analysis of the development of the ‘rule of thumb’, see [91]-[104]. See also Ellingsen v Det Skandinaviske Compani [1919] 2 KB 567, 569.
[21]PCRZ Investments Pty Ltd v National Golf Holdings Ltd [2002] VSCA 24, [34].
[22]Spencer v Dowling [1997] 2 VR 127; Bass Coast Shire Council v King [1997] 2 VR 5, 29.
[23]Australian Transport Insurance Pty Ltd v Graeme Phillips Road Transport Insurance Pty Ltd (1986) 10 FCR 177. See also Re Talk Finance and Insurance Services Ltd [1994] 1 Qd R 558 and Niml Ltd v Man Financial Australia Ltd (No. 2) [2004] VSC 510.
It is clear from the authorities to which reference has been made that provided the broad discretion as to costs is exercised judicially, it is not a discretion that is or ought to be channelled into prescriptive, potentially narrow, categories. The discretion exists to enable the Court to do “substantial justice” on matters of costs in the context of the particular circumstances of each case. It follows that in pursuit of this end, all relevant circumstances must be considered, including whether, in a particular case, it can really be said that there is a “winner” and a “loser” – whether as a result of the nature of the case and its outcome, or outcomes, or because it is in the interests of all parties that the Court should determine the controversy between them (beyond the general position that it is in the interests of parties that disputes be resolved).
Position of parties as to costs
The plaintiff submitted that it was entitled to an order for costs, as the overwhelmingly successful party. It did concede, however, that its success was in every aspect of the subject of the hearing, save for:
“(a)one ancillary matter (the determination of the sum as at 2 December 2007 against which the opening amount for unrealised profit in stock was to be measured – see [75] of the reasons); and
(b)one ‘fallback’ submission (the ‘netting off’ of over expenditure against cost savings) which did not arise for decision because the plaintiff succeeded in its principal submission – see [40] of the reasons.”
The plaintiff submitted that this is not a case suitable for division into separate issues for the purposes of apportioning costs. It was said that the two matters in respect of which the plaintiff did not succeed were minor aspects of the dispute that the plaintiff won. In terms of its win, it was said that it obtained the primary declarations which it sought, though without the insertion of a specific monetary figure for unrealised profit in stock. Consequently, it was submitted, that there are no special circumstances which would justify a departure from the usual order as to costs; subject to the question of how to deal with the outstanding dispute regarding costs of the plaintiff’s amendments to its statement of claim.
The defendants, on the other hand, submitted that there were two principal reasons why the usual order as to costs should be departed from and that each side should bear their own costs; apart from the costs of the plaintiff’s application to amend the statement of claim.
The defendants submitted, first, that this was an unusual case. It was, it was said, essential for the plaintiff to persuade the Court to make declarations about the proper construction of the Amended Agreement. This was not because of any conduct on the part of the defendants in advocating a particular interpretation of the contract. Instead, it was submitted that this was because two firms of accountants who were jointly instructed by the parties in accordance with the mechanism established by the Amended Agreement interpreted that agreement in fundamentally different ways.
This, the defendants submitted, is clear from paragraph 13 of the plaintiff’s further Amended Statement of Claim of 6 August 2010. The defendants’ submissions in this respect were as follows:[24]
“(a)The plaintiff and the defendants would jointly instruct Deloitte Touche Tohmatsu (Deloitte) and Ernst & Young (EY) to audit the profit and loss of the businesses for the financial year ended 30 June 2008, and calculate the Earn Out Amount – EBITDA;
(b)If Deloitte and EY’s respective determinations of the Earn Out Amount – EBITDA varied by more than $50,000, then the [plaintiffs] sic would try to negotiate an outcome, and if they could not, then the dispute was to be resolved by an independent accountant;
(c)The plaintiff determined (and the defendant agreed) that it was necessary to have declarations made by the Court as to the proper construction of certain provisions in the Agreement prior to the independent accountant performing his role.”
[24]Defendants’ Submissions as to orders, including costs (4 March 2011), 13.
It was submitted by the defendants that on the state of the pleadings and evidence, declarations were not necessary because the defendants had asserted that the Amended Agreement should be construed in a particular way. Rather, it was said, the declarations were necessary because of the different approaches adopted by the two firms of accountants who were jointly retained pursuant to a contractual regime.
In relation to the state of the evidence, the defendants submitted that there is no evidence of what took place at the meeting between the parties after the Ernst & Young and the Deloitte Touche Tohmatsu reports were delivered (that is, the reports of the two firms of accountants). It was submitted that it would be wrong for the Court to infer that the defendants’ position at that meeting was consistent with the manner in which Ernst & Young had construed the Amended Agreement. The plaintiff submitted that there is no evidence to provide any foundation for the contention of the defendants that the need for declarations flowed not from disagreement between the parties, but because the jointly appointed accountants approached the EBITDA calculation differently. The defendants objected, it was said, to the accountants’ reports being included in the Court Book, and they were not read into evidence. In any event, the plaintiff submitted that the reports would contradict, rather than support, the defendants’ contention. Nevertheless, this does not detract from the position that the parties were unable to agree upon the proper construction of the Amended Agreement and there is no evidence to support the view that any party was acting unreasonably in this respect.
The defendants also made the point that it was necessary for the plaintiff to persuade the Court to make the declarations sought as they could not have been made by consent because of the rule that:[25]
“a declaration will not be granted where the question under consideration is not a real question, nor where the person seeking the declaration has not real interest in it, nor where the declaration is sought without proper argument, eg in default of defence or on admissions or by consent.”
The defendants submitted that at the hearing of the plaintiff’s application for declaratory relief, the defendants were the natural contradictors. It was said that the fact that some of the defendants’ submissions were unsuccessful does not, in the circumstances of this case, warrant an order that they pay the plaintiff’s costs. In response to this submission, the plaintiff submitted that it is not an accurate reflection of the result to say that, merely, some of the defendants’ submissions were unsuccessful. It was submitted that the plaintiff’s primary contention succeeded and that not only did the defendants’ contentions fail in all material respects, but that various parts of the construction of the Amended Agreement which the defendants propounded were described in my reasons as “impracticable”; “[failing] to take account of commercial reality”; “not tenable”; “unworkable and impracticable”; and questing for “windfall”. Such result, it was said, cannot be described as the defendants do as “mixed”. To the extent that such comments were made, I do not accept the implication, for present purposes, that this indicates some overall untenable position advanced by the defendants with respect to the construction of the Amended Agreement.
[25]In re F (Mental Patient: Sterilisation) [1990] 2 AC 1 (HL) at 82 (Lord Goff of Chievelely), cited with approval in Bass v Permanent Trustee Co Ltd (1999) 198 CLR 334 at [9] per Gleeson CJ, Gaudron, McHugh, Gummow, Hayne and Callinan JJ; and see Aussie Airlines v Australian Airlines (1996) 139 ALR 663 at 670-1 (Lockhart J); also Dharmananda and Papamatheos (eds), Perspectives on Declaratory Relief (Federation Press, 2009) 148-9 (Chapter by Grant Donaldson SC); and Young, Declaratory Orders (2nd ed, Butterworths, 1984), 9-11, [203]-[205].
The plaintiff submitted that this was not an “unusual” case as alleged by the defendants. The defendants’ submissions, that the need for declarations did not arise due to assertions made by them, but rather arose due to the different approaches adopted by the two firms of accountants and that it was necessary for the defendants to act as contradictors, were said by the plaintiff to be “with respect, absurd”. The plaintiff submitted that the defendants clearly contended for a different construction of the relevant clauses of the Amended Agreement to the plaintiff, and that they were not obliged to do so. It was said that there was no reason why the defendants could not have accepted the plaintiff’s now successful construction of the various clauses and have the issues referred to the Independent Accountant on that basis by agreement between the parties, which would have been accommodated by clauses 10.6(b) and (c) of the Amended Agreement. It was submitted that, on that basis, the proceedings could have been avoided and the plaintiff would have been spared significant legal costs.
The second reason advanced by the defendants as to why it is appropriate that each side bear their own costs, apart from the costs relating to the plaintiff’s amended pleading, is that the plaintiff’s success was, it was said, mixed with a material degree of failure. In this respect, the defendants referred to the following:[26]
[26]Defendants submissions as to orders, including Costs (4 March 2011), paragraph 17.
“(a)Declarations A, B, C, L, M, P and U in the plaintiff’s further amended statement of claim were not pressed, despite them remaining in the plaintiff’s prayer for relief as it stood at trial;
(b)Declarations G and I in the plaintiff’s original and amended statement of claim were abandoned (they were struck through in the further amended statement of claim);
(c)The plaintiff pressed but failed to obtain declarations N and N1 in the further amended statement of claim; and
(d)The plaintiff abandoned declaration O just before trial.”
The defendants have also been successful in the present aspect of the proceeding in obtaining declaration A, which was sought in their counterclaim.
Consequently, the defendants submitted there were a total of 13 claims in relation to which the plaintiff failed. Accordingly, it was said, by any measure, the outcome is a mixed result. On this basis, the defendants referred to and relied upon the passage from the judgment of the Court of Appeal in Chen v Chan,[27] which is set out above. In conclusion, the defendants submitted that in the circumstances of this case, including both the mixed result and the need for the plaintiff to obtain declaratory relief in any event, the appropriate order in relation to costs other than the plaintiff’s pleading amendments, is that each party bear their own costs.
[27][2009] VSCA 233.
I accept that it was necessary, for the reasons advanced in the defendants’ submissions, for the plaintiff to seek declaratory relief in any event and, given the rule that a declaration will not be granted by consent, a contradictor was also necessary. In my view, although the defendants may not be said to have succeeded in their role as “contradictor” in the sense that they convinced the Court of their position with respect to the proper construction of the Amended Agreement, their involvement did, nevertheless, serve the purpose of ensuring that there was “proper argument” in an application for declaratory relief. In the course of so doing they did not, in my view, extend or unduly extend the time devoted to the trial or add to expense in terms of their submissions or conduct generally. In summary, my view is the defendants, in the present circumstances, acted quite properly as the necessary “contradictor”.
In relation to the question of costs with respect to, what might be termed, the substantive aspects of this proceeding, I am of the opinion that the defendants properly identify and characterise the nature of this proceeding in the context of the relevant principles with respect to costs. It is clearly true, as the plaintiff submitted, that in this litigation, or any other litigation, if the opposing party agrees to the position of the other party, then the litigation will be avoided. In the present circumstances, I am of the opinion that, for the reasons indicated by the defendants in its submissions, that the issues in contention between the parties with respect to the Amended Agreement, and any related matters, were properly regarded as a legitimate difference of opinion in relation to the proper construction of a commercial agreement in circumstances where differing approaches to construction would have significant financial consequences. The second reason put by the defendants, that the plaintiff did not press, abandoned, or was unsuccessful on some of its claims, is a factor that supports this characterisation of the dispute.
It may have been the case that the parties might have referred the issues, by agreement, to expert determination by the Independent Accountant under sub-clause 10.6 of the Amended Agreement, but this did not occur and this failure was not the basis of the relief sought by the plaintiff. Nowhere in the prayer for relief in the plaintiff’s statement of claim in the form in which it existed at trial, or otherwise, was the claim made or the position put that the parties were obliged to pursue expert determination of this kind prior to taking any proceedings. In the plaintiff’s prayer for relief, the only references to determination of any dispute by the Independent Accountant are in paragraphs A, B and C – declarations that were not pressed at trial. Rather, the plaintiff’s prayer for relief concentrates on substantive construction and related matters with respect to the provisions of the Amended Agreement.
In relation to the costs involved in the application made by the plaintiff to amend the pleadings, the point was made by the defendants that, in the ordinary course, the position as stated by Cavanough J in O’Neill v TD Williamson Aust Pty Ltd (No 2)[28] should be applied. This is, of course, the usual position and a position which the plaintiff acknowledged. The plaintiff, on the other hand, argued that the defendants had been less than cooperative in facilitating amendments to the pleadings which, from the plaintiff’s perspective, were designed to clarify issues to be determined at trial. In this respect, I note the provisions of s 20 of the Civil Procedure Act 2010, as follows:
“20 Overarching obligation to cooperate in the conduct of civil proceeding
A person to whom the overarching obligations apply must cooperate with the parties to a civil proceeding and the court in connection with the conduct of that proceeding.”
As this provision came into operation after the hearing of the trial it is not applicable, but it clearly reflects the position applicable to and expected of parties taking proceedings in the expedited and managed lists of the Commercial Court.[29]
[28][2008] VSC 430 at [27]: “It is correctly stated in Williams, Civil Procedure Victoria [at [36.01.125]], that, as a general rule, an amendment will only be allowed on terms that the costs of the application for leave to amend, and of and occasioned by, and thrown away in consequence of the amendment shall be paid by the party amending in any event.”
[29]See Practice Note 1 of 2010 (Commercial Court).
In any event, it is not, in my view, necessary to examine in any detail the issues raised with respect to the costs associated with the amendment of the pleadings. Having regard to the duty of the parties to cooperate, which extends to the facilitation of the process of settling pleadings, and the view of the proceedings which I have taken in relation to the application of the principles to be applied with respect to costs in relation to the substantive proceedings, it is appropriate in these circumstances that the costs associated with the application to amend the pleadings be treated in the same way. Accordingly, each party will be ordered to bear their own costs with respect to the applications prior to the commencement of the trial.
For the preceding reasons I will make no order as to costs, with respect to the substantive proceedings or the costs associated with the application to amend the pleadings.
Summary and conclusions
For these reasons, I will make the following orders:
(1)Orders 1(a) to (d) as set out in Annexure A; Order 1(e) as set out in paragraph 7 of these reasons; and
(2)That there be no order as to costs.
On this basis, the parties are invited to provide formal orders, as specified, for authentication.
Annexure A – Orders Sought by Plaintiff
The Court declares that on a proper construction of the Amended Agreement:
(a) the requirement in clause 9.3(a) that the plaintiff give prior notice in writing to the defendants in relation to proposed costs, expenses or outlays during the Earn Out Period which:
(i) involve an amount of $100,000 or more; or
(ii) involve an amount of less than $100,000, but which the plaintiff estimates may impact the Normalised EBITDA by $100,000 or more,
is limited to the situation where there is no entry in the 2008 Budget (as defined in the Amended Agreement) for such categories of costs, expenses or outlays;
(b) the requirement that the plaintiff give prior notice in writing to the defendants pursuant to clause 9.3(a) only requires the plaintiff to give the defendants notice of single or ‘one off’ items of expenditure incurred during the Earn Out Period which exceed the amount specified in the 2008 Budget by $100,000 or more, or which involve an amount of $100,000 or less but which the plaintiff estimates may impact the Normalised EBITDA by $100,000 or more;
(c) foreign exchange losses are not costs, expenses or outlays within the meaning of clause 9.3(a) which require the plaintiff to give prior written notice to the defendants;
(d) the plaintiff’s obligation in clause 9.1(c) of the Agreement to conduct the Business in accordance with the 2008 Budget:
(i) required the plaintiff to endeavour to achieve the EBITDA figure in the 2008 Budget;
(ii) required the plaintiff in endeavouring to achieve the EBITDA figure in the 2008 Budget to have regard to items of revenue and expense set out in the 2008 Budget;
(iii) required the plaintiff in endeavouring to achieve the EBITDA figure in the 2008 Budget to have regard to its other obligations in clauses 9.1(a), (b), (d), (e) and 9.3 of the Amended Agreement; and
(iv) did not oblige the plaintiff to expend money strictly in accordance with each line item of expenditure specified in the 2008 Budget.
(e) (including paragraph 1(a)(ii) of Schedule 7 to the Amended Agreement) that when calculating the Normalised EBITA the consolidated EBITDA of the Businesses is required to be adjusted by eliminating from the consolidated EBITDA the movement in unrealised profit in stock in the Retail Business between the amount of $131,188 as at 30 June 2007 and the amount as at 2 December 2007 to be determined by the Independent Accountant under clause 10.6 of the Amended Agreement.
The defendants pay the plaintiff’s costs of the proceeding, including reserved costs.
2
0