Pugwall Pty Ltd v Arthur McKenzie Investments Pty Ltd
[2022] VCC 36
•27 January 2022
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
Case No. CI-19-00779
| Pugwall Pty Ltd (ACN 073 554 453) | Plaintiff |
| v | |
| Arthur McKenzie Investments Pty Ltd (ACN 089 248 082) & Anor | Defendants |
---
JUDGE: | Her Honour Judge Burchell | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | Written submissions dated 26 January 2022 | |
DATE OF RULING: | 27 January 2022 | |
CASE MAY BE CITED AS: | Pugwall Pty Ltd v Arthur McKenzie Investments Pty Ltd & Anor | |
MEDIUM NEUTRAL CITATION: | [2022] VCC 36 | |
RULING
---
Subject:COSTS
Catchwords: plaintiff successful against first defendant – whether separate costs should be awarded in favour of successful second defendant – appropriate costs order following judgment – separate costs orders for summary judgment application made pre trial
Legislation Cited: County Court Civil Procedure Rules 2018
Cases Cited:Pugwall Pty Ltd v Arthur McKenzie Investments Pty Ltd & Anor [2021] VCC 2053; Telstra Corporation Ltd v Australian Competition Tribunal (No 2) [2009] FCAFC 34; Nikolaou v Papasavas, Phillips & Co (1989) 166 CLR 394; Bowen v Alsanto Nominees Pty Ltd [2011] WASCA 39; Ritter v Godfrey [1920] 2 KB 47; Donald Campbell & Co Ltd v Pollak [1927] AC 732; S v Minister for Youth and Community Service (1986) 10 Fam LR 849; APN Funds Management Ltd v Australian Property Investment Strategic Pty Ltd (No 2) [2012] VSC 365; Currabubula Holdings Pty Ltd v State Bank of New South Wales [2000] NSWSC 232; Spotless Group Ltd v Premier Building and Consulting Pty Ltd [2008] VSCA 115; Dubbo Refrigerating Co v Rutherford (1898) 14 WN (NSW) 180; Container Terminals Australia Ltd v Xeras (1991) 23 NSWLR 214; Koosen v Rose (1897) 45 WR 337
---
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Shayne Daley & Associates | |
| For the Defendants | Erol Cinar Lawyers |
HER HONOUR:
Introduction
1On 15 December 2021, the Court gave judgment for the plaintiff against the first defendant but dismissed the claim against the second defendant.[1] The parties were invited to provide submissions as to costs and interest and the issues were to be determined on the papers.
[1] Pugwall Pty Ltd v Arthur McKenzie Investments Pty Ltd & Anor [2021] VCC 2053 at [9]–[11].
2The parties agreed on some, but not all, of the matters which could be contained in the costs orders. The disagreement concerns whether the second defendant is entitled to costs of the proceeding.
3It is common ground that the following three orders should be made:
(a) There be judgment for the plaintiff against the first defendant in the sum of $1,258,335.00 together with interest in the sum of $89,634.82.
(b) The first defendant pay the plaintiff’s costs of the proceeding, including reserved costs, to be taxed in default of agreement.
(c) The claim against the second defendant is dismissed.
4The defendants seek a stay of 30 days on the payment and the second defendant seeks an order that the plaintiff pay the second defendant’s costs of the proceeding, including reserved costs, to be taxed at 50% of the combined legal costs of the first and second defendants, on a stay of 30 days.
5The plaintiff’s primary position is that there should not be a separate costs order and if costs are to be awarded, they should be confined to the issue of the guarantee in an amount of no more than 5% of the total cost of the proceeding.
6Further, the plaintiff refers to the orders made by Judge Cosgrave on 13 December 2019, in which his Honour dismissed the plaintiff’s summons dated 25 September 2019 seeking summary judgment and that the costs of the application be costs in the cause. The plaintiff seeks an order that no allowance should be made to either defendant in relation the plaintiff’s application.
Legal Framework
7Where a party has been successful in proceedings, the normal course is that costs follow the event.
8Where an order is made that the parties’ costs be the parties’ costs of the proceedings, those costs will be determined at the conclusion of the proceeding, depending upon which party is ultimately successful.
Plaintiff’s Submissions
9The plaintiff submits that there were three key issues in this proceeding as follows:
(a) the loss suffered in the construction of the development;
(b) as a separate sub-issue of (a) above, the damages caused by the negligence/breach of duty of the first defendant; and
(c) the liability of the second defendant as a guarantor.
10The plaintiff succeeded on issues (a) and (b) above. The plaintiff says that most of the time, cost and effort in this matter was devoted to issues (a) and (b) and that little in the way of time, cost and effort was devoted in the proceeding to issue (c).
11The plaintiff cites the authority of Telstra Corporation Ltd v Australian Competition Tribunal (No 2)[2] to support its contention that courts are generally reluctant to split costs by issue as it is a “nit-picking exercise which would obscure and ignore the ultimate result”.
[2] [2009] FCAFC 34 at [15] (per Jacobson, Lander and Foster JJ).
12The plaintiff further relies on the decision of Bowen v Alsanto Nominees Pty Ltd[3] in relation to this proposition. The plaintiff cites the following passage:
The court may, in the exercise of its discretion, order that a successful party recover only a portion of its costs where that party has been unsuccessful in respect of certain discrete issues. But that should not be done as a matter of course. To embark as a general practice upon an analysis of which party was successful on each issue, or necessarily to deprive a successful party of some portion of its costs if it has lost on a particular issue, would be likely to add further uncertainty and complexity to the outcome of litigation, derogate from the prospect of settlement, and oblige the court to hear lengthy and frequent arguments in relation to costs as an additional burden on its resources and the costs of the parties: see MacKinnon v Petersen (Unreported, NSWSC, 19 April 1989) (Cole J); Oshlack v Richmond River Council (1998) 193 CLR 72 [67]-[68] (McHugh J). Litigation is time-consuming, expensive and burdensome enough already.
In addition, while parties should be encouraged to consider carefully what matters they put in issue, justice may not be served if by too ready a resort to deciding questions of costs according to success on particular issues, parties are dissuaded by the risks of costs from canvassing all issues which might be material to the decision in the case: Doric Products Pty Ltd v Lockwood Security Products Pty Ltd [2002] FCA 282; NRMA Ltd v Morgan (No 3) [1999] NSWSC 768 [24].
[3] [2011] WASCA 39 at [6]–[7] (per McLure P, Newnes and Murphy JJA).
13On this basis, the plaintiff submits that the only special feature that would warrant departure from the ordinary rule that costs follow the event are the guarantee issue and potentially costs in relation to the summons of final judgment which was dismissed.
14The plaintiff contends that if costs are to be awarded in respect of the guarantee, they should be minimal, given the remainder of the dispute was in effect a “building case”. This issue involved experts, including a financial expert appointed by the Court to review the development’s costs and accounting documentation, construct a balance sheet for the joint venture and calculate losses and other financial matters including potential interest.
15By contrast, the plaintiff submits that the issue of the guarantee turned on very few documents and only occupied a brief amount of the time of the Court both in pre-trial hearings and at trial.
16The plaintiff says that if the Court is minded to award costs to the second defendant that, given the particular circumstances and complexity of the evidence in this matter, the costs should amount to no more than 5% of the total costs of the proceeding.
17In relation to the summary judgment application, the plaintiff says that, although the summons for final judgment was dismissed, neither the first nor second defendants should be awarded costs in relation to that summons.
18The plaintiff contends that the substance of the affidavits and exhibits filed in support of the summons was to set out the background to the joint venture and the facts, matters and circumstances surrounding both the progress of the Development and how it had fallen into a parlous financial position. Such matters would have had to be set out and proven by the plaintiff even if there had been no summons for final judgment.
19The plaintiff says that it is clear from the orders of Judge Cosgrave made on 13 December 2019 that the Court thereafter considered the matter to be one of an assessment of loss. In these circumstances, the plaintiff’s costs in relation to the summons for final judgment were costs otherwise properly incurred in the proceeding generally. The plaintiff submits that no allowance should be made to either defendant in relation to the summons for final judgment.
Defendants’ Submissions
20The defendants submit that it is incumbent upon an unsuccessful party to satisfy the Court that there are good reasons why it should not pay the other party’s costs.[4] The defendants submit that the plaintiff has failed to articulate any good reason as to why a costs order should not be made for the benefit of the second defendant or, in the alternative, as to why costs ought to be contained to 5%.
[4] Nikolaou v Papasavas, Phillips & Co (1989) 166 CLR 394 at 407.
21The defendants submit that costs must necessarily follow the event for the benefit of the second defendant in accordance with the ordinary practice.
22The defendants contend that the plaintiff’s position that the issue of the guarantee raised being merely a discrete issue is misconceived. They assert that the plaintiff’s submissions conflate the two defendants and treats them as one-in-the-same. Such an approach ignores the fundamental principle pertaining to separate legal personality which applies at law.
23The defendants distinguish the case of Bowen v Alsanto Nominees Pty Ltd[5] on the basis that the Western Australian Court of Appeal was asked to discount costs because one of the three plaintiffs’ grounds failed. They claimed that the defendant in that case was put to the unnecessary additional expense by addressing and defending one of the plaintiff’s grounds upon which they were ultimately unsuccessful. That argument was not accepted by the Court. Further, the defendants contend that the decision has no bearing upon the second defendant as he was wholly successful in defeating the plaintiff’s claim against him.
[5] [2011] WASCA 39.
24Further, the defendants argue that the plaintiff’s submissions to the effect that the issue of the guarantee required minimal time is also misconceived. They say that the guarantee could only be relied upon in the event that two pre-conditions were satisfied. First, the plaintiff was required to prove that a bone fide debt accrued. Second, the plaintiff was required to prove that a guarantee between the plaintiff and the second defendant was operative.
25The defendants submit that it is not the case that the plaintiff was entitled to assert any debt amount without the Court hearing from the second defendant as to the quantum of the claim. Issues as to the quantum of the claimed debt and the status of the claimed guarantee were rightly and necessarily pressed for the benefit of the second defendant at trial. They say that the second defendant was entitled to make submissions to the effect that the true debt was a lesser amount than that sought by the plaintiff, and he could only do so by actively participating in all facets of the proceedings, as is evident by the defendants’ joint defence.
26The defendants concede that the submissions pertaining to the quantum of the debt benefited the first defendant as well. For that reason, the second defendant seeks scale costs at 50% of the combined legal costs of the first and second defendants. The defendants submit that it is otherwise not possible to separate the second defendant’s costs given that all matters relating to the first defendant necessarily related to the second defendant, save that the second defendant had the added burden of defending the claimed guarantee.
The Authorities
27Both parties acknowledge that it is settled practice that in the absence of special circumstances, a successful litigant should receive their costs.[6]
[6] Ritter v Godfrey [1920] 2 KB 47 at 52; David Bailey and John K Arthur, Civil Procedure Victoria (LexisNexis) at [63.02.80].
28The Court must use its discretion judicially if there are some grounds for its exercise in determining special circumstances to depart from the general rule.[7]
[7] Donald Campbell & Co Ltd v Pollak [1927] AC 732 at 809, 811.
29Costs to follow the event means no more than that the normal order for costs is that the party who wins has the costs paid by the other side. The event which determines the disposition of costs is not limited to the ultimate fate of the litigation but to the fate of each and every issue argued in the proceeding.[8] Therefore, if each party succeeds on a discrete issue, then they will be entitled to the costs of that issue.[9]
[8] S v Minister for Youth and Community Service (1986) 10 Fam LR 849 at 856.
[9] APN Funds Management Ltd v Australian Property Investment Strategic Pty Ltd (No 2) [2012] VSC 365.
30Where the same solicitor acts for two or more defendants, and only one succeeds, as a general rule, any successful defendant is only entitled to their proportion of the costs incurred on behalf of all the defendants, plus the costs, if any, incurred exclusively on that defendant’s behalf.[10]
[10] Currabubula Holdings Pty Ltd v State Bank of New South Wales [2000] NSWSC 232 at [89]–[106].
31This “rule of thumb” is intended to achieve substantial justice in awarding costs as between a partially successful plaintiff and variously successful and unsuccessful defendants. The rule is founded on the basis that the defendants are proportionately responsible for and liable for the joint costs involved in mounting the defence.[11]
[11] Spotless Group Ltd v Premier Building and Consulting Pty Ltd [2008] VSCA 115 at [40].
32In circumstances of an interlocutory application, costs in the proceeding (formerly costs in the cause) meant that at trial these costs have to be disposed of with the costs of the trial, which are themselves costs in the proceeding.[12] This means that the costs of the interlocutory proceeding is to be awarded according to the final award of costs in the proceeding. Although conditional, it is still an order for costs.[13] Therefore, the costs in the proceeding are the costs only to which the successful party would be entitled to on taxation. The trial judge does not have power to reconsider an order that the costs of interlocutory proceedings be in the proceeding.[14]
[12] Dubbo Refrigerating Co v Rutherford (1898) 14 WN (NSW) 180.
[13] Container Terminals Australia Ltd v Xeras (1991) 23 NSWLR 214 at 217.
[14] Koosen v Rose (1897) 45 WR 337.
Analysis
33In my view, there are no special circumstances demonstrated in the present case to deprive the second defendant as a successful litigant in his defence of the proceeding of his costs.
34Examples of when a successful defendant might be deprived of all or part of their costs have included where the defendant brought about the litigation, has done something connected with the institution or conduct of the proceeding calculated to occasion unnecessary expense or litigation, or has done some wrongful act in the course of the transaction the subject matter of the dispute. There is no evidence of any unreasonable or improper conduct on the part of the second defendant.
35I agree with the defendants’ submissions that the plaintiff seeks to rely on authority in relation to a split of issues and not the principles applicable to costs following the event for defendants who are jointly represented but in which only one defendant has been successful in the proceeding.
36I accept the defendants’ submissions that the second defendant’s defence was not limited to the guarantee issue, but on a fair reading of the defence and further amended defence, was active in defending the principal debt alleged by the plaintiff.
37The defendants were legally represented by the same solicitor and therefore the general rule applies that the second defendant is entitled to his proportion of the costs incurred on behalf of all the defendants plus any additional costs exclusively incurred by him. In this case, the exclusive allegations involved the guarantee claims.
38For simplicity, the defendants seek an order of 50% of the combined legal costs of the defendants on a standard basis. I do not accept the plaintiff’s submission that the second defendant is only entitled to 5% of the total cost of the proceeding as this is an arbitrary figure which does to properly take into account the manner in which the second defendant participated in the defence of the claimed amount in addition to the alleged guarantee.
39In relation to the costs of the summary judgment, his Honour Judge Cosgrave has already made a costs order on 13 December 2019. This Court cannot sit on quasi appeal of that order. In dismissing the plaintiff’s application, his Honour found that it was inappropriate to grant final judgment in relation to the alleged further capital contribution of $250,000.00 and the guarantee. The defendants have been successful in the final determination on both of these issues. The plaintiff and the second defendant have been successful in the proceeding and so they are entitled to the costs of the application in accordance with the County Court Civil Procedure Rules2018.
Conclusion
40Accordingly, for the forgoing reasons, the Court will order:
(a) There be judgment for the plaintiff against the first defendant.
(b) The first defendant pay the plaintiff the sum of $1,347,969.82, comprising:
(i)$1,258,335.00 being the claim; and
(ii)$89,634.82 in interest.
(c) The first defendant pay the plaintiff’s costs of the proceeding, including reserved costs, to be taxed in default of agreement.
(d) The claim against the second defendant is dismissed.
(e) The plaintiff pay the second defendant’s costs of the proceeding, including reserved costs, to be taxed at 50% of the combined legal costs of the first and second defendants.
(f) There be a stay of 30 days on the operation of paragraphs b, c and e.
- - -
Certificate
I certify that these 9 pages are a true copy of the ruling of her Honour Judge Burchell delivered on 27 January 2022.
Dated: 27 January 2022
Andrea Ko
Associate to Her Honour Judge Burchell
0
12
0