Sagacious Procurement Pty Limited (subject to a Deed of Company arrangement) v Symbion Health Limited (formerly Mayne Group Limited)

[2006] NSWSC 779

CITATION:	Sagacious Procurement Pty Limited (subject to a Deed of Company arrangement) v Symbion Health Limited (formerly Mayne Group Limited) [2006] NSWSC 779
HEARING DATE(S):	3/08/06
JUDGMENT DATE :	3 August 2006
JURISDICTION:	Equity Division Commercial List
JUDGMENT OF:	Einstein J
EX TEMPORE JUDGMENT DATE:	08/03/2006
DECISION:	Costs awarded. Stay refused.
CATCHWORDS:	Costs - Stay pending appeal - Need for assessment of prospects of appeal - payment out of funds paid into Court as security for costs
LEGISLATION CITED:	Civil Procedure Act 2005 Uniform Civil Procedure Rules
CASES CITED:	Baulderstone Hornibrook Engineering Pty Limited v Gordian Runoff Limited [2006] NSWSC 583 Darryll Cullen v ZLB Behring LLC [2006] NSWSC 359 Donald Campbell & Co Limited v Pollak [1927] AC 732 Illawong Village v State Bank of New South Wales (2005) NSWSC 524 Latoudis v Casey (1990) 170 CLR 534 Oshlack v Richmond River Council (1998) 193 CLR 72 Permanent Trustee Australia Ltd v FAI General Insurance Co Ltd (unreported, New South Wales Supreme Court, 3 June 1998) Waters v P C Henderson (Australia) Pty Limited, unreported, NSWCA, 6 July 1994, BC9404952
PARTIES:	Sagacious Procurement Pty Limited (subject to a Deed of Company arrangement) ACN 003 753 526 (Plaintiff) Symbion Health Limited (formerly Mayne Group Limited) ACN 004 073 410
FILE NUMBER(S):	SC 50158/02
COUNSEL:	Mr N A Cotman SC, Ms C L Parry (Plaintiff) Mr D J Hammerschlag SC, Mr D J Pritchard (Defendant)
SOLICITORS:	Sagacious Legal Pty Limited (Plaintiff) Freehills (Defendant)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
COMMERCIAL LIST

Einstein J

Thursday 3 August 2006 ex tempore
Revised 4 August 2006

50158/02 Sagacious Procurement Pty Limited v Symbion Health Limited (formerly Mayne Group Limited)

JUDGMENT

Matters before the court

1 The proceedings are presently before the court for:

i. the determination of costs following the Judgment [2006] NSWSC 654 delivered on 14 July 2006;

ii. a decision on the application by the defendant for payment out of certain security for costs funds provided by or on behalf of the plaintiff.

[I note the terms of the second tranche of alternative orders sought by the defendant/cross claimant seeking in paragraph 5:

5. Further and alternatively, the plaintiff pay the defendant’s costs of the proceeding, including the cross-claim, alternatively, 90% of the defendant’s costs of the proceeding, including the cross-claim, such costs to be assessed on a party-party basis up until 5 February 2004 and on an indemnity basis thereafter, save for the following costs of the defendant, in relation to which an order be made pursuant to section 98(4)(c) of the Civil Procedure Act 2005 that the plaintiff pay the following gross costs sums:

(a) the fees of Mr Hammerschlag SC, pursuant to invoices rendered by him dated 22 May 2006 and 22 June 2006, of $173,475.00;

(b) the fees of Professor Vitale, pursuant to invoices rendered by him dated 20 February 2006, 3 April 2006, 14 April 2006 and 26 June 2006, of $20,970.56;

(c) the fees of Mr Gardiner, pursuant to invoices rendered by him dated 22 March 2006 and 30 June 2006, of $18,900.00;

(d) the fees of Mr McEvoy of PricewaterhouseCoopers, pursuant to invoices rendered by him dated 2 May 2006 and 13 July 2006, of $37,260.00

(e) the fees of Mr Robert Kus of PricewaterhouseCoopers, pursuant to the invoice rendered by him dated 2 May 2006, of $180,552.60;

(f) the cost of transcript be allowed for $9,372.00].

iii. additionally the plaintiff seeks a stay of the costs orders.

Costs

2 The proceedings involved claims by the plaintiff in respect of:

(a) misleading and deceptive conduct surrounding the circumstances of the entry into the SAA. [This claim was quantified by the plaintiff in the sum of $790,000];

(b) the 2 roll out claims, being in respect of:


(i) delayed roll out between September 2000 and March 2001 (the “first roll out claim”). [This claim was quantified by the plaintiff in the sum of $296,677]; and

(ii) 5 particular hospitals in relation to which it was alleged the plaintiff was never given access. [This claim was quantified by the plaintiff in the sum of $228,000];

(c) the 16 April 1999 letter agreement. [This claim was quantified by the plaintiff in excess of the sum of $100,000,000].

3 The proceedings also included a claim by the defendant against the plaintiff in respect of the defendant’s pre payment of the plaintiff’s invoices concerning the delivery of goods and services which were never provided by the plaintiff. This claim was in the sum of $1,781,205.26.

4 The plaintiff only obtained a judgment on the first roll out claim for $200,607 (being $211,171 contended for by the expert for the defendant and not the $296,677 contended for by the plaintiff expert, less 5% for uncertainties).

5 The defendant obtained an entitlement to judgment for $1,781,205.26.

6 Before interest, the judgment resulted in a net benefit to the defendant of $1,580,598.

7 After the parties agreed appropriate interest calculations as at 18 July 2006 on the respective amounts, the defendant obtained a net benefit of $2,105,039.51 (being $2,408,384.77, less $303,345.26). A little later the Court will be ordering a judgment in that sum.

The principles

8 The principles were summarised in Darryll Cullen v ZLB Behring LLC [2006] NSWSC 359 at [2]-[6]:

“2 Section 98 of the Civil Procedure Act 2005 gives to the Court full discretion to award costs. Part 42 rule 42.1 of the Uniform Civil Procedure Rules provides that if the Court makes any order as to costs, the Court shall order that the costs follow the event, except where it appears to the Court that some other order should be made as to the whole or any part of the costs.

3 The well-known authorities support the proposition that the general principle of an award of costs is that costs are awarded to compensate the successful party for the expense of being put to the necessity of litigation: Oshlack v Richmond River Council (1998) 193 CLR 72, at 97-98 per McHugh J, at 120-123 per Kirby J; Latoudis v Casey (1990) 170 CLR 534 at 543 per Mason CJ.

4 Accordingly, in the ordinary course, costs will follow the event ( Oshlack at 97 per McHugh J, at 121 per Kirby J; Donald Campbell & Co Limited v Pollak [1927] AC 732 at 811-812 per Viscount Cave LC).

5 In Oshlack McHugh J, with whose reasons for judgment Brennan CJ was in general agreement, after dealing with the statutory discretion conferring on the Court a broad discretion as to costs, said at 96:


"The discretion must be exercised judicially

Although the statutory discretion is broadly stated, it is not unqualified. It clearly cannot be exercised capriciously. Importantly, the discretion must be exercised judicially in accordance with established principle and factors directly connected with the litigation. In this manner, the law has gradually developed principles to guide the proper exercise of the discretion and, in some cases, to highlight extraneous considerations which, if taken into account, will cause the exercise of the discretion to miscarry. Consistent with the aim of justice, the law could not have developed otherwise.
...

By far the most important factor which courts have viewed as guiding the exercise of the costs discretion is the result of the litigation. A successful litigant is generally entitled to an award of costs.
...

The combined force of the sentiments recognised above by Mason CJ, regarding the need for consistency in order to avoid injustice, and by Devlin J, regarding the most significant factor affecting the costs discretion, provides the jurisprudential basis for the important principle commonly referred to as the 'usual order as to costs'.

The usual order as to costs

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. 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."

6 In the notes to the Supreme Court Rules Part 52A 11.2, the originator to Part 42 rule 42.1, the following appears (cited with approval by the Court of Appeal in Waters v P C Henderson (Australia) Pty Limited , unreported, NSWCA, 6 July 1994, BC9404952):

" Where the proceedings involve multiple issues the application of the rule that costs follow the event may involve hardship where a party succeeds on some issues yet fails on others. Particularly is this so where, for example, a defendant succeeds on issues that occupy the bulk of time taken by the proceedings. Nevertheless, unless a particular issue or group of issues is particularly dominant or separable, it would ordinarily be appropriate to award the costs of the proceedings to the successful party without attempting to differentiate between those particular issues on which it was successful and those on which it failed."”

9 Further, in Darryll Cullen (supra) at [12], the following was noted:

“However, the situation in respect of a cross-claim which is pursued was examined by Hodgson CJ in Eq (as his Honour then was) in Permanent Trustee Australia Ltd v FAI General Insurance Co Ltd (unreported, New South Wales Supreme Court, 3 June 1998), where Hodgson CJ in Eq said as follows:

"Dealing first with severability I should state right away that I am not here dealing with the situation where there are separate claims for different relief such as two claims by a plaintiff for different relief, or a claim by a plaintiff and a cross-claim by a defendant. In those cases it is generally fairly clear that the overall winner will get the general costs of the action, but will be liable to pay costs to the extent that they were increased by the separate claim on which he or she was unsuccessful."”

10 In Baulderstone Hornibrook Engineering Pty Limited v Gordian Runoff Limited [2006] NSWSC 583 at [10]-[12] the following observations were made in relation to differentiation of issues:

“10 The effect of UCPR Part 42 r 42.1 is that an unsuccessful party may be ordered to pay the entirety of the costs of a successful party, even though the successful party did not succeed on all issues. Special circumstances are generally required to justify some other order being made

11 Unless a particular issue or group of issues is clearly dominant or separable it will ordinarily be appropriate to award the costs of the proceedings to the successful party without attempting to differentiate between those particular issues on which it was successful and those in which it failed: Waters v PC Henderson (Aust) Pty Ltd (unreported, Supreme Court of New South Wales Court of Appeal, Kirby P, Mahoney JA, Priestley JA, 6 July 1994, BC 9404952).

12 Whilst the general principle is that an ultimately successful party ought not be put at risk as to costs merely by having relied upon additional issues upon which it did not succeed (on the basis that the ultimate ends of justice may not be served if a party is dissuaded by the risk of costs from canvassing all issues which might be material to the decision in the case), a successful party may only get a proportion of its costs if the unsuccessful party is able to identify clearly dominant or separable issues lost by the successful party”.

Applying the principles

11 It is fair to observe that properly characterised, the proceedings always involved the fundamental issue of whether, as asserted by the plaintiff, the defendant owed more money to the plaintiff than $1,781,205.26.

12 It was in that context that the plaintiff propounded the misrepresentation claim, the 2 roll out claims and the 16 April 2002 letter claim.

13 The 16 April 2002 letter claim was always the central and predominant issue in the proceedings.

14 To obtain any net judgment against the defendant, the plaintiff would always have had to have succeeded on the 16 April 2002 letter claim. The other 3 claims only totalled $1,314,677 (being $790,000, $228,000 and $296,677 respectively).

15 The plaintiff succeeded to a certain amount on the first roll out claim. The plaintiff failed on the misrepresentation claim, the second roll out claim and the 16 April 2002 letter claim. The Court accepted the defendant’s expert quantification of the first roll out claim and rejected the plaintiff’s expert quantification of the first roll out claim.

16 While clearly some Court time was involved with the determination of the first roll out claim, that time and the amount of expert and lay evidence on the issue of the first roll out claim was small. The various experts only needed to pay brief attention to this issue and those experts were giving evidence in relation to the much more substantive claims by the plaintiff against the defendant in any event. The facts (if not the legal issues) the subject of the first roll out claim also had at least some relevance to the determination of the 16 April 2002 letter claim in any event, especially as the first roll out claim involved consideration of facts and issues leading up to and surrounding the entry into the 18 January 2002 letter agreement/variation of the SAA. Having said that, it is also plain that the first roll out issue did raise separable matters of fact.

17 On my assessment the amount of time likely taken in the proceedings including pre-trial work in relation to the first roll out period is fairly put as 10 per cent.

Offers of comprise and Calderbank considerations

18 On 5 February 2004, the defendant served an Offer of Compromise in accordance with the Supreme Court Rules offering payment by the defendant to the plaintiff of the sum of $500,000, plus costs to be agreed or assessed. The covering letter dated 5 February 2005 made it clear that the offer was inclusive of the defendant not pursuing its claim against the plaintiff in respect of the defendant’s pre payment of the plaintiff’s invoices (being a claim which had not, at that time, been filed by way of a cross claim in the proceedings) [“offer 1”].

19 On 10 December 2004, the defendant made a Calderbank offer of settlement to the plaintiff on the basis of the payment to the plaintiff by the defendant of the sum of $640,000, plus costs as agreed or assessed, and the plaintiff’s cross claim, which had been filed by that date, being withdrawn with each party bearing its costs of the cross claim. The offer was stated as being open until 16 December 2004 [“offer 2”].

20 On 23 December 2004, the defendant served an Offer of Compromise in accordance with the Supreme Court Rules offering:

(a) payment by the defendant to the plaintiff of $640,000 (plus interest from 31 July 2002 to the date of payment) plus costs as agreed or assessed. Interest on $640,000 from 31 July 2002 to 23 December 2002 was $138,243.45, making a total offer of $778,243.45, plus costs; and

(b) to discontinue the plaintiff’s cross claim and paying the plaintiff’s costs of the cross claim as agreed or assessed (with the defendant retaining the benefit of its existing costs assessments already to hand).
[“offer 3”]

21 In my view offer 3 gave the plaintiff a reasonable opportunity to consider the offer.

22 The net effect of each of offers 1, 2 and 3 was that the defendant was offering a sum certain, plus costs, to the plaintiff and agreeing to discontinue its cross claim. [For example, in relation to offer 3, there was a net effective offer by the defendant to the plaintiff of $2,559,448.40 (being $640,000, interest between 31 July 2002 and 23 December 2004 of $138,243.45, and $1,781,205.26 on the cross claim), plus costs].

23 Plainly, the defendant is to obtain judgment ($2,105,039.51) no less favourable to the defendant than any of offers 1, 2 or 3. There has, for example, been a “turnaround” of $4,664,487.91 in relation to offer 3.

Costs decision

24 The principled exercise of the Court’s discretion is to order that the plaintiff pay 90% of the defendant’s costs of the proceedings, including the cross claim, up until 23 December 2004 and on an indemnity basis thereafter. This on the basis that the roll out issue may fairly be regarded as separable.

Stay application

25 As already indicated, the plaintiff has applied for an order staying the costs orders on the basis that the plaintiff is proposing to appeal. In that regard, the position is that even at this moment the plaintiff has not even filed a holding appeal. However, Ms Parry of counsel who appears today on behalf of the plaintiff has indicated that her instructions are that the plaintiff will today lodge such a holding appeal with the Court of Appeal. In Illawong Village v State Bank of New South Wales (2005) NSWSC 524, Justice Campbell dealt with the embarrassing position in which a trial judge is placed, where there is no indication, nor scintilla of such, as to what may be suggested to be reasonably arguable grounds of appeal.

26 An understanding of the extent to which reasonable grounds of appeal are to be pressed is certainly one at least of the parameters which engages the exercise by the court of its discretion with respect to the making of a stay order.

27 In my view, in those circumstances, it is presently inappropriate for the Court to accede to the plaintiff's application for a stay of the costs orders and I decline to do so.

Payment out of security for costs funds

28 There is then an issue as to the application by the defendant for the payment out of security for costs funds provided by or on behalf of the plaintiff to the defendant.

29 There are some significant questions of principle, which require to be addressed here. They include the undoubted fact that the orders of the Court [made with the agreement of the parties] are now sought to be outflanked by the defendant's application that this is appropriate, following what is put as ‘material changes in circumstance’ exhibited by the actual costs of the proceedings far exceeding the amount of the security ultimately provided.

30 It is true that the defendant is able to establish a prejudice to it in terms of being practically unable to make an application for interest on its costs until the date of production of a certificate of assessment. Mr Pritchard, who today appears for the defendant, has pressed upon the Court the reasoning to be found in the judgment of Justice Campbell in Illawong Village at paragraph 18, where the following is to be found:

"In the present case the plaintiff has established that the costs of the assessment may well be significant. The costs could, at the top end of the possible range, run as high as $120,000 or thereabouts. The plaintiff submits that if it were to succeed on the appeal and the costs order were to be overturned, the costs and effort involved in conducting the assessment at this stage would be wasted. That is undoubtedly true. However, insofar as the time of professional people is involved, whether they be solicitors, costs assessors or cost consultants, that is a loss which can be adequately compensated for by a costs order. There is no real doubt that if the plaintiff were to succeed in the appeal it would receive a cost order from the Court of Appeal, and that the costs of carrying through an order for costs made at first instance by assessing those costs are part of the costs concerning which a successful appellant's costs order would be recovered."

31 The burden of the submissions put forward by the defendant in support of the claim that it is appropriate to presently make an order for payment out to it of the security are the factual matters set out in paragraph 35 of its initial submissions concerning: the plaintiff's impecuniosity; the inevitability that the assessed costs will very significantly exceed the secured sum; the significant delay associated with the assessment process; the fact that the defendant will practically not be able to make any application for interests on its costs; the defendant's offer of an order to repay the secured sum with interest in appropriate circumstances; the defendant's status as a publicly listed company and its net asset position; the secured sum being made available by a commercial lender and there being, it is submitted, no actual prejudice suffered by the plaintiff by reason of the Court making the order sought for payment out of the security.

32 I do accept that notwithstanding that the prior orders of the Court were made with the agreement of the parties, there has been a material change of circumstances, in that the actual costs of the proceedings far exceed the amount of security ultimately provided. It is true that more pre-trial preparation was required than anticipated, and that more experts were required than anticipated, and that the hearing took longer than anticipated. It is true that the plaintiff remains impecunious.

33 On my assessment in terms of the principled exercise of the relevant discretion, there is no practical advantage to any party in the plaintiff's current position.

34 Essentially the proposition put forward by the plaintiff has been that the payment out should not be made pending the matter coming before the Court of Appeal.

35 In all of the circumstances it does seem to me that the principled exercise of the Court's discretion is to accede to the defendant's application by it's notice of motion for effectively orders 1 to 4 inclusive in the amended notice of motion [and in respect of which notice of motion I grant leave today for the motion to be filed in court].

36 It is appropriate to add that I had taken into account an alternative approach to that which I have indicated is to be taken here, namely, that the matter could be held for decision by the Court of Appeal in terms of interlocutory steps which will no doubt require to be treated with by that Court before the hearing of the appeal. At the end of the day, however, it does seem to me that the approach I have taken is the appropriate approach. Naturally the approach which I have taken can also be the subject of an application for leave to the Court of Appeal, which is apparently shortly to have the holding summons before it.

37 It is finally appropriate to refer to the alternative application put by the defendant for the Court to make a gross costs sum order as sought in paragraph 5 of the amended notice of motion subject to the constraints that appear in that paragraph. The defendant/cross claimant appears, unless I misunderstand the position, to have had in mind that the Court makes a gross costs sum order at short notice. Ms Parry, who has appeared today for the defendant, as I have said, has indicated that her client was not ready in terms of the evidence which it would seek to mobilise on the gross costs sum order application to deal with that matter today.

38 At the commencement of the hearing I indicated that any question of the pursuing by the defendant of the gross cost sum order approach would not be finally determined by the Court and that Ms Parry's client, if the defendant is to pursue the matter, will be given a proper opportunity to mobilise its affidavit evidence and to further argue the matter.

39 I also make clear that nothing in the orders of the Court [which conventionally will make a costs order or a costs plus indemnity order] necessarily prevents the party having the benefit of such an order from endeavouring to change the approach to an order of the Court for a gross costs sum order.

40 In short, notwithstanding the orders which the defendant is to procure from the Court by short minutes today, there is nothing as I understand it to prevent the defendant from pursuing that part of the notice of motion which I have declined to essentially deal with. I do make the points that these things do sometimes take real time, have to be addressed properly, and in my experience there has to be a hearing date given and some hours to focus upon principle, costs and detail. It is not something that can necessarily be dealt with very quickly and it may be something which can only take some real time. I would not presently be in a position to inform the parties as to when Justice Bergin might be able to give such an application real court time. That must await the future.

Short minutes of order

41 Unless I have omitted to treat with any particular topic, to my persuasion the defendant should be required to bring in short minutes of order reflecting the above reasons. As soon as they are brought in, the Court will make the necessary orders. That having being said, the parties have now agreed that the Court is presently in a position to make the orders in the minute of order which has been passed to me.

42 Accordingly I now make orders in terms of the document entitled minutes of order, paragraph 1, which I initial and date 3 August 2006.