Sali & Anor v Metzke & Allen (No 2)
[2009] VSC 169
•17 April 2009
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
No. 5478 of 2005
BETWEEN
SAM SELAMI SALI (who sues on his own behalf and in his capacity as administrator of the estate of ALAN ASLAN SALI deceased)
and
| S. SALI & SONS PTY LTD (ACN 005 210 319) | Plaintiffs |
| and | |
| FRANK METZKE AND RUSSELL ALLEN (trading as Metzke & Allen) | First and Second Defendants |
| and | |
| MATTHEW JOHN BLIZZARD | Third Defendant |
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JUDGE: | Whelan J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 16 April 2009 |
DATE OF RULING: | 17 April 2009 |
CASE MAY BE CITED AS: | Sali & Anor v Metzke & Allen (No 2) |
MEDIUM NEUTRAL CITATION: | [2009] VSC 169 |
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PROCEDURE – Costs – Apportionment of costs – Whether costs should be reduced where a party has been only partially successful – Costs reduced to 70 per cent of the plaintiffs’ party/party costs.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr S Palmer | Kaine Lawyers |
| For the Defendants | Mr J Slattery | Deacons |
HIS HONOUR:
On 19 February 2009 I delivered reasons for judgment in this matter. The reasons I am delivering today assume knowledge of those reasons.
The parties represented in this proceeding being the plaintiffs on the one hand and the first and second defendants on the other agree that consequent upon the reasons for judgment which I delivered on 19 February 2009 there should be judgment in favour of the second plaintiff against the first and second defendants in the sum of $129,736 together with interest of $60,172.62. There will be judgment accordingly.
In the reasons I delivered on 19 February 2009 I referred to and explained the position of the third defendant in this proceeding. I will hereafter refer to the first and second defendants simply as “the defendants”.
Yesterday I heard submissions on the issue of costs. Counsel on behalf of the plaintiffs and counsel for the defendants each relied upon written submissions and also made further submissions orally.
There was no controversy between the parties that there should be a costs order on a party/party basis in favour of the plaintiffs. The controversy is as to whether that order should be reduced. The defendants contend that the order should be reduced to 40 percent of the plaintiffs’ costs and that the costs referrable to two experts, Mr Lom and Mr Munday, should be excluded. The plaintiffs contend there should be no reduction. As to the applicable principles, counsel for the plaintiffs and counsel for the defendants each relied upon the Court of Appeal’s decision in McFadzean & Ors v Construction Forestry Mining & Energy Union & Ors.[1]
[1][2007] VSCA 289.
The relevant matters in that decision seem to me to be the following:
(1)The Court of Appeal endorsed[2] the following summary of the position as to costs where a party has been partially successful as set out by Eames J in Pricom Pty Ltd v Sgarioto & Ors:[3]
“As a general rule costs should follow the event, and a successful party should obtain all of the costs of the action even although it failed to established some of the alternative heads of its claim. … However, in the exercise of its discretion the court may decline to order costs in favour of a successful party, or may order the successful party to pay the costs of the unsuccessful party, where the plaintiff failed to establish discrete heads of claim, or failed to establish issues which it pursued in its claim, although ultimately succeeding on the basis of another discrete head of claim.“ [4]
(2)The Court of Appeal explained that, in this context “’issue’ is not used in the technical pleading sense, but refers to any disputed question of fact or law”. [5]
(3)The Court of Appeal observed that where it is appropriate for the costs order to reflect the fact that a party has failed on certain issues, an approach whereby a certain proportion of that party’s costs is ordered “has much to commend it”. [6]
[2]Ibid, [152].
[3](Unreported, Supreme Court of Victoria, Eames J, 10 April 1995).
[4]BC9503266, at 8.
[5]McFadzean & Ors v Construction Forestry Mining & Energy Union & Ors [2007] VSCA 289, [156].
[6]Ibid, [157].
I have also had regard to the helpful review of the authorities by Robson J in GT Corporation v Amare Safety Pty Ltd (No 3)[7] and to the caution in relation to applications of this kind expressed by Jacobs J in Cretazzo v Lombardi[8] where he observed, among other things:
“The ultimate ends of justice may not be served if a party is dissuaded by the risk of costs from canvassing all issues, however doubtful, which might be material to the decision in the case.” [9]
[7][2008] VSC 296.
[8](1975) 13 SASR 4.
[9]Ibid, 16.
The defendants contend that the costs order in favour of the plaintiffs should be reduced for four reasons. They were:
(1)It was submitted that the plaintiffs’ claim in essence was in two parts: the first concerning decisions allegedly taken at a board meeting in September 1999, and the second concerning conduct thereafter. It was submitted that the first part of the claim had wholly failed and that the second had succeeded in one discrete respect only.
(2)It was submitted that substantial time had been spent on issues upon which the plaintiffs had failed. The issues particularly identified were the complaints concerning advice as to the budget and the B doubles, the complaint as to the alleged failure to warn of insolvency, and the complaint as to the failure to comply with the alleged requests made for audits to be conducted of Universal Logistics Pty Ltd (“Universal Logistics”).
(3)It was submitted that there had been no need for the plaintiffs to agitate the issues upon which they had failed as the facts which formed the foundation of the claim which did succeed were, in substance, uncontroversial.
(4)It was submitted that two parts of the plaintiffs’ case were misconceived, being the characterisation of the September 1999 board meeting, and the significance of the issue of insolvency.
As to the extent of the reduction contended for by the defendants, it was submitted that the expert reports of Mr Lom and Mr Munday had been predominantly directed towards the misconceived insolvency issue and that otherwise the plaintiffs’ costs should be reduced to 40 percent so as to properly reflect the following matters:
(1)An analysis of the time spent on various specified issues as set out in an affidavit of the solicitor for the defendants, Matthew James Ellis, sworn 9 April 2009.
(2)The fact that the defendants were not recovering costs on issues upon which they had succeeded.
(3)The fact that the first plaintiff had entirely failed.
There is merit in the defendants’ submissions concerning costs. It is true that there were many issues raised in the proceeding upon which time was expended where I have found against the plaintiffs. I will return to the particular matters which seem to me to have significance in that context. Notwithstanding that conclusion, the submissions of the defendants in my view go too far. The defendants’ analysis of the particular issues raised in the proceeding and of the time spent on them is too rigid.
The nature of the case was such that all of the matters canvassed in the trial had to be addressed at least to some extent. In this respect I accept the submission put on behalf of the plaintiffs that the claim of the second plaintiff which succeeded was by its nature founded upon evidence concerning all of the different matters raised in the proceeding, notwithstanding that the plaintiffs’ specific complaints concerning many of those matters failed.
There is also in my view an element of unfair analysis in hindsight in the approach the defendants now take. One example of that approach concerns the scope of the retainer, which the defendants now characterise as an issue of limited ambit. This is in contrast to their pleading which indicated that there was a very significant issue of difference between the parties on that matter.
It is also important that the plaintiffs did establish breaches of the retainer, and breaches of a duty of care, by the defendants on two occasions. One of those breaches was a cause of significant loss, although the extent to which that loss was recoverable against the defendants was substantially reduced by reason of the apportionment legislation.
It is true that the plaintiffs raised many issues upon which they failed. But in order to establish the breaches which they did establish it was necessary to address the nature and scope of the defendants’ retainer, because the defendants put that matter in issue in their defence, and to address, at least to some extent, all of the significant events concerning Universal Logistics between the time when Mr Allen commenced attending board meetings in 1999 and the time of the appointment of the administrators in 2001.
While it is true that to some extent the plaintiffs’ experts, Mr Lom and Mr Munday, addressed a misconceived issue in their reports, it is also true that the material they produced and the evidence they gave concerning Universal Logistics’ financial position was relevant.
As to the submission that only the second plaintiff succeeded, that circumstance needs to be addressed in the context of these considerations:
(1)The first plaintiff established a breach of retainer and breach of duty of care, although it failed to establish any loss as a consequence.
(2)The relevant retainer was such that the interests of the three claimants (treating the Alan Sali estate as a separate entity for these purposes) were inextricably intertwined. It would have been most unwise for any of those three to pursue a claim alone.
(3)All the matters the subject of evidence in the trial would have had to be canvassed, at least to some extent, even if the second plaintiff had brought a proceeding alone.
Whilst in my view the defendants’ submissions go too far, the defendants are correct in submitting that there were many significant issues raised in the proceeding upon which the plaintiffs failed. The issues which seem to me to have significance in this respect are these:
(1)The issue concerning the events at the board meeting on 18 April 2000. In this respect I refer to my reasons for judgment at [175] to [180] and [250] to [253].
(2)The plaintiffs’ characterisation of the nature and significance of the September 1999 board meeting and the complaints concerning Mr Allen’s advice as to the budget. In this respect I refer to my reasons at [233] to [234].
(3)The plaintiffs’ complaints concerning the acquisition of the B doubles and Mr Allen’s analysis of the B doubles proposal. In this respect I refer to my reasons for judgment at [229] to [230].
(4)The plaintiffs’ complaint concerning the leases in Sydney and Brisbane. In this respect I refer to my reasons for judgment at [249].
(5)The plaintiffs’ allegations concerning audit requests. In this respect I refer to my reasons for judgment at [181] to [185].
(6)The plaintiffs’ failure to establish that the Sali brothers would have acted differently if Mr Allen had taken the steps he ought to have taken before advising them in October 1999. In this respect I refer to my reasons for judgment at [244] to [247].
It is in my view particularly relevant that the plaintiffs failed on every issue where the evidence of their principal witness, Mr Sam Sali, conflicted with the evidence of the principal witness for the defendants, Mr Russell Allen. On one particularly important matter, the board meeting on 18 April 2000, it was necessary for me to comment adversely upon Mr Sali’s credit.
Counsel for the plaintiffs submitted that the plaintiffs’ case was such that the issues upon which the plaintiffs failed were not discrete and separable from the issues upon which the plaintiffs succeeded. It was also submitted on behalf of the plaintiffs that in order to give effect to the caution expressed by Jacobs J in Cretazzo it was necessary to allow a plaintiff some leeway so as not to dissuade parties from canvassing all issues which may be material.
My conclusion is that the plaintiffs here put their case in a way which went beyond the bounds of what I might describe as acceptable leeway. The plaintiffs raised and failed on too many issues for that circumstance not to be reflected in the costs order.
An issue was raised on behalf of the plaintiffs as to an offer which had been made by the defendants in February 2007 and which was referred to in correspondence exhibited to Mr Ellis’ affidavit. I do not consider that that offer is relevant for the reasons given by the Court of Appeal in McFadzean in relation to a similar submission which was made there.[10]
[10]McFadzean & Ors v Construction Forestry Mining & Energy Union & Ors [2007] VSCA 289, [154].
In all the circumstances, it seems to me that the appropriate reduction is 30 percent. The order will be that the defendants pay 70 percent of the plaintiffs’ party/party costs.
The defendants have foreshadowed the possibility of an appeal and have sought a stay of execution. While there is power under Rule 66.16 of the Supreme Court (General Civil Procedure) Rules 2005 (Vic) to stay execution, a party who obtains judgment is ordinarily entitled to have it enforced without delay. The defendants have had my reasons for judgment since 19 February 2009. They do not say that they intend to appeal, they merely foreshadow that possibility. In the circumstances, I do not consider that there presently exist grounds for a stay of execution.
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