Sirrom Enterprises Pty Ltd v As Bannister (No 2) - [2015] SADC 144

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
SIRROM ENTERPRISES PTY LTD v AS BANNISTER & ORS (No 2)
[2015] SADC 144
Judgment of His Honour Judge Tilmouth
22 October 2015
PROCEDURE - COSTS - DEPARTING FROM THE GENERAL RULE - OTHER CASES
Since the plaintiff was successful in obtaining a not insubstantial judgment against the defendants, it has thereby a reasonable expectation of a costs order in its favour and that costs should follow the event, however it is appropriate that it should have 65 per cent of its costs to be agreed or taxed on a party/party bases, to reflect the fact that the plaintiff was unsuccessful on several issues. Pre-judgment interest of $15,000 awarded by way of a lump sum.
District Court Act 1991 (SA) ss 39(2), 42; Limitations of Actions Act 1936 (SA) s35; District Court Civil Rules 2006 (SA) r 263(1), (2) and (3); Osborne v Kelly (1993) 61 SASR 308; Forlyle Pty Ltd v Tiver (2007) 252 LSJS 387; Hockey v Fairfax Media Publications (No 2) [2015] FCA 750; Stewart v Jacobsen (2000) 209 LSJS 174, referred to.
Spartalis v BMD Constructions Pty Ltd (No 2) [2015] SASCFC 28, applied.
Batchelor v Burke (1981) 148 CLR 448; Stewart v Jacobsen (2000) 209 LSJS 174; Re Co-operative Development Funds of Australia Ltd (No 3) (1978) 3 ACLR 437; Cretazzo v Lombardi (1975) 13 SASR 4; Ramsey v Annesley College (No 2) [2013] SASC 145; Rodda & Anor v Ian Rodda Pty Ltd (No 3) [2015] SASC 135; McFadzean v CFMEU (2007) 20 VR 250; Bostik Australia Pty Ltd v Liddiard (No 2) [2009] NSWCA 304; Steiner v Strang [2015] NSWCA 203; EMI Songs Australia Pty Ltd v Larrakin Music Publishing Pty Ltd [2011] FCAFC 92; Forsyth v Deputy Commissioner of Taxation (2006) HCA TRANS 521; Rodda & Anor v Ian Rodda Pty Ltd (No 3) [2015] SASC 135; Latoudis v Casey (1990) 170 CLR 534; Oshlack v Richmond River Council (1998) 193 CLR 72; McFadzean v CFMEU (2007) 20 VR 250; EMI Songs Australia Pty Ltd v Larrakin Music Publishing Pty Ltd [2011] FCAFC 92; Copping v ANZ McCaughn (1995) 63 SASR 523, considered.

SIRROM ENTERPRISES PTY LTD v AS BANNISTER & ORS (No 2)
[2015] SADC 144
The Issues

These proceedings return to court so as to assess interest and make orders for costs, following judgment delivered on 25 June 2015 finding the defendants liable in negligence.[1] These reasons are to be read in conjunction with that judgment.
[1] Sirrom Enterprises Pty Ltd v AS Bannister & Ors [2015] SADC 100, 25 June 2015.
The primary proceedings
It is to be recalled that the plaintiff engaged the services of the defendant solicitors to undertake due diligence in respect of a proposed investment in a new company earmarked for the purpose of developing a building technique known as “smart panels”.
The course of the trial essentially fell into three parts in point of time. The first was devoted to the terms, nature and width of the retainer. The second focussed on the events of 5 December 2007 involving a ‘completion meeting’ during which it became evident there was a problem in obtaining a copy of the building licence of the building company with whom the plaintiff was proposing to become a party in the joint venture, Manson Nominees Pty Ltd. The third stage related to the post completion events.
In brief terms the court concluded the pre-completion correspondence and communications made it clear that responsibility for the procurement of the building licence of Manson Nominees was left to the plaintiff to organise, through its principal Mr Morris.[2] However a critical situation developed during the course of the completion meeting so as to erect a duty of care on the defendants to obtain a copy of the building licence when neither Mr Morris nor Mr Manson produced it.[3] As to the post completion stage, the court held the plaintiff’s fate remained largely in its own hands, during which no damage was proven to have resulted from any advice the defendants had, or had failed to render.[4]
[2] Ibid at [129], [159].
[3] Ibid at [130] – [136].
[4] Ibid at [152] – [154], [157] – [159].
Although there were a number of contested issues, the focus of the trial was undoubtedly upon the question of whether the scope of the due diligence retainer encompassed acquiring a copy of the relevant building licence. As it turned out the building licence held by the joint venturer builder, Manson Nominees Pty Ltd happened to hold only a restricted licence, unsuited to perform the work envisaged for the new company to be formed under the joint proposal. That deficiency was fatal to the enterprise proceeding.
In essence the critical conclusion was that when the licence was not produced at the completion meeting by Mr Morris, Mr Manson or Manson Nominees through an employee Mr Erskine, the simple, easy and affective step to enquire as to the exact status of the Manson licence, was not taken by the defendants.[5] This failure represents the core finding of negligence. Because the sum of $72,794 was handed over at the completion meeting which ought not to have been, the defendants were held negligent and therefore liable in damages for that sum.[6] It was further held that no damage flowed post-completion, as the plaintiff was given firm advice to enquire into the situation for itself and to ensure a valid licence was immediately obtained by the new company incorporated for the purpose, which it failed to do.[7]
[5] Ibid at [134].
[6] Ibid at [151].
[7] Ibid at [154], [158]-[159].
Having canvassed the facts and the essential conclusions reached in the primary judgment, it is now possible to deal with the outstanding issues.
Pre-judgment Interest
The court suggested, without coming to any firm conclusion, that interest might follow the sum awarded ‘most likely calculated to run from 5 December 2007, when the liability to pay that sum fell due’, pursuant to s 39(2)(b) of the District Court Act 1991 (SA).[8] Interest is sought by the plaintiff on this basis of the Reserve Bank of Australia rate plus 4 per cent, which produces a calculation of $43,580.40 on the primary sum of $72,794, from 5 December 2007.
[8] Ibid at [181].
Section 39(2)(a) of the District Court Act invests a wide discretion to fix interest at a rate to be set by the court, with respect to a period or periods fixed by the court, and in respect of the whole or part of the amount for which judgment is given.
An order for interest on any basis is opposed by the defendants. The defendants base their resistance to the claim for interest on ‘inexplicable delay in prosecuting’ the action. Proceedings were not issued until October 2011, just short of the six years limitation period provided for in s 35 of the Limitations of Actions Act 1936 (SA), the within proceedings being a concurrent action in tort and in contract. The plaintiff’s solicitors had first inspected the relevant Minter Ellison files nearly two years earlier. An initial notification of a formal claim in negligence was made by letter of 8 July 2009.
The primary purpose of pre-judgment interest is to compensate a successful plaintiff for being kept out of its money during the pre-judgment period: Batchelor v Burke,[9] Osborne v Kelly.[10] There is no doubt the assessment of an amount for pre-judgment interest may be influenced by delay, especially unexplained delay. This is usually the case when a successful plaintiff cannot be heard to complain of being kept out of money for the period of unreasonable delay occasioned by the plaintiff failing to institute proceedings in a timely fashion: Stewart v Jacobsen.[11] The authorities in point for this unexceptional proposition are collected at paragraph 31 of the defendants’ expansive written submission as to costs and interest.
[9] (1981) 148 CLR 448, 455.
[10] (1993) 61 SASR 308, 311.
[11] (2000) 209 LSJS 174, [2000] SASR 198 at [67] – [68] and the authorities referred to therein.
The influence of delay has to be considered in its context. The plaintiff through Mr Morris had invested and lost over $500,000 in this ill-fated investment. Sirrom Enterprises was in fact placed into liquidation in September 2008. The prospect of suing for legal negligence is inherently attended by uncertainty and complexity, quite apart from potentially dire commercial and financial consequences. Litigation was always likely to be expensive.
Despite the fact that the defendants maintain interest should only be awarded from 20 September 2013 when the proceedings were issued, it is proper however to allow a reasonable period beforehand to accommodate appropriate investigation and obtaining legal advice upon the merits of instituting such fraught proceedings. This process would also involve taking the advice of counsel, to allow for a reasonable period of time to draft proceedings, and to embark on potential settlement discussions and negotiations.
In the combined circumstances it is appropriate to allow interest for a period of 18 months pre-action as a reasonable time to undertake these necessary inquiries and for these essential processes to occur.
The defence concedes a flat rate of 6 per cent interest is applicable.[12] This is in keeping with orders of the court in recent years, so that it is proposed to allow interest from around March 2012 until to present at 6 per cent: Spartalis v BMD Constructions Pty Ltd (No 2),[13] expressed as a rounded period of three and a half years in a lump sum of $15,000, pursuant to s 39(3) of the District Court Act.
[12] Written Submission of Defendants paragraph 44.
[13] [2015] SASCFC 28.
Costs
The plaintiff seeks an order for costs in its favour pursuant to s 42 of the District Court Act, that is one applying the general rule that costs follow the event as premised by DCR 263(1) of the District Court Civil Rules 2006 (SA). The defendants contend the plaintiff should only be entitled to 10 per cent of its costs, on the basis that the plaintiff was substantially unsuccessful. There are no relevant formal or informal offers to consider.
An overall appraisal of the course of the proceedings leads to the conclusion that both sides conducted their cases within narrow tactical parameters. Both cases proceeded by reference to essentially the same salient subjects, focused around the Minter Ellison files. The issues proved far from simple or straight forward to resolve.[14]
[14] Primary judgment at [183].
For its part the plaintiff consistently maintained that this was a ‘no transaction case’, so that once negligence was proven, damages would flow as a matter of course.[15] This has not proven to be the case. For their part the defendants adhered to the narrow line that the situation was simply one of ‘limited retainer, didn’t follow advice’ as Mr Blight expressed it during the course of submissions.[16] That conception of matters proved to be misplaced, as the defendants failed to appreciate the significance of the critical situation that evolved during the completion meeting of 5 December 2007.
[15] T25.35-26.4; T1337.29-31.
[16] Primary judgment at [155].
It is difficult to escape the conclusion that howsoever conducted, the evidence given in the case is likely to have been much the same from the point of view of both sides. The various witnesses gave evidence substantially with reference to the Minter Ellison files relating to the retainers, a course that was unavoidable given the nature of the issues and the tactical stance taken on both sides. It was necessary for the plaintiff to lead evidence of the pre-completion events to establish the terms of the retainer and to erect the basis upon which a duty of care arose. On this aspect it did not succeed because the contemporary documentation (including that under the hand of Mr Morris himself), clearly limited the scope of the retainer to effectively exclude the defendants from responsibility for obtaining the building licence of Mr Manson or of Manson Nominees.
The court further accepted the advice given to Mr Morris by the defendants was essentially that deposed to by the solicitor Ms Briggs, especially on 5 December 2007.[17] In these respects the evidence of Mr Morris was rejected.[18] As to the subsequent events, the court accepted the evidence of Mr Morris that he would not have proceeded - or proceeded any further - had he been advised the restricted building licence was incapable of use for the purposes of the smart panel system.[19] The plaintiff nevertheless failed to prove consequential damages, because it retained control over the subsequent contingencies, which it voluntarily continued to expose itself to.[20] That being so, neither reliance nor causation was proven with respect to losses claimed post completion.[21] Accordingly, the post-completion payments were made because the plaintiff failed to comply with its obligations to ensure that the building licence issue was resolved ‘immediately’.[22]
[17] Primary judgment at [81], [124].
[18] Primary judgment at [82]-[83].
[19] Primary judgment at [144].
[20] Primary judgment at [152].
[21] Primary judgment at [154], [157]-[159].
[22] Primary judgment [154].
It is not possible in these circumstances to accept the defendants’ submission that they were only required to call Mr Simmonds because of the manner in which the case was conducted by the plaintiff. The defendants maintained throughout that the circumstances of the initial and early stages of the retainer when Mr Simmonds was the principal partner involved, mapped out the limits of the entire retainer. It was therefore just as necessary for the defendants, as it was the plaintiff, to explore this period in time. Moreover the defendants necessarily explored the entire course of the retainer and the after events in an endeavour to demonstrate the plaintiff was consistency minded to proceed, irrespective of the advice given.
A final aspect of relevance is that the plaintiff failed in proving wider damages, particularly for interest on borrowings and opportunity costs foregone, for want of adequate or systematic proof. Once again it is likely most of these issues were to be explored on both sides for similar reasons, including the defence, in an endeavour to expose weaknesses in the plaintiff’s case on both reliance and causation.
Although the primary position is that costs should ordinarily follow the event, there is no absolute rule that applies to the whole costs of an action, as opposed to particular issues within it: Re Co-operative Development Funds of Australia Ltd (No 3).[23] There is nowadays a greater willingness in appropriate circumstances to apportion costs according to the issues on which one party succeeds and another party fails: Cretazzo v Lombardi,[24] Ramsey v Annesley College (No 2),[25] Rodda & Anor v Ian Rodda Pty Ltd (No 3),[26] Forlyle Pty Ltd v Tiver,[27] Hockey v Fairfax Media Publications (No 2).[28] This is in contrast to the general practice applicable in some other jurisdictions, to the effect that courts will not differentiate between issues on which parties succeeded and issues on which it failed: McFadzean v CFMEU;[29] Bostik Australia Pty Ltd v Liddiard (No 2);[30] Steiner v Strang.[31]
[23] (1978) 3 ACLR 437.
[24] (1975) 13 SASR 4, 12.
[25] [2013] SASC 145, [70].
[26] [2015] SASC 135, [10]-[11].
[27] (2007) 252 LSJS 387, [30].
[28] [2015] FCA 750, [84]-[91].
[29] (2007) 20 VR 250, [152]-[153].
[30] [2009] NSWCA 304, 38.
[31] [2015] NSWCA 203, [64].
The defendants have attempted an intricate analysis of the time taken over issues won and lost. This exercise does not demand such mathematical precision: Cretazzo v Lombardi.[32] Moreover the exercise of attributing time occupied in the trial to specific issues is one – if it is to occur at all – to be undertaken by impression and evaluation so as to produce the result that best reflects the interests of justice in the entire circumstance of the case: EMI Songs Australia Pty Ltd v Larrakin Music Publishing Pty Ltd.[33] As Gleeson CJ remarked in the course of an argument as to costs ‘there is a limit to the extent to which the wheels of justice can grind fine’: Forsyth v Deputy Commissioner of Taxation.[34]
[32] Ibid at [14], [16].
[33] [2011] FCAFC 92, [9].
[34] (2006) HCA TRANS 521 (22 September 2006).
The position of the defendant as to costs singularly overlooks the attendant principle to the primary ‘default’ position, that a successful party holds a reasonable expectation of obtaining an order for costs, unless for some reason connected with the litigation, a different order is warranted: Latoudis v Casey.[35] As McHugh J said in Oshlack v Richmond River Council:[36]
By far the most important fact in which courts have viewed as guiding the exercise of the costs question is the result of the litigation.
[35] (1990) 170 CLR 534, [557], [569], [577].
[36] (1998) 193 CLR 72, [66].
In this particular instance the defendants fought the case on the insistent narrow basis of limited retainer and the failure to follow advice. They put the plaintiff to strict proof on all issues. The plaintiff has succeeded in the recovery of a not insubstantial sum. This represents roughly 20 per cent of its primary claim in damages expressed in monetary terms. Nevertheless this judgment represents the ‘event’ for the purposes of the ‘default’ principle: Cretazzo v Lombardi.[37]
[37] (1975) 13 SASR 4, 12.
In the unfettered discretion of the court as acknowledged in Copping v ANZ McCaughn,[38] it is appropriate in the combined circumstances to order that the plaintiff have 65 per cent of its costs to be agreed or taxed. This order will be subject to the following. The plaintiff is to have its entire costs for the directions hearing of Thursday 6 August 2015, when the matter was called on only because of the untenable position taken by the defendants that the plaintiff should not have liberty to respond to their inordinate lengthy written submission as to costs and interest, submitted on 22 July 2015.[39] This submission raised issues not previously ventilated, such as the disentitlement to interest on account of delay and questions of apportioning costs.
[38] (1995) 63 SASR 523, 527-528.
[39] Comprised of some 37 pages and 185 paragraphs.
The defendants are however to have their costs in relation to the following issues (which are not opposed by the plaintiff), that is when the plaintiff obtained leave to file a second amended statement of claim and the associated attendance on 4 June 2014, pursuant to 6 DCR 263(2)(a) of the District Court Civil Rules, and for an appearance before a Master on 16 July 2014 brought on only because of the plaintiff’s failure to file the amended claim within the specified time, pursuant to 6 DCR 263(2)(b). The defendants are also entitled to their costs to be agreed or taxed for the attendance of junior counsel, pursuant to an order of 18 September 2014 when the plaintiff expanded its claims for damages. As to the leave granted to the plaintiff to file a third statement of claim during the second week of the trial, as these were relatively minor and inconsequential in terms of altering the course or length of the trial, there will be an order that each party bear their own costs.
It should be noted for the record that the affidavit of Cregan of 15 September 2015 relating to the delay in bringing proceedings is irrelevant and therefore has not been considered in assessing the issues, essentially for the same reasons as given by Nyland J in Stewart v Jacobsen.[40]
[40] (2000) 209 LSJS 174, [56]-[57].
Orders
For the above reasons it is ordered that:
1.   The plaintiff have 65 per cent of its entire costs of action to be agreed or taxed on a party/party basis, except that:
(a)   the plaintiff have its costs on a party/party basis in and about the directions hearing of 6 August 2015;
(b) the defendants have their costs on a party/party basis for the attendance of junior counsel in and about the appearances before the Masters on 4 June 2014, 16 July 2014 and 18 September 2014;
(c) each party bear their own costs with respect to the amendments made to the statement of claim during the course of the trial.
2.   The plaintiff have judgment against the defendants for $72,794.
3.   The plaintiff have judgment against the defendants by way interest of $15,000.