Thorne and Anor v Literacy Circle Pty Limited and Ors (No.2)

[2009] FMCA 621

FEDERAL MAGISTRATES COURT OF AUSTRALIA

THORNE & ANOR v LITERACY CIRCLE PTY LIMITED & ORS (No.2) [2009] FMCA 621

TRADE PRACTICES – COSTS – Multi-party litigation – applicants successful against one respondent but unsuccessful against two remaining respondents – rule of thumb for apportionment of costs – disentitling conduct on the part of successful respondents – conduct calculated to defeat justice – successful respondents not awarded costs.

Trade Practices Act 1974, s.75B

Ritter v Godfrey [1920] 2 KB 47
McFadzean v CFMEU [2007] VSCA 289
Currabubula Holdings Pty Ltd v State Bank of New South Wales [2000] NSWSC 232
Trade Practices Commission v Nicholas Enterprises Pty Ltd (1979) 28 ALR 201
Hughes v Western Australian Cricket Association(Inc) (1986) ATPR 40-748
Mobile Innovations Ltd v Vodafone Pacific Ltd [2003] NSWSC 423
James v Surf Road Nominees Pty Ltd (No.2) [2005] NSWCA 296
Dodds Family Investments Pty Ltd v Lane Industries Pty Ltd (1993) 26 IPR 26

First Applicant: MATTHEW JAMES STANNETT THORNE

Second Applicant: HOLLIE MAREE THORNE

First Respondent: LITERACY CIRCLE PTY LIMITED (ACN 117 201 493)

Second Respondent: WILLIAM OWEN EDWARDS

Third Respondent: JACQUELINE EDWARDS

File Number: SYG 2001 of 2007

Judgment of: Cameron FM

Hearing date: 19 June 2009

Date of Last Submission: 19 June 2009

Delivered at: Sydney, Melbourne (video-link)

Delivered on: 19 June 2009

REPRESENTATION

Counsel for the Applicants: Mr C. Johnson

Solicitors for the Applicants: Armstrong Lawyers Pty Ltd

Counsel for the Respondents: Mr H. Stowe

Solicitors for the Respondents: Mr R.H. Storey

ORDERS

1. The first respondent pay the applicants’ costs fixed in the amount of $29,352.47.

2. There be no order as to costs as between the applicants and the second and third respondents.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
SYDNEY

SYG 2001 of 2007

MATTHEW JAMES STANNETT THORNE

First Applicant

HOLLIE MAREE THORNE

Second Applicant

And

LITERACY CIRCLE PTY LIMITED (ACN 117 201 493)

First Respondent

WILLIAM OWEN EDWARDS

Second Respondent

JACQUELINE EDWARDS

Third Respondent

REASONS FOR JUDGMENT

Introduction

1. In these proceedings the applicants were successful against the first respondent and were awarded damages. However, they failed to make out their allegation that the first respondent had acted unconscionably. Linked with the allegation of unconscionable conduct on the part of the first respondent was an allegation that the second and third respondents aided, abetted and were knowingly concerned in or were parties to the unconscionable conduct alleged and, by reason of s.75B of the Trade Practices Act 1974, had accessorial liability for that conduct. A corollary of the finding that the first respondent was not guilty of unconscionable conduct is that the second and third respondents could have no accessorial liability. The claims against them were therefore dismissed.

Applications for costs

1. The matter is before the Court today on the parties’ applications concerning the costs of the proceedings. The applicants seek a lump sum costs order against the first respondent. They concede that this might be reduced to take account of that part of the case which related solely to the second and third respondents. The applicants submit that their costs against the first respondent might be reduced by perhaps 10% or, alternatively, by excluding some or all of the costs of the final day of the hearing.  They also submit that there be no order as to costs as between the applicants and the second and third respondents.

2. The respondents submit that the appropriate costs orders are that:

   a)the applicants pay each of the second and third respondents, 33% of the costs incurred by all of the respondents; and

   b)without conceding that the same approach should not be taken in relation to the applicants’ claim for costs against the respondents, submit that the first respondent pay the applicants 90% of their costs.

3. It is apparent that the parties’ submissions concerning the costs of the action as against the first respondent are not, in practical effect, significantly different.  However, as to the costs of the proceedings between the applicants and second and third respondents, the parties are significantly at odds. 

Submissions

1. As already recorded, the applicants submit that no order as to costs should be made as between them and the second and third respondents, noting that the respondents conducted a joint defence and that this defence was principally concerned with the issue of repudiation and abandonment of the contract, the issue on which they succeeded against the first respondent. They submit that only a small amount of time was taken on issues relating to the trade practices counts and assess it to have represented between 5-10% of the overall case. It is that 10% which they have been willing to concede in respect of their claim against the first respondent. Their submission is that this reduction also sufficiently takes account of whatever entitlement the second and third respondents might have by reason of the dismissal of the claims against them. This was said to be because the first respondent’s defence was their defence, that they had no separate costs and that they had in the words of Atkin LJ in Ritter v Godfrey [1920] 2 KB 47:

   … done something connected with the institution or the conduct of the suit calculated to occasion unnecessary litigation and expense, or … has done some wrongful act in the course of the transaction of which the plaintiff complains. (at 60)

2. The applicants further submit that in order to do substantial justice the Court should look at the reality of the case and that there should be a synthesis of competing entitlements such as was considered in McFadzean v CFMEU [2007] VSCA 289 at [159] where, at first instance, the trial judge concluded that a single order for costs, giving the appellants 40% of their costs, would avoid an expensive and complex taxation, an approach which was endorsed by the Victorian Court of Appeal.

3. The respondents submit that costs should follow the event noting that each party had a separate entitlement to costs and that, absent special circumstances, a party should not be deprived of such a costs order.  They further submit that when there are jointly represented parties of whom only some are successful, the rule of thumb is that a successful respondent recovers a proportionate share of the joint costs of the action in addition to any cost separately referable to that party: Currabubula Holdings Pty Ltd v State Bank of New South Wales [2000] NSWSC 232 at [90]ff. In such circumstances, the proportion is determined by reference to the number of the respondents in the proceedings.

4. The respondents submit that the second and third respondents were successful in the defence of the unconscionability claim and are prima facie entitled to a costs order against the applicants in that connection.  They say that a proportionate sharing of the costs of the proceedings would see them, together, entitled to two-thirds of the joint costs of the action. In this regard, they say that:

   a)they had a reasonable subjective belief that the termination of the applicant’s franchise was legally justified;

   b)the termination was effected for a reasonable commercial purpose and not for any morally or commercially illegitimate reasons; and

   c)they did not effect the termination in wanton disregard of the interests of the applicants,

   all of these submissions having been made in the written submissions filed on 20 August 2008.

5. The respondents submit that substantially all of the evidence which was led in the case was relevant to one or more of these issues and that there was, effectively, a complete overlap between the evidence relevant to the contract claim and the evidence relevant to the unconscionability claim. 

6. The respondents further submit that there is no basis for reducing the second and third respondents’ costs entitlement because the Court effectively upheld all of the particular grounds upon which they based their defence to the unconscionability claim and that there is no basis for reducing their costs entitlement because they engaged in any form of disentitling conduct or because there are other special circumstances which would justify depriving them of their costs.

Consideration

1. In relation to the proceedings between the applicants and the first respondent, the authorities indicate that where a successful applicant’s costs are increased by the joinder of respondents against whom that party has been unsuccessful, the unsuccessful respondent should not have to shoulder the increased burden: Trade Practices Commission v Nicholas Enterprises Pty Ltd (1979) 28 ALR 201 at 210. Further, although the applicants have been unsuccessful in respect of some aspects of their claims against the first respondent, that does not necessarily operate to disentitle them to the costs related to those issues, that fact being simply one of the matters which the Court may, in the exercise of its discretion, take into account when determining the costs order to be made. In Hughes v Western Australian Cricket Association(Inc) (1986) ATPR 40-748 Toohey J had regard to authorities which threw light on the way in which a court might exercise its discretion when making an order for costs, his Honour summarising their effect as follows:

   (1)Ordinarily, costs follow the event and a successful litigant receives his costs in the absence of special circumstances justifying some other order. …

   (2)Where a litigant has succeeded only upon a portion of his claim, the circumstances may make it reasonable that he bear the expense of litigating that portion upon which he has failed. …

   (3)A successful party who has failed on certain issues may not only be deprived of the costs of those issues but may be ordered as well to pay the other party’s costs of them.  (at 48,136)

2. A helpful discussion of the authorities also appears in the decision of Einstein J in Mobile Innovations Ltd v Vodafone PacificLtd [2003] NSWSC 423 at [4].

3. Where a matter involves multiple issues, it has been observed that a distinction is commonly drawn between cases which involve clearly discrete issues and those in which all issues are inseparable, or at least sufficiently linked, with respect to the overall disposition of a particular matter: James v Surf Road Nominees Pty Ltd (No.2) [2005] NSWCA 296 at [34]. The Full Court of the Federal Court said in Dodds Family Investments Pty Ltd v Lane Industries Pty Ltd (1993) 26 IPR 261 at 272:

   Where there is a mixed outcome in proceedings, the question of apportionment is very much a matter of discretion for the trial judge. Mathematical precision is illusory and the exercise of the discretion will often depend upon matters of impression and evaluation.

4. Dealing first with the order to be made as between the applicants and the first respondent, the parties are almost in agreement that the costs to be awarded to the applicant should be reduced by 10%.  In my view, that is an appropriate deduction and more accurately reflects that part of the applicants’ case devoted to the second and third respondents’ asserted involvement in unconscionable conduct than an attempt to quantify this by reference to a part of the hearing.  The costs involved are really costs of the proceedings as a whole rather than costs which can logically be attributed to a portion of the trial.

5. As to the second and third respondents’ entitlement to costs, the authorities show that in a situation such as the present one, the conventional approach would be to award costs in accordance with the rule of thumb that a successful party recovers a proportionate share of the joint costs of the action in addition to any costs separately referable to that party. 

6. However, the rule of thumb is no more than that: a guide to how the Court, in its unfettered discretion, may award costs in proceedings.  The ultimate touchstone for an order for costs is what would do justice between the parties. Of particular relevance in this case is the consideration, referred to in Ritter v Godfrey, regarding whether the respondents did something connected with the conduct of the proceedings calculated to occasion unnecessary litigation or expense. Atkin LJ by way of example, suggested at 61 that this category would include improper conduct in or connected with the litigation which was calculated to defeat or delay justice.

7. It should first be noted that the second and third respondents’ success in the proceedings was not based on a finding that they had no accessorial liability for the conduct of the first respondent but that the first respondent had not engaged in unconscionable conduct.  Moreover, characterising the outcome of the claims against the second and third respondents as a success for those parties, while accurate, does not tell the full story.  The fact of the matter was that the basis for the second and third respondents’ defence to the allegation that they had accessorial liability for the first respondent’s conduct was based on factual assertions which I found to be untrue.  In fact, the large part of their factual assertions was rejected in favour of the evidence of other witnesses and, in particular, Peter Moir.  The second and third respondents’ cases were concerned partly to support the first respondent’s defence and partly to exculpate themselves and they sought to achieve this by falsehoods.  That conduct lengthened the trial and added considerably to the matter’s factual complexity. 

8. It can be accepted that much of the time and effort devoted to the question of contractual repudiation or abandonment, on which the applicants succeeded, was relevant to the allegation of unconscionable conduct and accessorial liability, on which they were unsuccessful.  Counsel for the respondents today observed that while the case on the contract claim was based on an objective assessment of the facts, the unconscionability claim turned to a subjective assessment of the state of mind and conduct of the respondents. 

9. As to the question of unconscionability, the respondents’ counsel rehearsed that the respondents’ case was based on an allegation that they had a reasonable subjective belief for acting in the fashion that they did and that it was because of that reasonable subjective belief that they succeeded.  This characterisation of the evidence and the reasons for judgment is not entirely accurate.  It is true that the first respondent genuinely but incorrectly believed that in the absence of a written contract the applicants were no more than offerees whose offer could be revoked at will.  However, that was not the reality of the defence the respondents mounted to the trade practices allegations.  Although they disputed the existence of the contract, the essence of the unconscionability alleged against them was the conduct leading up to 14 August 2006 when Peter Moir’s email terminating the parties’ business relationship was sent. 

10. As to that part of the trade practices defence which dealt with the existence of a contract, it should not be overlooked that the respondents’ evidence was relevantly rejected. As to the conduct leading up to 14 August 2006, the respondents’ case was that the parties were moving towards a consensual disengagement, that Peter Moir was in discussions with the applicants to bring this about, that the second and third respondents had no idea that Peter Moir was going to act in the way that he did and that his email of 14 August 2006 came as a surprise to them.  All of this evidence was rejected and I found that the second and third respondents had been untruthful and that their evidence was designed to distance them from the decision to terminate the franchise agreement.

11. The second and third respondents, in effect, failed in their defences and the corollary of the conclusion that their defences were based on allegations which were untrue was that the Court was required to identify what it believed to have been the true facts of the matter.  In order to do this, the Court was required to cut away the thicket of evidence erected by the second and third respondents to reach a conclusion which was quite at variance with the case which they had advanced. 

12. For these reasons, I have come to the view that although the second and third respondents were successful in the result, the fact that that success had very little to do with the essence of the defence which they mounted or the evidence which they led, together with the fact that their evidence was, it must be concluded, calculated to defeat justice, disentitles them to an award of costs.

Conclusion

1. The applicants sought costs awarded on a lump sum basis in accordance with a schedule of costs provided by the Rules.  In my view, that is an appropriate approach to take in this case and, based on the annexure to the applicants’ written submissions on costs, to which no objection was taken, I find that the costs to which the applicants are entitled, before deduction, are $32,613.86. After deducting 10%, the costs to which the applicants are entitled amount to $29,352.47.

I certify that the preceding twenty-three (23) paragraphs are a true copy of the reasons for judgment of Cameron FM

Associate:

Date:  2 July 2009