Gabor Martin Nagy & Anor v Masters Dairy Ltd [1998] FCA 104 (20 February 1998)

FEDERAL COURT OF AUSTRALIA

COSTS - unsuccessful respondent - whether exception should be made to rule that costs follow the event - whether applicants' failed claim in contract basis for exception - whether applicants' experts reports basis for exception.

Federal Court of Australia Act 1976 (Cth), s 43

Federal Court Rules, O 62, 62 r 4(2)(a), 62 r 36(1)

Commissioner of Australian Federal Police v Razzi (No 2) [1991] FCA 267; (1991) 101 ALR 425, applied

Dodds Family Investments Pty Ltd v Lane Industries Pty Ltd [1993] FCA 259; (1993) 26 IPR 261, referred to

GABOR MARTIN NAGY & ANOR v MASTERS DAIRY LTD

WAG 27 of 1995

R D NICHOLSON J

PERTH

20 FEBRUARY 1998

GENERAL DISTRIBUTION

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY	WAG 27 of 1995

BETWEEN:	gabor martin nagy and PATRICIA DOROTHY NAGY Applicants
AND:	MASTERS DAIRY LTD (ACN 008 671 761) Respondent

JUDGE:	r d nicholson
DATE OF ORDER:	20 February 1998
WHERE MADE:	PERTH

THE COURT ORDERS THAT:

1. The applicants pay:

(a) the respondent's costs for preparation and appearances on 11 March 1997 and 23 May 1997;

(b) that part of the respondent's taxed costs from 19 February 1997 to 11 December 1997 as relates to the preparation and presentation of the respondent's case in relation to the reports of the applicants' expert;

(c) the costs of the respondent's expert witness incurred after 19 February 1997; and

(d) $1,130.46 to the respondent, arising from order 5(c) made by Justice R D Nicholson on 24 March 1997.

2. Otherwise the respondent pay the applicants' costs of the application other than the costs of the applicants' expert incurred after 13 December 1996.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

GENERAL DISTRIBUTION

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY	WAG 27 of 1995

BETWEEN:	gabor martin nagy and PATRICIA DOROTHY NAGY Applicants
AND:	MASTERS DAIRY LTD (ACN 008 671 761) Respondent

JUDGE:	R D NICHOLSON
DATE	20 FEBRUARY 1998
PLACE:	PERTH

REASONS FOR JUDGMENT

HIS HONOUR: On 19 December 1997 costs in this matter were reserved. In the same order the application was allowed, a cross-claim dismissed and a further order made the respondent pay the applicants the sum of $169,443 together with interest at the rate of 8 per cent per annum from 19 February 1995 to 19 December 1997. From those orders it will be apparent the applicants succeeded in their application and the respondent failed in its cross-claim.

The principles applicable in the exercise of the court's discretion to award costs are not in dispute between the parties. It is accepted the jurisdiction to award costs and the discretion to which it gives rise stems from s 43 of the Federal Court of Australia Act 1976 (Cth). Likewise there is no dispute the Federal Court Rules ("FCR") govern the award and assessment of costs: FCR O 62. Pursuant to that order a party may be ordered to pay a proportion of another party's taxed costs: FCR O 62 r 4(2)(a). Additionally the court may direct any costs which have been improperly, unreasonably or negligently incurred be disallowed: FCR O 62 r 36(1).

The Rules of the Federal Court do not contain a written rule specifying an order for costs is generally made in favour of the successful party, such as is found in some other jurisdictions: cf Rules of the Supreme Court of Western Australia O 66.1. Nevertheless in a well known passage in Hughes v Western Australian Cricket Association (Inc) (1986) ATPR 40-748 at 48,136 Toohey J said the discretion to award costs is to be exercised in accordance with the following principles:

"1. Ordinarily, costs follow the event and a successful litigant receives his costs in the absence of special circumstances justifying some other order. Ritter v Godfrey (1920) 2 K.B. 47.

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. Forster v Farquhar (1893) 1 Q.B. 564.

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. In this sense, `issue' does not mean a precise issue in the technical pleading sense but any disputed question of fact or of law. Cretazzo v Lombardi (1975) 13 S.A.S.R. 4 at p.12."

This passage requires reading in association with the following passage from the reasons of the Full Court in Dodds Family Investments Pty Ltd v Lane Industries Pty Ltd [1993] FCA 259; (1993) 26 IPR 261 at 271-272:

"The propositions enunciated in that case are subject to the further consideration that justice may not be served if parties are dissuaded by the risk of costs from canvassing all issues which might be material to the decision in the case: Cretazzo v Lombardi (1975) 13 SASR 4 at 12. In Trade Practices Commission v Nicholas Enterprises Pty Ltd (No 3) (1979) 42 FLR 213; 28 ALR 201, Fisher J regarded the discretion to apportion costs as one to be exercised only in the most exceptional circumstances. Nevertheless he accepted that where a considerable part of the trial is taken up in determining issues upon which a party fails, it is a proper exercise of the discretion to reduce the costs allowed to that party. Generally speaking, and notwithstanding the considerations referred to by Toohey J and the other authorities mentioned above, the demands of the community for greater economy and efficiency in the conduct of litigation may properly be reflected in a qualification of the presumption that a successful party is entitled to all its costs. In Commissioner of Australian Federal Police v Razzi (No 2) [1991] FCA 267; (1991) 101 ALR 425 at 430, Wilcox J, after referring to the importance of the general principle enunciated by Toohey J, said:

`But I do not think that courts should be reluctant to recognise the existence of exceptional cases. In these days of extensive court delays and high legal costs the courts should use all proper means to encourage parties to consider carefully what matters they will put in issue in their litigation. If parties come to realise that they will not necessarily recover the whole of their costs, even though they have unsuccessfully raised a discrete issue, they are likely better to consider whether the matter raising of that issue is a justifiable course to take.'

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. His Honour's determination that in this case there should be no order as to costs was explicitly based upon his rough assessment of the time occupied at trial by the various issues in dispute. No reason for overturning the exercise of that discretion has been demonstrated and the court is satisfied that the appeal fails on this ground also."

The essential question is then whether, taking into account matters of impression and evaluation as well as the submissions, there is a proper basis for apportionment in the judicial exercise of the discretion to award costs.

There are two grounds on which it is submitted for the respondent that apportionment is appropriate in this case. The first is the failure of the applicants' claim in contract. It is said for the respondents the claim was such that it should not have been brought. It is said the documents did not support the making of an offer; the applicants brought no evidence they had accepted an offer; and the claim failed for want of certainty. There was evidence from the first-named applicant he did not have an agreement with the respondent and there was correspondence confirming that position. Furthermore it is submitted for them the contract claim involved considerable time and resources on the part of the respondent and took a considerable amount of time during the hearing. It is proposed the applicants be ordered to pay 33 per cent of the taxed amount of the respondent's costs as a simple way of disposing of this matter of taxation.

For the applicants reliance is firstly placed on the appropriateness of the general rule that costs should follow the event. Secondly, reliance is placed on the recognition in Razzi at 67-68 of the "Summary of Principles" by Mahoney JA in Jamal v Secretary, Department of Health (1988) 14 NSWLR 252 at 271-272 where he said the two general exceptions to the general rule were as follows. Firstly, if the costs of the appeal have been increased by an issue on which the successful parties failed and those costs are of a sufficient significance to warrant a special order. Secondly, where there are reasons why the general costs of the appeal or the costs of particular issues will be ordered otherwise - for example the conduct of a successful respondent may have justified an appeal being brought. It is submitted for the applicants neither of these exceptions is applicable here and the circumstances in Razzi's case itself, which it is not necessary to traverse, are entirely distinguishable.

In relation to the contract claim I do not consider the facts support a conclusion the costs of the matter have been increased by the issue in any significant way. It is accepted by both parties there was no witness called exclusively to that issue. Nor do I consider the conduct of the applicants in pleading the issue and arguing it at trial was reprehensible. I accept the submission for the applicants the issue was one worthy of consideration.

In my opinion there is no proper basis for apportionment in relation to the contract claim.

The second basis on which it is submitted for the respondent it is appropriate for there to be an apportionment is the inadequacy of the applicants' expert reports to enable damages to be assessed. In reasons delivered on 13 December 1996 I concluded a number of issues were "not the subject of evidence from the experts or submissions from counsel in terms of how they should be translated into the calculation of damages". On that date I made an order the applicants file and serve a revised expert's calculation of damages in accordance with those reasons together with any submissions by the applicants thereon.

Such further report was filed although it raised new matters. Subsequently there were a number of directions hearings.

When reasons were delivered on 12 December 1997 it is correct, as the submissions for the respondents state, that, with the exception of the issue relating to the DAAS payment and the depreciation of the refrigerated truck, the Court accepted entirely the respondent's submissions and evidence on assessment of damage and rejected the applicants' submissions and evidence.

Based on this, it is submitted for the respondent the applicant should be ordered to pay 90 per cent of the respondent's taxed costs from 19 February 1997 to 11 December 1997 and all of the respondent's costs for its expert witness.

In response it is submitted for the applicants when the issue is costs in relation to the assessment of damages the position is different to that envisaged by Wilcox J in Razzi. This, it is submitted, is because when it comes to damages the party with the liability to pay them always has the opportunity to protect itself against costs by procedures of payment into court or the making of a formal offer. These procedures have the consequence that if the claimant party fails to recover the damages that have been foreshadowed and receives a lesser amount, there is then a clear basis for an award of costs against the claimant party. It is further submitted if the respondent truly believed the evidence likely to be led by the applicants' expert ultimately would be unpersuasive and would not lead to an award of damages then the opportunity was there through the normal procedures to guard against costs by making a formal offer. It is said therefore a damages issue cannot be viewed as discretely as separate issues of a substantive character.

There are two further supplementary submissions for the applicants. The first is the percentage point of division chosen in the respondent's proposals is arbitrary and unsupported by evidence. The second is a percentage can apply inequitably so far as it applies to experts' costs if one party's experts have been more expensive than the others.

A payment into court is a relevant factor in the exercise of the discretion as to costs. However there is no inflexible rule concerning the effect of such payment. In Mangan v Mendum (1974) 4 ACTR 44 at 45-46 Smithers J stated the principle in the following terms:

"[I]t does not follow rigidly or automatically or inexorably that where the plaintiff recovers less than is in court, the plaintiff will be ordered to pay the defendant's costs incurred after the time for acceptance of the money, or the date of payment in. Such a practice would operate harshly in some cases, and might well cause some bona fide plaintiffs to be intimidated and to accept less than they honestly and reasonably think to be fair and reasonable for fear of the consequences which might be incurred by them if they failed to judge accurately what a judge would think to be fair and reasonable in the circumstances.

See generally B C Cairns Australian Civil Procedure 4th ed, 1996 pp 430-433.

In the present proceeding there has been no payment into court or offer to make such payment. These rules are therefore not activated. The fact such step was open to the respondent does not seem to me to displace the other discretionary considerations such as those arising in Razzi. The fact no opportunity was taken to make a payment or offer does not mean the considerations raised in Razzi fall outside the ambit of the court's discretion or the issue of damages cannot be approached in relation to those principles.

The essential issue on this submission for the respondent is whether the conduct of the applicants through their expert was such it provides the foundation for a reason why costs to which the experts' reports relate should be otherwise ordered. It is not submitted, nor is it open to a finding, the applicants' expert acted with any intention of delaying or disrupting the proceedings. The case is simply the effect of the applicants' expert's report was to fail to address the relevant issues to damages and then to raise new issues such that, from 19 February 1997 to 11 December 1997, costs should go to the respondent and the respondents' costs of its expert witness should also be met.

I consider on balance the general rule should be departed from to the extent there should be some apportionment in relation to the costs of the respondent derivative from the inadequacies found in the report of the applicants' expert in the reasons of 13 December 1996. There should be an order the applicants pay all of the respondent's costs for its expert witness after 19 February 1997. Additionally the respondent should not pay for the applicants' expert after 13 December 1996.

For the same reason it is also appropriate for the applicants to pay that part of the respondent's taxed costs from 19 February 1997 to 11 December 1997 as relate to the response to the applicants' expert. In view of the part the DAAS payment played in the respondent's costs after 19 February 1997 it is not appropriate to order the applicants' to pay 90 per cent of the respondent's taxed costs from that date. The order proposed would provide a proper method for determining the percentage payable.

The form of orders reflects other issues raised in the submissions.

I certify that this and the preceding six (6) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice R D NICHOLSON

Associate:

Dated: 20 February 1998

Counsel for the Applicant:	N P Hasluck QC
Solicitor for the Applicant:	G Chitty
Counsel for the Respondent:	J L Southalan
Solicitor for the Respondent:	Corrs Chambers Westgarth
Date of Hearing:	19 December 1997
Date of Judgment:	20 February 1998