North East Equity Pty Ltd v Proud Nominees Pty Ltd (No 2) [2011] FCAFC 15 (11 February 2011)

Last Updated: 14 February 2011

FEDERAL COURT OF AUSTRALIA

North East Equity Pty Ltd v Proud Nominees Pty Ltd (No 2) [2011] FCAFC 15

Citation:		North East Equity Pty Ltd v Proud Nominees Pty Ltd (No 2) [2011] FCAFC 15
Appeal from:		North East Equity Pty Ltd v Proud Nominees Pty Ltd (No 2) [2008] FCA 1189
Parties:		NORTH EAST EQUITY PTY LTD (ACN 009 248 819) v PROUD NOMINEES PTY LTD (ACN 074 270 938) and DAVID LEWIS PROUD
File number:		WAD 220 of 2008
Judges:		SIOPIS AND GREENWOOD JJ
Date of judgment:		11 February 2011
Date of last submissions:	7 September 2010
Place:	Perth
Division:	GENERAL DIVISION
Category:	No Catchwords
Number of paragraphs:	34
Counsel for the Appellant:	Mr MD Cuerden
Solicitor for the Appellant:	Ilberys Lawyers
Counsel for the Respondents:	Mr PG McGowan
Solicitor for the Respondents:	David Deakin Davies & Co

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION	WAD 220 of 2008

ON APPEAL FROM THE FEDERAL COURT OF AUSTRALIA

BETWEEN:	NORTH EAST EQUITY PTY LTD (ACN 009 248 819) Appellant
AND:	PROUD NOMINEES PTY LTD (ACN 074 270 938) First Respondent DAVID LEWIS PROUD Second Respondent

JUDGES:	SIOPIS AND GREENWOOD JJ
DATE OF ORDER:	11 FEBRUARY 2011
WHERE MADE:	PERTH

THE COURT ORDERS THAT:

1. The appellant is to pay 35% of the respondents’ costs of the appeal.
   

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using Federal Law Search on the Court’s website.

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION	WAD 220 of 2008

ON APPEAL FROM THE FEDERAL COURT OF AUSTRALIA

BETWEEN:	NORTH EAST EQUITY PTY LTD (ACN 009 248 819) Appellant
AND:	PROUD NOMINEES PTY LTD (ACN 074 270 938) First Respondent DAVID LEWIS PROUD Second Respondent

JUDGES:	SIOPIS AND GREENWOOD JJ
DATE:	11 FEBRUARY 2011
PLACE:	PERTH

REASONS FOR JUDGMENT

THE COURT:

1. This is an application by the respondents for costs in respect of the appeal. The appeal was heard by a Full Court comprising Sundberg, Siopis and Greenwood JJ. Shortly after the Full Court decision was delivered, Sundberg J retired from the Court. The parties agreed that the question of costs of the appeal be determined by Siopis and Greenwood JJ.
2. The respondents claim that the appellant should pay the costs of the appeal. The appellant contends that there should be no order for costs.

BACKGROUND

3. In 2002, the appellant, North East Equity Pty Ltd, operated a carrot processing plant at Wattleup, south of Fremantle. The controller of North East Equity, Mr Nicola Tana, entered into negotiations with the first respondent, Proud Nominees Pty Ltd, with a view to purchasing plant and equipment to replace part of the existing processing plant and equipment at the carrot processing plant. Mr Tana dealt with Mr David Proud, the second respondent. The parties discussed the performance standards that North East Equity wished to achieve by the installation of the new plant and equipment. A contract for the supply and installation of the new plant and equipment was entered into.
4. The plant and equipment, which was referred to by the parties as the “new line”, was installed in March 2003 at North East Equity’s premises. North East Equity was not content with the manner in which the plant and equipment operated and commenced a proceeding against Proud Nominees and Mr Proud in this Court. North East Equity claimed damages for breach of contract against Proud Nominees. It also claimed damages from Proud Nominees and Mr Proud arising from alleged contraventions of s 52 and s 53(c) of the Trade Practices Act 1974 (Cth) (the Act) and for negligent misrepresentation.
5. The primary judge dismissed North East Equity’s application (North East Equity Pty Ltd v Proud Nominees Pty Ltd (No 2) [2008] FCA 1189).

THE APPEAL

6. North East Equity appealed against the primary judge’s decision. There were 12 grounds of appeal. One of the grounds (ground 4), however, was not pursued at the hearing. The Full Court (North East Equity Pty Ltd v Proud Nominees Pty Ltd (2010) 269 ALR 262) upheld three of the grounds of appeal. The Full Court dismissed the remaining grounds of appeal.
7. The primary ground of appeal on which North East Equity succeeded, was ground 7 of its grounds of appeal.
8. Ground 7 stated:

Further and in the alternative, the learned trial judge erred in fact and law in failing to make any finding as to whether the respondents had reasonable grounds within the meaning of s 51A of the Trade Practices Act (Cth) for their representations as to the capacity of the new line, and the learned trial judge ought to have found that they did not have reasonable grounds for those representations.

9. At trial, North East Equity did not plead that Proud Nominees did not have reasonable grounds for making the impugned representations which North East Equity alleged gave rise to the contraventions of the Act. Rather, North East Equity contended that the representations were future representations and it relied on s 51A of the Act. The primary judge found that the statements made by Mr Proud as to the performance standards of the proposed new line had been met by the new line’s performance. The primary judge went onto find, in effect, that insofar as the statements comprised terms of the contract, the terms were not breached; and insofar as the statements comprised representations, the representations had been met. The primary judge then stated that by reason of those findings, it was not necessary to consider North East Equity’s future representations claim based on s 51A of the Act.
10. On appeal, after having referred to the cases of Australian Competition and Consumer Commission v Universal Sports Challenge [2002] FCA 1276 and Fubilian Catering Services Ltd v Compass Group (Australia) Pty Ltd [2007] FCA 1205, the Full Court observed at [33]:

What is said in Universal Sports and Fubilian about the evidential burden as opposed to onus of proof is important in the present case. If s 51A(1) stood alone, an applicant would have to establish the absence of reasonable grounds for making the representation. Without that, the cause of action under s 52 would be incomplete. The deeming effect of subs (2) arises only when the representor fails to adduce evidence to the contrary; that is to say, some evidence that it had reasonable grounds for making the representation. Once the representor discharges that evidential burden, the matter is thereafter dealt with under subs (1), the obligation being on the applicant to establish that the representor did not have reasonable grounds for making the representation.

11. The Full Court went onto find at [36]:

The primary judge was of course alert to the way in which s 51A has been held to operate. He set out the case law in his interlocutory ruling on the respondents’ application to rely on their reasonable grounds document. The ruling shows that his Honour was aware that s 51A required him, in respect of each future matter representation found to have been made, to determine whether the respondents had adduced evidence to the contrary, and if they had, whether the appellant had established that the respondents did not have reasonable grounds for making the representation. If the respondents did not adduce evidence to the contrary, the second question would not arise, because they would be deemed not to have had reasonable grounds. However, as the respondents accept, the complaint is that his Honour did not expressly consider these questions in his reasons. In view of his exploration of the two questions in his interlocutory ruling, his disposal of the appellant’s reliance on s 51A may well have involved a conclusion that the respondents had adduced evidence to the contrary and that the appellant had not satisfied him that the respondents did not have reasonable grounds for making the representations. However, that is nowhere explained and no reasoning process is exposed.

12. The Full Court remitted the question to the primary judge to deal with the failure to give adequate reasons in relation to the s 51A matter. The Full Court held that it was not appropriate for the Full Court to determine whether or not, reasonable grounds existed for the making of the representations.
13. At [39], the Full Court observed:

The present case is unlike Echo and Bourke. If the respondents are found to have adduced evidence to the contrary for the purposes of s 51A(2), the question will be whether the appellant has established that Mr Proud did not have reasonable grounds for making the representations. In answering that question the primary judge will have the advantage we do not have of having seen and heard Mr Proud give his evidence. Further, the reasonable grounds issue does not depend entirely on documentation and unchallenged evidence.

14. North East Equity also succeeded on ground 11 and ground 12 of its appeal. These grounds of appeal related to the manner in which the primary judge dealt with the question of damages. Although the primary judge dismissed North East Equity’s claim that the respondents had contravened the Act, the primary judge went on to consider whether, had there been such a contravention, North East Equity would have suffered any loss.
15. At trial, North East Equity claimed damages of approximately $1.3 million on a “no transaction” basis. In other words, North East Equity alleged that it would not have entered into the contract had it not relied on the representation made by the respondents.
16. The primary judge concluded that North East Equity would not have suffered loss by reason of the contraventions of the Act it alleged, because there was no evidence that the new line, as installed, was worth less than was paid for it. The primary judge said that, even if there was such evidence, there was no evidence that the difference between the price and the value was greater than the savings which North East Equity had achieved by reason of the installation and operation of the new plant and equipment.
17. The essence of North East Equity’s complaint was that the primary judge had not considered the alternative means of assessing damages consequent upon the respondents’ contraventions of the Act, for which it had contended. North East Equity also complained about the manner in which the primary judge had dealt with certain specific calculations relating mainly to labour savings and electricity power costs.
18. The Full Court upheld ground 11 and ground 12 of the appeal. In summary, the Full Court found that the primary judge had not exposed his reasoning processes for rejecting the alternative approach to the assessment of damages, nor had he considered whether any part of the loss was caused by a supervening event, such as incompetence by North East Equity, and market forces.
19. At [180] and [181], the Full Court observed:

It may be that the primary judge elected not to consider the alternative approach to the calculation of damages or potential intervening circumstances because he had formed a view that the respondents had adduced evidence to the contrary for the purposes of s 51A and the appellant had not satisfied his Honour that the respondents did not have reasonable grounds for making the representations. However, as the respondents accept and as we have already noted, that position is not explained in the exposed reasoning process, if that was his Honour’s conclusion. In any event, the calculation of damages for the purposes of s 82 of the Act ought to proceed on the footing that on the assumption that the representations found constitute contravening conduct by operation of ss 51A and 52, the amount of the loss and damage recoverable under s 82 of the Act would be of a particular compensatory kind or magnitude. The question does not arise if the primary judge is satisfied that the respondents adduced some evidence to the contrary for the purposes of s 51A and the appellant failed to establish that the respondents did not have reasonable grounds for making the representations.

The proceeding ought to be remitted to the primary judge to consider these questions. (Emphasis added.)

20. The Full Court also upheld North East Equity’s contentions in relation to the primary judge’s treatment of the specific items of damage referred to above.
21. The Full Court ordered that:

Paragraphs 1 and 3 of the orders of the primary judge made on 2 September 2008 be set aside, and in lieu thereof it be ordered that the matter be remitted to the primary judge for:

(a) the formulation of reasons for his conclusion that s 51A of the Trade Practices Act 1974 (Cth) did not assist the appellant; and

(b) further consideration of the question of damages in light of the court’s reasons.

22. Costs of the appeal and at first instance were reserved pending the determination of the matters remitted.

THE REMITTER

23. The case was remitted to the primary judge to address the matters referred to in the reasons of the Full Court.
24. On 6 July 2010, the primary judge delivered reasons affirming his earlier orders dismissing North East Equity’s application and ordering that North East Equity pay the respondents’ costs of the proceeding (North East Equity Pty Ltd v Proud Nominees Pty Ltd (No 4) [2010] FCA 700).

THE COSTS OF THE APPEAL

25. The respondents contended that the result of the remitter was that North East Equity had failed on the same terms as the judgment at first instance, but with more comprehensive reasons.
26. The respondents went onto contend that the ultimate outcome of the appeal was to reinstate the result at first instance and there was, therefore, no basis on which to depart from the general rule that the costs should follow the event. Accordingly, the respondents contended that the appropriate order should be that the appellant pay the respondents’ costs of the appeal.
27. North East Equity contended that it had been successful in relation to ground 7 (the s 51A point) and ground 11 and ground 12 (the damages). It went onto contend that it was no less successful in the appeal because, on the remitter, the primary judge ultimately reached the same conclusion regarding s 51A, and did not, therefore, have to deal with the question of damages.
28. North East Equity went onto contend that grounds 7, 11 and 12 were significant issues on the appeal and that approximately half the Full Court’s reasons were devoted to consideration of those grounds of appeal. The appropriate order, said North East Equity, was that there should be no order as to costs.
29. It may, indeed, be the case, as the respondents submitted, that no substantive benefit ultimately accrued to North East Equity as a consequence of its appeal to the Full Court. However, in our view, the question of costs is to be assessed by reference to the success or otherwise, of the parties in the appeal proceeding. To that extent, therefore, we accept North East Equity’s submission that the outcome of the remitter is not determinative in assessing the success or otherwise, of the parties in the appeal proceeding for the purpose of awarding costs of the appeal proceeding.
30. In this case, there were 12 grounds of appeal, one of which was not pursued at the hearing of the appeal. The appellant was successful in respect of three of the grounds of appeal. In other words, there was mixed success. In the case of JMVB Enterprises Pty Ltd v Camoflag Pty Ltd (No 2) [2007] FCAFC 6, the Full Court (Emmett, Stone and Bennett JJ) observed at [7]:

Section 43(2) of the Federal Court of Australia Act 1976 (Cth) confers an unfettered discretion on the Court to make orders as to costs. When results are mixed, it is an appropriate exercise of the Court’s discretion to take account of the respective success or failure of the parties in relation to various issues.

31. The question is how the costs should be apportioned so as to reflect the relative success of each of the parties. This is, of course, not a precise science.
32. The respondents were successful on eight grounds of appeal. These grounds of appeal were the subject of detailed written submissions by North East Equity with extensive references to the transcript and exhibits at trial. The extensive nature of the references to the transcript and exhibits, required the respondents to engage in a painstaking, time consuming and, therefore, expensive exercise, in order to respond to these grounds of appeal.
33. North East Equity was successful on three grounds of appeal. However, one of the grounds of appeal (ground 7) which was at the forefront of the appeal, was not the subject of serious contention by the respondents. The other two grounds of appeal raised questions which called for an analysis of the law on damages. The extent of that analysis is reflected in the reasons of the Full Court.
34. Plainly, the respondents succeeded on a greater number of grounds of appeal than did North East Equity. A simplistic set-off reflecting the relative success of the parties measured by the number of grounds of appeal on which each was successful, would suggest that the respondents should be awarded about 45% of their costs. However, in our view, that award of costs, would not properly reflect the complexity of the analysis arising in relation to the damages points on which North East Equity was successful, and the fact that there was some overlap in respect of the grounds of appeal on which the respondents were successful. In our view, therefore, North East Equity should pay 35% of the respondents’ costs of the appeal.
    

I certify that the preceding thirty-four (34) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Siopis and Greenwood.

Associate:

Dated: 11 February 2011