Strata Consolidated v Bradshaw [1999] NSWSC 102 (23 February 1999)

Last Updated: 4 March 1999

NEW SOUTH WALES SUPREME COURT

CITATION: Strata Consolidated v Bradshaw [1999] NSWSC 102

CURRENT JURISDICTION: Equity Division

Commercial List

FILE NUMBER(S): 50304/94

HEARING DATE{S): 16 February 1999 and 17 February 1999

JUDGMENT DATE: 23/02/1999

PARTIES:

Strata Consolidated (Australia) Pty Ltd; ATA Wholesalers Pty Ltd; Adtech Corporation Pty Ltd v Edward John Bradshaw; Tarkello Pty Ltd; Ian Ronald Ney; Tartandi Pty Ltd; Procus Australia Pty Ltd; Procus West Pty Ltd; Selmet Pty Ltd; Sipro Pty Ltd; Siska Pty Ltd; Patrick Maguire; Warren Binney; Ross Patterson; John Shanahan; Do Yourself A Favour Co Pty Ltd.

JUDGMENT OF: Hunter J

LOWER COURT JURISDICTION: Supreme Court

LOWER COURT FILE NUMBER(S):

LOWER COURT JUDICIAL OFFICER:

COUNSEL:

1-3P - P Biscoe QC with SJ Motbey

1-2D - P McEwen SC

3-14D - P Gray

SOLICITORS:

1-3P - J Biady & Associates

1-2D - Brook Worthington

3-14D - Stephen Blanks & Associates

CATCHWORDS:

Costs - "global approach" - multiple parties - mixed success.

ACTS CITED:

DECISION:

Plaintiffs pay 90% of 1st and 2nd defendants' costs and 40% of 3rd, 5th, 7th, 8th, 9th, 10th and 11th defendants costs; costs orders 2G and 2J of the supplementary judgment of 24 April 1998 to be subsumed in those orders. Stay of orders in the proceedings other than assessment of costs until assessment of, or agreement on, costs. Security for costs provided by plaintiffs to remain in place pending such assessment or agreement as to costs.

JUDGMENT:

THE SUPREME COURT

OF NEW SOUTH WALES

EQUITY DIVISION

COMMERCIAL LIST

HUNTER J

TUESDAY 23 February 1999

50304/94 STRATA CONSOLIDATED (AUSTRALIA) PTY LTD & 2 ORS v EDWARD JOHN BRADSHAW & 13 ORS

REASONS FOR JUDGMENT

1 The costs orders made in order 2J of the supplementary judgment (order 2J), probably dispose of the main or substantial costs of these proceedings. Although a "global" approach has been adopted in the making of final costs orders, it may be helpful in considering any challenge to the orders to identify with more particularity the main, discrete areas of costs encompassed in order 2J.

2 There is a further advantage in doing so, in that such an analysis should give a strong indication as to the manner in which any general costs of the proceedings should be dealt with and also aid determination of the question whether, in the assessment of costs, the assessor should be left to make an assessment of costs in those discrete areas, or whether this Court should circumvent that task and further disputation over costs by making a percentage assessment of the parties' respective costs which is to be borne by one or the other parties.

3 The case of Bradshaw is a useful starting point for it demonstrates the strong contrast between the particular issues in which he was successful and the allegations which were successfully made against him.

4 The liability of Bradshaw is examined in detail at pp 231 et seq of the principal judgment. Pars 23 and 24 of the plaintiffs' contentions as set out in the summons (the contentions) specify the duties said to be owed by Bradshaw to the plaintiffs as a fiduciary or as a director. Par 25 set out the breaches relied upon. So far as those breaches relied upon alleged wrongful disclosure of confidential information, the findings at pp 233 and 234 of the principal judgment, in substance, reject Strata's case, save in respect of information referred to in pars 21 (g) and (h), relating respectively to the Translight-Xelux agency and the Selectrons agency (the agencies).

5 The findings in relation to the alleged breaches are set out at pp 238-247 of the principal judgment. In substance, apart from Bradshaw's conduct in relation to the agencies, the plaintiffs failed in their case against Bradshaw.

6 Similarly, the allegations raised in pars 27 to 29 of the contentions, relating to alleged misrepresentations to Strata's agents, were examined at pp 247-251 of the principal judgment. The plaintiffs failed to make out that case against Bradshaw.

7 The allegations in pars 35 to 51 and 57 of the contentions were examined in the principal judgment at pp 251 to 253 and, in substance, the customer representation case against Bradshaw was rejected.

8 Further, I think the findings in the principal judgment at pp 253 to 258 dispose of the case against Bradshaw, as pleaded in pars 52 to 56 of the contentions, relating to alleged misrepresentations to the plaintiffs.

9 At p 258 of the principal judgment, the case against Bradshaw as alleged in pars 104 and 105 of the contentions was also rejected.

10 At pp 259 to 273 and 275 to 278 of the principal judgment, allegations against various groups of defendants were considered. So far as those allegations involved the conduct of Bradshaw, in substance, they were found to have failed against him, save for his participation in the acquisition of the agencies.

11 Similarly, the case of passing off, examined at pp 279 to 287 of the principal judgment, failed as against Bradshaw.

12 It follows that under order 2J Bradshaw is entitled to the costs of all issues raised against him save for those issues concerning his involvement in the acquisition of the agencies. Although it is correctly stated that where a breach of fiduciary duty is found to have occurred, liability for that breach is not founded upon loss to the party to whom the duty is owed, it does not follow that the circumstances of breach are necessarily irrelevant to the exercise of the court's discretion in determining the appropriate order for costs of issues relating to that breach. In this case the acquisition of the agencies took place in circumstances which I have found occasioned no loss to Strata and, on enquiry into any profits that may have been so derived by any of the defendants, it was found that no profit was derived by the fiduciary (or for that matter by any of the defendants who participated in the fiduciary's breach) during the relevant period.

13 In my view, the appropriate result should be that each party bear their own respective costs of the issues relating to those breaches of duty by Bradshaw, including the costs of the enquiry into profits. In reaching that conclusion, I am mindful of Bradshaw's claim for indemnity costs on the enquiry. However, bearing in mind Bradshaw's comparatively minor participation in those proceedings, I think the conclusion I have reached is unaffected by the basis upon which costs of the enquiry proceedings should be assessed. I think it is clear that Bradshaw has been substantially successful in the principal proceedings and should have his general costs of those proceedings. The order to which he is entitled is dealt with later in these reasons.

14 The position of Ney is similar to that of Bradshaw except for a significant qualification, namely the adverse findings against him for passing off and under the related trade practice issues.

15 The issues raised against him, or which involved him, in pars 21 to 23, 25 to 34, 35(a), (c) to (h), 36, 37, 40 to 48, 50, 51, 56 to 58, 76 to 106, 109, 112 and 116 of the contentions, save for his involvement in the acquisition of the agencies, in substance, were resolved in his favour, as set out at pp 259 to 273 and 275 to 279 of the principal judgment. I think the extensive nature of those allegations is of significance in considering the costs of a hearing that occupied some twenty weeks.

16 The passing off and related trade practice case against Ney is found in pars 35(b), 49 and 59 to 74 of the contentions. In relation to that aspect of the case, there stands an order (2G) in the supplementary judgment that Ney, Procus Australia, Maguire and Binney pay the plaintiffs' costs. However, in considering those costs, I think it is essential to keep in mind the limit of the plaintiffs' success on those issues. That may be gauged from the extent of the allegations raised in par 35 of the contentions upon which Strata failed in all but one. The findings in the principal judgment upon the passing off suit at pp 279 to 287 need to be read in conjunction with the findings in relation to customer representations at pp 170 to 224 (particularly at pp 222 to 224). Those findings, in my view, demonstrate the limited success of Strata in relation to the passing off and related issues which should be reflected in the assessment of Strata's costs on those issues under 2G.

17 In relation to the costs of the enquiry into profits, Ney has advanced a ground upon which his costs of those proceedings should be treated on an indemnity basis: an offer having been made to Strata on behalf of all defendants to settle that aspect of the case by a payment to Strata of $10,000 inclusive of costs. That offer was made on 16 October 1998. As a discrete area of costs, Ney would be entitled to the costs of the enquiry into profits and, probably, on an indemnity basis were it not for his manipulative conduct upon which enough has been stated in the course of these proceedings. In many ways I think Ney brought upon himself Strata's scepticism of the reliability of his accounts: no better example of that resting in the manner in which he manipulated the Lansarc accounts.

18 I think any assessment of the enquiry costs should be on the usual basis and not on an indemnity basis.

19 Although I regard the task as an invidious one, and one which, at best, involves an approximation, I have come to the conclusion that the approach of McLelland J in Ritz Hotel Ltd v Charles of the Ritz Ltd (1989) AIPC 90-567 is the appropriate one and one which calls for "a global approach", with some qualifications, to the question of the costs of Ney, Procus Australia, Selmet, Sipro, Siska, Maguire and Binney.

20 Before addressing the terms of such costs orders, I think it is necessary to identify the salient costs considerations affecting those defendants (the Ney defendants).

21 Maguire's case is in a similar category to that of Ney. A substantial independent case was raised against him as reviewed at pp 273 to 275 of the principal judgment. That case failed. He was successful on the enquiry into profits and was not a principal in the acquisition of the agencies: although caught up in the account of profits proceedings. He is liable to Strata, as is Ney, under order 2G of the supplementary judgment and is entitled to significant costs under order 2J. The issues to which order 2J relates were examined at pp 259 to 275, 277 and 278 of the principal judgment and reflect substantial success of Maguire's defences.

22 Binney is in a similar position to that of Maguire: his liability to Strata being confined to his involvement in the passing off of Procus' business as that of Strata and his liability to account for any profits derived through Procus in the exploitation of the agencies. While liable under order 2G, he is also entitled to the benefit of order 2J as examined at pp 259 to 273 and 275 to 278 of the principal judgment. He, like Maguire, enjoyed significant success in resisting Strata's claims.

23 The allegations against Siska are considered in the principal judgment at pp 259 to 272 and 273 to 278. The only liability of Siska was its liability to account for any profits derived through the agencies. I think it is clear that the discrete costs incurred by Siska would not be significant, despite the extent of the allegations made against it in the contentions.

24 The orders sought against Siska in pars 18 to 41 of Strata's claims for relief in the summons (Strata's claims) (reproduced at pp 312 and 313 of the principal judgment) lack restraint. The only evidence against Siska was as the provider of funds, fixed with knowledge of the breaches relied upon by reason of the fact that it was controlled by Ney.

25 In considering its entitlement to costs under order 2J of the supplementary judgment, regard should be had to the limited nature of the liability evidenced against Siska in contrast with the relief sought under pars 18 to 41 of Strata's claims.

26 Selmet and Sipro were the vehicles for the acquisition and exploitation of the agencies and were also fixed with knowledge of the breaches of fiduciary duties involved in those acquisitions. Otherwise, the relief sought in pars 18 to 41 of Strata's claims were not made out.

27 Among the corporate defendants, Procus Australia is in a different category. It bears the burden of costs under order 2G in addition to having the benefit of cost order 2J. The assessment of costs under order 2G should have regard to Strata's limited success on the passing off issue as noted earlier in these reasons. In the case of order 2J the assessment of costs should have regard to the extent to which Strata's claims in pars 10 to 17 in addition to the relief sought in pars 18 to 41 failed.

28 Any assessment of costs under the orders made in these proceedings will need to have regard to the fact that the third to fourteenth defendants enjoyed the same representation and that the burden of the work performed in defending these claims fell upon the shoulders of Ney, to the point where it may be difficult to discern in particular cases, such as that of Siska, any appreciable general costs or, for that matter, any significant costs of individual issues. There is no doubt that the major targets of Strata were Bradshaw and Ney and, to a lesser extent, Binney and Maguire. It may be extremely difficult to distinguish which `cost that' Ney was wearing from time to time beyond the fact that there were very few issues in which he was not involved.

29 Although the above analyses would permit separate orders for costs in respect of the Ney defendants, I think the correct approach is to treat their costs as one. Such an approach reflects, in my view, the reality of their representation as being in the one interest, the manner in which the case was conducted against those defendants and is consistent with the approach adopted against them under order 2G.

30 The conclusion I have reached is that the plaintiffs are to pay 40% of the costs of the Ney defendants. That order is to encompass the respective entitlements and liabilities of the parties under orders 2G and 2J. I think the order requiring the plaintiffs to pay 40% of those defendants' costs is the correct approach having regard to the following:

(a) The limited nature of the success of the plaintiffs on the passing off and related trade practice issues.

(b) The significant level of success, in varying degrees, of those defendants upon issues falling within order 2J.

(c) The manner in which those defendants conducted their defences, principally under the umbrella of Ney's defence. In the case of the corporate defendants, it may be difficult to identify discrete areas of costs peculiar to their respective cases.

(d) An award of 40% of those defendants' costs avoids the extremely onerous and imprecise, if not arbitrary, task of identifying the costs of specific issues.

31 The percentage awarded is intended to reflect a nett result of the plaintiffs having a 25% to 30% success rate and the defendants having a 70% to 75% success with each being entitled to the costs of issues on which they were successful. As a simple example, if the costs of the plaintiffs and of the Ney defendants were, in each case, $600, on a 25/75 basis, Strata would be entitled to be paid $150 by the Ney defendants and those defendants would be entitled to be paid $450, giving them a nett benefit of $300, or 50%. If the ratio was 33/66, the nett benefit would be $200, or 33%.

32 In that simple illustration, I have treated the costs of Strata and of the Ney defendants as being approximately the same. There may be some built in distortion in such an assumption, given that Strata's costs of the proceedings include costs of the case against Bradshaw and of defendants against whom the plaintiffs have failed. However, I think the percentage band I have chosen is reasonably reliable.

33 The defendants have carried out assessments of percentages of evidentiary material attributable to particular issues. Those assessments, I think, are quite useful in providing some tangible analysis of the costs of issues. As such they provide some guide. Where they are found particularly wanting is in failing to give sufficient weight to the customer representation issues involving numerous witnesses.

34 In the result, I am comfortable with the fairness of a result which awards the Ney defendants 40% of the total costs of those defendants, on the basis that the entitlement of the plaintiffs and of the Ney defendants under orders 2G and 2J are subsumed in that costs order.

35 The order to be made in the case of Bradshaw, I think, raises little difficulty in adopting a "global" approach. As earlier observed, he has been substantially successful, save for his involvement in the acquisition or exploitation of the agencies. I think the appropriate order is that the plaintiffs are to pay 90% of the total costs of Bradshaw and of Tarkello. I have bracketed Tarkello with Bradshaw as they were in the same interest and for the reason that Tarkello is in much the same position as Siska in the assessment of costs. The entitlement of the plaintiffs and of Bradshaw and Tarkello under orders 2G and 2J are to be subsumed in this costs order.

36 The only remaining costs centre is the cost of the application to join Lansarc. Having regard to the findings in the enquiry into profits, I think a fair result will be achieved by making no special order as to costs. They may be treated as part of the costs of the parties involved in the enquiry into profits. I do not see any need to make an order in respect of Lansarc's costs.

37 The defendants have sought orders against J Biady in respect of the costs to which they are entitled. As indicated during the course of the hearing, I would not consider making such an order other than upon formal notice of motion supported by the evidence to be relied upon, notwithstanding the several instances throughout the principal judgment in which I drew attention to unsatisfactory aspects of Strata's witness statements.

38 The parties are agreed, I think, that there should be a stay in enforcement of the orders made in these proceedings, save for the assessment of costs, until costs are assessed or agreed. In any event, I think it is appropriate to order that such a stay be put in place in view of the disclosed financial position of the defendants and of Strata. For the same reason, the security for costs provided by Strata is to remain in place pending such assessment or agreement.

oOo

LAST UPDATED: 03/03/1999