Carolia Pty Ltd & Ors v Crompton & Ors [2010] NSWSC 549 (28 May 2010)

Last Updated: 31 May 2010

NEW SOUTH WALES SUPREME COURT

CITATION:
Carolia Pty Ltd & Ors v Crompton & Ors [2010] NSWSC 549


JURISDICTION:


FILE NUMBER(S):
08/277318

HEARING DATE(S):
25/05/10

JUDGMENT DATE:
28 May 2010

PARTIES:
Carolia Pty Ltd - first plaintiff
Paul Richard Hargreaves - second plaintiff
Elizabeth Ellen Hargreaves - third plaintiff
Vanessa Crompton - first defendant
Jeffory William Herdegen - second defendant
Anglesey Secured Investments Ltd - third defendant

JUDGMENT OF:
Windeyer AJ

LOWER COURT JURISDICTION:
Not Applicable

LOWER COURT FILE NUMBER(S):
Not Applicable

LOWER COURT JUDICIAL OFFICER:
Not Applicable



COUNSEL:
P Greenwood SC - plaintiffs
R Lever SC/R Higgins - defendants

SOLICITORS:
Hughes & Co - plaintiffs
Ferrier & Associates - defendants


CATCHWORDS:
COSTS – whether costs order should follow the event – two plaintiffs successful on one of two claims – plaintiffs’ unsuccessful claim was a major part of the action – apportionment of costs to reflect outcome

LEGISLATION CITED:


CATEGORY:
Consequential orders

CASES CITED:
Colquhoun, Re; Ex parte Ford (1854) 5 De MG & G 35; [1854] EngR 247; 43 ER 781
McLaughlin v Dungowan Manly Pty Limited [2010] NSWSC 306
Waterman v Gerling (Costs) [2005] NSWSC 1111

TEXTS CITED:


DECISION:
(1) Revoke the orders made on 21 May 2010 and in lieu thereof make the following orders;
(2) Judgment for the plaintiff Paul Hargreaves against the first and second defendants for $40,000 plus interest of $4,877.64 giving a total $44,877.64;
(3) Judgment for the plaintiff Elizabeth Hargreaves against the first and second defendants for $40,000 plus interest of $4,877.64 giving a total $44,877.64;
(4) Judgment for the defendants on the claim of Carolia Pty Ltd;
(5) Order the plaintiffs pay 75 per cent of the defendants’ costs of the proceedings but not including costs of expert reports;
(6) Proceedings otherwise dismissed; and
(7) Exhibits may be returned to be retained in existing form for 28 days and returned to the court in the event of an appeal.



JUDGMENT:

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

WINDEYER AJ

FRIDAY 28 MAY 2010

08/277318 CAROLIA PTY LIMITED & ORS V CROMPTON & ORS

JUDGMENT on costs and final orders

Costs

1 I delivered judgment on 21 May 2010 and reserved the question of costs. This judgment deals with that question.

2 Each of the second and third plaintiffs obtained a judgment against the first and second defendants for $40,000 plus interest. To that extent they have been successful. The claim of the first plaintiff, Carolia Pty Limited (Carolia) against the defendants failed.

3 If costs follow the event then the successful plaintiffs would get their costs of their claims against the first and second defendants and the defendants would get their costs of the claim against them by the first plaintiff, Carolia.

4 The question is whether the court should exercise its discretion so as to vary the usual order that costs follow the event.

5 The successful plaintiffs made two contract claims and an oppression claim against the defendants. It was not necessary to deal with the oppression claim as it was pleaded in the alternative to the second contract claim which succeeded, but the evidence on each was really the same.

6 All plaintiffs failed on the first contract claim. The main question was whether the subscribers shares in the third defendant, Anglesey Secured Investments Limited (Anglesey) were issued as fully paid in consideration of work to be performed for the company in the future or whether the shares were unpaid. The claim of Mr and Mrs Hargreaves, the second and third plaintiffs, was that the shares were fully paid. That claim failed. The claim of Carolia for a breach of contract to provide it with legal work also failed.

7 The original statement of claim was filed on 8 February 2008. It sought a declaration that the shares were fully paid: that failed. It also sought a declaration that resolutions of directors’ meetings of Anglesey claimed to have been made on 31 December 2007 and 14 January 2008 were void. One ground for this claim was that the meetings were invalid as a quorum was not present. Although it was not necessary to deal with that claim it would have been upheld on the grounds relevant to the second contract claim. No damage resulted from the purported resolutions. No action was taken pursuant to them. If there were any damages as a result of the facts pleaded in the original statement of claim those damages would have arisen by reason of repudiation by the defendants of their contract with the plaintiffs. The claim of repudiation failed.

8 The second contract claim on which the plaintiffs succeeded was not raised until the third further amended statement of claim was filed on 25 March 2010, only a short time before the trial commenced. That amendment claimed breaches of the shareholders agreement purporting to pass resolutions on 16 July 2008, 29 January 2009 and 1 September 2009 at meetings of directors of Anglesey held in the absence of the agreed quorum. As a result of actions taken pursuant to those resolutions the Hargreaves lost their shares in Anglesey. This was not properly pleaded until the hearing concluded and may not ever have been properly pleaded but nothing should turn on that as the trial was conducted on the basis that the shares were lost with damages being claimed for their value. Carolia maintained its claim for damages for the opportunity to earn legal fees.

9 The result of this is that had the action been tried on the original statement of claim all claims for damages for repudiation would have failed, but if pressed the court could have made a declaration that the challenged resolutions were void. The claim which has in fact succeeded was not a pleaded claim or issue until the final version of the statement of claim was filed.

10 Mr Lever, Senior Counsel for the defendant, has put forward a number of reasons why a costs order ought not to follow the event. I will deal with these in turn and then deal with some other matters.

11 The first claim was that the defendants should be awarded their costs against the plaintiffs on the indemnity basis. That claim was put forward for two reasons. The first was that in November 2007 the defendants had offered to purchase the shares of the plaintiffs in Anglesey for $100,000 or to sell their shares to the plaintiffs for $100,000. An increased offer was made on 3 December 2007 of $120,000. The plaintiffs did not accept either offer and on 4 December 2007 made a counter offer to sell their shares for $580,000.

12 I do not think that the defendants can rely on these without prejudice offers. They were made at a time when the parties were considering a mediation and they were made before the proceedings commenced. There was no offer of compromise under the rules and no offer by way of Calderbank letter to settle proceedings which had not commenced.

13 The second claim for indemnity costs which would also be a claim for a costs order different from one which followed the event, was made on the basis of the misconduct of the Hargreaves. The misconduct is said to arise through their evidence which I have found to be false as to the preparation of their affidavits and my finding that the file note of 29 October 2004 was a forgery. These matters may have bearing on whether a costs order other than the usual order should be made but would not, in my view, justify an order for indemnity costs.

14 The next basis on which the claim is made for a different order is that the damages recovered by the plaintiffs are trifling considered against the original claim of the plaintiffs. The main evidence on damages in support of the plaintiffs’ claim was intended to be that in an affidavit of Fiona Bateman sworn on 17 February 2009 (the Bateman affidavit). The difficulty about this was that most of the Bateman affidavit was rejected. Nevertheless, there was a claim by Carolia for loss of legal fees of over $1.3 million and a claim by the Hargreaves for loss of dividends to date of $150,000 and loss of future dividends of over $3 million. It was, I accept, never expected that those figures would be accepted, as no reasonable discount was applied to them but it is certainly true that a total recovery of $80,000 is a tiny proportion of the plaintiffs’ claim and could never have justified the costs which must have been incurred in this action.

15 It is reasonable to say that the defendants have been the real victors or successful parties in the action. That is particularly so when it was the first contract claim which took up the substantial part of the trial and similarly it was the first contract claim to which the substantial body of evidence was directed. There were, for instance, I think, 21 lever arch folders of exhibits to the first affidavit of Mr Hargreaves, but there were only seven lever arch folders of relevant documents tendered as exhibits, which covered all the relevant documents exhibited to all affidavits other than the affidavits in reply.

16 The final reason put forward for the variation from the normal order is that the relief which the plaintiffs obtained was as a result of the third further amended statement of claim. It was argued that the general rule in such circumstances is that a successful defendant should obtain costs incurred up until the date of the amendment. That is often so if the facts on which the amended claim is made existed at commencement whereas here those facts did not exist when the action commenced.

17 The general principles which apply in these costs decisions are well known. In appropriate cases where a plaintiff has been successful but has failed in many of the claims put forward the court can, rather than order that the defendants pay all the plaintiff’s costs, make an order that the defendants pay a proportion of the plaintiff’s costs to recognise the extent of the failure. In other cases the court can separate the issues and award costs depending upon the success of the various parties on the different issues. Although that is a course which can be followed, the court should be somewhat careful before embarking on that course. There need to be quite strong reasons for it. Here, if otherwise appropriate, those reasons exist. The facts giving rise to each of the claimed acts of repudiation were different and occurred at different times.

18 If the plaintiffs’ victory is really a pyrrhic victory and the defendants have really been the victors in defending the major part of the plaintiffs’ claim there can be cases where the successful party can be ordered to pay the costs of the unsuccessful party, who is in reality the victor.

19 Finally, if the original claim fails and the only claim which succeeds is a claim made pursuant to an amendment it may be appropriate to give to the successful party costs from the date of the amendment, but give to the other party costs up to the date of the amendment.

20 These principles are all well known and I consider it quite undesirable to write yet another judgment setting out the authorities for those principles and then applying them to this particular case. If reference to authorities is required, those references can be found in two reasonably recent judgments in this Court, namely Waterman v Gerling (Costs) [2005] NSWSC 1111 and McLaughlin v Dungowan Manly Pty Limited [2010] NSWSC 306.

21 The first contract claim is complicated by the fact that although Carolia sought damages, those damages were for breach of agreement between the Hargreaves and Herdegen and Crompton, that they would procure Anglesey to retain Carolia to do the legal work of Anglesey. The contract was proved subject to some conditions but no breach or damage was established.

22 On a rough estimate, I consider that about 85 per cent of the costs of the action were related to the issues on the first contract claim. That together with the very limited success by way of money judgment the plaintiffs have had, leads me to conclude an order different from the usual order should be made. And after consideration, I do not think justice can be done by allowing the plaintiffs only a proportion of the total costs. That would signify success which the plaintiffs have not achieved. I consider that a proper order would be that the plaintiffs should pay the defendants costs of the issue on the first contract claim, including any general costs to the time of filing the third further amended statement of claim. As I have said Carolia would have had to pay the defendants costs relevant to its claim in any event.

23 As far as the second contract claim is concerned, the success was limited to the amended statement of claim filed on 25 March 2010 although some of the evidence filed before would be relevant to that claim. Even here the value determined to be the value of the shares was so small as to be out of proportion to the costs. The value attributed to the shares was not that put forward by the plaintiffs except as what might be described as a final fall back figure. Nevertheless, the Hargreaves plaintiffs have succeeded on the second contract claim and I think that they should have their costs of it. The total costs of the second contract claim would, I consider, be no more than 15 per cent of the total costs of the action. No costs should be allowed in respect of the report of Ms Bateman. The only part of it used was an appendix available in a more accurate form in other evidence. Carolia was a claimant under the second contract claim but its claim failed. The defendants should have their costs of that claim. Strictly speaking and bearing in mind the normal principles being the “rule of thumb” emanating from in Colquhoun, Re; Ex parte Ford (1854) 5 De MG & G 35; [1854] EngR 247; 43 ER 781, Carolia should be treated as one plaintiff and the Hargreaves the other, and therefore the Hargreaves should get one half of the general costs of the second contract claim, and their costs in respect of their claim which succeeded, and Carolia should pay the defendants’ costs of its claim under the second contract claim.

24 I will come back to this, but before I come to the final conclusion, I should deal with the cost of expert reports. I do this as I was asked to, the amounts are substantial, and a decision would present problems for an assessor. I have already dealt with the report of Ms Bateman. The report of Mr Wills was put into evidence and withdrawn. The plaintiffs obtained an expert report in response to that of Mr Wills. After the report of Mr Wills was withdrawn, the plaintiffs did not put their report into evidence. These reports have obviously cost very large sums of money. In my view, the defendants should not have the costs of their report which was withdrawn. So far as I know, these reports went to the validity of the file note of 29 October 2004. The plaintiffs seek the cost of their expert report. I do not think they are entitled to this. I do not know what it said although I accept that it was in reply, but if the purpose was to challenge any evidence of Mr Wills that the file note was a fabrication, there was no reason why the plaintiffs’ expert report could not have been put forward as positive evidence as to the validity of the file note. On assessment of costs between the parties the cost of the expert reports should not be allowed.

25 It is desirable to come to an overall result to avoid any problems on assessment and the parties have accepted that should be done. I consider that the costs of the first contract claim, would amount to about 85 per cent of the total costs. The defendants should start with that figure. The balance of 15 per cent of costs relevant to the second contract claim which could otherwise be awarded to the Hargreaves should be reduced first because only one of two parties succeeded and the other failed. As I have said on general principles the successful party should only get one half of the general costs of the second contract claim and its own costs relevant to that claim which I would estimate to be considerably more than the costs of Carolia on its claim and more than the costs of the defendants in successfully meeting Carolia’s claim. With that in mind, I consider the Hargreaves should recover about two thirds of the costs of the second contract claim. That is two thirds of 15 per cent of the total costs of the action.

26 While I realise it is not necessarily logical to deduct that percentage from the 85 per cent of costs going to the defendants it is not possible to be logically accurate and what is needed is a reasonably fair result having regard to the varying degrees of success. That result is achieved by ordering the plaintiffs to pay 75 per cent of costs of the defendants. The parties accepted that to come to an overall figure it was necessary to make an order treating the plaintiffs as one.

Final orders

27 The orders made on 21 May made no allowance for interest although interest was claimed and has now been calculated to date. The convenient course is to revoke the earlier orders and substitute new orders. The orders are as follows:

(1) Revoke the orders made on 21 May 2010 and in lieu thereof make the following orders;

(2) Judgment for the plaintiff Paul Hargreaves against the first and second defendants for $40,000 plus interest of $4,877.64 giving a total $44,877.64;

(3) Judgment for the plaintiff Elizabeth Hargreaves against the first and second defendants for $40,000 plus interest of $4,877.64 giving a total $44,877.64;

(4) Judgment for the defendants on the claim of Carolia Pty Ltd;

(5) Order the plaintiffs pay 75 per cent of the defendants’ costs of the proceedings but not including costs of expert reports;

(6) Proceedings otherwise dismissed; and

(7) Exhibits may be returned to be retained in existing form for 28 days and returned to the court in the event of an appeal.

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LAST UPDATED:
28 May 2010