【Classic Cases】ChXX v ZhXXg (No 2) [2016] NSWCA 3XX

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

JUDGMENT

THE COURT: On 5 August 2016, this Court allowed an appeal by the appellant (Mr ChXX) against a decision of a Judge of the District Court in favour of the respondents (the ZhXXgs).[1] The effect of the successful appeal was that a judgment entered by the District Court in favour of the ZhXXgs against Mr ChXX in the sum of $210,798.77 was set aside.

The principal ground upon which the appeal was allowed was that the primary Judge erred in finding that a statement made by Mr ChXX, a partner of the ZhXXgs in a chicken shop business, was misleading or deceptive. This conclusion was fatal to the ZhXXgs’ claim that Mr ChXX’s misleading or deceptive conduct induced them to acquire their interest in the business and this caused them to sustain financial loss.

The ZhXXgs have now filed a Notice of Motion seeking to vary certain of the costs orders made by this Court. In the absence of Basten JA on leave, the parties have consented to the motion being dealt with by two members of the Court.

Background

The primary Judge had to address a number of claims and cross-claims. They included the following:

(i) claims by the ZhXXgs against CliXXXan Pty Ltd (CliXXXan), the vendor of the business in which the ZhXXgs acquired an interest, and Mr ChXX, the principal of CliXXXan;

(ii) a claim by the ZhXXgs against Mr ChXX, based on his alleged misleading or deceptive conduct;

(iii) a claim by the ZhXXgs to recover $50,000.00 said to be due under a loan agreement between them, as the lenders, and Mr ChXX and his wife, Ms LXX, as the borrowers; and

(iv) a cross-claim by Mr ChXX and Ms LXX against the ZhXXgs, claiming monies allegedly due on the dissolution of a partnership.

The outcome of these various claims was as follows:

(i) the ZhXXgs succeeded in their claims against CliXXXan and Mr ChXX;

(ii) the ZhXXgs also succeeded in their claim against Mr ChXX, obtaining judgment against him in the sum of $210,798.77 (Order 5);

(iii) the ZhXXgs obtained judgment against Mr ChXX on the claim under the loan agreement in the sum of $59,770.55, inclusive of interest (Order 7), but failed against Ms LXX; and

(iv) the cross-claim brought by Mr ChXX and Ms LXX against the ZhXXgs was dismissed (Order 13).

The primary Judge made the following relevant costs orders:

(i) the ZhXXgs pay Ms LXX’s costs of the unsuccessful claim against her (Order 9(b));

(ii) Mr ChXX pay the costs of the ZhXXgs’ claims against him on the ordinary basis until 19 May 2014 and thereafter on an indemnity basis (Order 9(c)); and

(iii) Mr ChXX and Ms LXX pay the costs of their unsuccessful cross-claim against the ZhXXgs.

It appears that the reason the primary Judge ordered Mr ChXX to pay costs on an indemnity basis as from 20 May 2014 was that he failed to accept an offer of compromise made by the ZhXXgs on that date. The offer was in the following terms:

“1. The third and fourth defendants [Mr ChXX and Ms LXX] to pay to the plaintiff [the ZhXXgs] the sum of $50,000.00.

2. This offer is made in accordance with Rule 20.26 of the Uniform Civil Procedure Rules.

...”

The orders made by this Court in the Principal Judgment were as follows:

“1. Appeal allowed.

2. ...

3. Orders 5, 6 and 9(c) made on 18 January 2016 be set aside.[2]

4. In lieu thereof, order that the [ZhXXgs’] claim against [Mr ChXX] be dismissed.

5. The [ZhXXgs] pay [Mr ChXX’s] costs of the [ZhXXgs’] claim in the District Court against [Mr ChXX].

6. The [ZhXXgs] pay [Mr ChXX’s] costs of the appeal.

7. The [ZhXXgs] have a certificate under the Suitors’ Fund Act 1951 (NSW).”

These orders left undisturbed Order 7 made by the primary Judge, by which judgment was entered in favour of the ZhXXgs against Mr ChXX on their claim under the loan agreement.

Following delivery of the Principal Judgment, the ZhXXgs filed a Notice of Motion pursuant to Uniform Civil Procedure Rules 2005 (NSW) (UCPR) r 36.16(3A) seeking to vary the orders made by this Court. The variations they seek are as follows:

(i) Order 3 should be amended so that it does not set aside Order 9(c) made by the primary Judge (the costs order against Mr ChXX);

(ii) Order 4 is omitted;

(iii) Order 5 is omitted; and

(iv) Order 6 is omitted and no order is made as to the costs of the appeal.

The legislation and rules

Section 98(1) of the Civil Procedure Act 2005 (NSW) (CP Act) provides that, subject to the rules of court, costs are in the discretion of the Court. UCPR r 42.1 states as follows:

“Subject to this Part, if the court makes any order as to costs, the court is to order that the costs follow the event unless it appears to the court that some other order should be made as to the whole or any part of the costs.”

Part 20 of the UCPR deals among other things, with offers of compromise. It includes the following provisions:

“20.26 Making of offer

(1) In any proceedings, any party may, by notice in writing, make an offer to any other party to compromise any claim in the proceedings, either in whole or in part, on specified terms.

...

(8) Unless the notice of offer otherwise provides, an offer providing for the payment of money, or the doing of any other act, is taken to provide for the payment of that money, or the doing of that act, within 28 days after acceptance of the offer.

20.27 Acceptance of offer

(1) A party may accept an offer by serving written notice of acceptance on the offeror at any time during the period of acceptance for the offer.

...

(3) If an offer is accepted in accordance with this rule, any party to the compromise may apply for judgment to be entered accordingly.”

UCPR r 42.14 provides as follows:

“(1) This rule applies if the offer is made by the plaintiff, but not accepted by the defendant, and the plaintiff obtains an order or judgment on the claim no less favourable to the plaintiff than the terms of the offer.

(2) Unless the court orders otherwise, the plaintiff is entitled to an order against the defendant for the plaintiff’s costs in respect of the claim:

(a) assessed on the ordinary basis up to the time from which those costs are to be assessed on an indemnity basis under paragraph (b), and

....”

The ZhXXgs’ motion has been filed pursuant to UCPR r 36.16(3A), which provides as follows:

“If notice of motion for the setting aside or variation of a judgment or order is filed within 14 days after the judgment or order was entered, the court may determine the matter, and (if appropriate) set aside or vary the judgment or order under subrule (1), as if the judgment or order had not been entered.”

Rule 36.16(1) empowers the court to set aside or vary a judgment or order if a Notice of Motion for setting aside or variation is filed before entry of the judgment or order.

Costs of the appeal

In support of their contention that no order should be made as to the costs of the appeal, the ZhXXgs point out that Mr ChXX abandoned some grounds of appeal at the hearing. The abandoned grounds challenged both the primary Judge’s finding that Mr ChXX owed the ZhXXgs $50,000.00 under the loan agreement and the order dismissing his (and Ms LXX’s) cross-claim. The ZhXXgs say that the costs order in respect of the appeal should reflect the “real measure of success” they enjoyed on the appeal and that, accordingly, they should not be required to pay Mr ChXX’s costs of the appeal.

Mr ChXX accepts that some allowance should be made for his abandonment of some grounds of appeal, but he contends that any allowance in favour of the ZhXXgs should be very modest. Mr ChXX says that the abandoned grounds relating to the debt claim and the cross-claim did not contribute significantly to the cost of preparing either the Appeal Books or the written submissions and played no part in the hearing of the appeal.

I accept the ZhXXgs’ submission that some allowance should be made in their favour for the grounds abandoned by Mr ChXX at the hearing. The effect of his belated abandonment of these grounds was to leave unaltered Order 7 made by the primary Judge, pursuant to which judgment was entered against Mr ChXX in the sum of $59,770.55. However, I think that the allowance should be modest, although not quite as modest as Mr ChXX suggests in his written submissions.

The judgment based on the loan agreement was for a modest sum. The abandonment of the grounds of appeal meant that the hearing was devoted wholly to the other issues raised by the Notice of Appeal, on which Mr ChXX was wholly successful. In my opinion, the ZhXXgs should be ordered to pay 70 per cent of Mr ChXX’s costs of the appeal. This order adequately reflects the substantial success he enjoyed on the appeal and the relatively minor part played by the abandoned grounds in the conduct of the appeal.

For these reasons, Order 6 in the Principal Judgment should be replaced with the following order:

6. The Respondents pay 70 per cent of the Appellant’s costs of the appeal.

Costs of the Trial

The ZhXXgs submit that despite Mr ChXX’s success on the appeal, Order 9(c) made by the primary Judge requiring Mr ChXX to pay the ZhXXgs’ costs of their claims should not be disturbed. They contend that Order 9(c), including the order for indemnity costs, is appropriate, given that they have succeeded on the appeal in retaining a judgment against Mr ChXX for an amount greater than the sum they were prepared to accept under their offer of compromise.

The principal difficulty with this submission is that the offer of compromise was not made to Mr ChXX alone, but to both Mr ChXX and Ms LXX. The offer was to settle the ZhXXgs’ claim against Mr ChXX and Ms LXX (and the cross-claim by Mr ChXX and Ms LXX) on terms requiring Mr ChXX and Ms LXX to pay the ZhXXgs the sum of $50,000.00. While the meaning of the offer is not entirely clear, it was presumably intended (if accepted) to resolve not only the ZhXXgs’ claim against Mr ChXX individually, but also the claim against both Mr ChXX and Ms LXX under the loan agreement.

Because the offer of compromise was made to Mr ChXX and Ms LXX, it could not have been accepted by Mr ChXX acting alone.[3] Nor could Mr ChXX have accepted the offer on behalf of himself and Ms LXX. As Mr ChXX’s written submissions point out, had he been able to accept the offer on behalf of Ms LXX, she would have been jointly liable to pay $50,000.00 to the ZhXXgs in respect of a claim against her that was ultimately dismissed. It follows that the ZhXXgs cannot rely on the costs consequences that usually flow from non-acceptance of an offer of compromise made pursuant to UCPR r 20.26.[4]

It is not to the point that Mr ChXX did not raise this argument before the primary Judge. This Court is required to re-exercise the discretion concerning the costs of the trial, having regard to the outcome of the appeal. It is open to Mr ChXX in response to the ZhXXgs’ contentions, to rely on the form of the offer of compromise.

I do not think that the costs of the proceedings between the ZhXXgs and Mr ChXX at the trial can be dealt with on the basis that it was unreasonable for Mr ChXX not to have acted on the basis that the offer of compromise was simply made to him or that he could have resolved the proceedings by paying the sum of $50,000.00 himself. The fact is that no offer was ever made that was capable of unilateral acceptance by Mr ChXX. Moreover, payment of the sum of $50,000.00 by Mr ChXX would not necessarily have finalised the claims between the ZhXXgs and Ms LXX.

In making costs orders, it is necessary to bear in mind that while the ZhXXgs have retained a relatively modest judgment against Mr ChXX, the judgment in their favour for a much larger amount has been set aside. It is also significant that the primary Judge recorded that the claims of misleading or deceptive conduct against Mr ChXX (and Mr ChXX) were the dominant issues in the proceedings. His Honour estimated that the issues between the ZhXXgs, on one hand, and Mr ChXX and Ms LXX, on the other, occupied only about 10 per cent of the transcript of the hearing.

It is difficult for this Court to determine the proper orders concerning the costs of a trial that occupied seven hearing days, with further hearing time devoted to ancillary issues. The difficulty is even greater in the present case, given that some parties involved in the trial have not been joined to the appeal and that the trial involved many issues that have not been raised on the appeal. However, very sensibly, neither party has suggested that the question of costs should be remitted to the primary Judge.

The starting point is UCPR r 42.1, which requires the Court to order that costs follow “the event”, unless it appears to the Court that some other order should be made. I am prepared to accept that the “event” is that the ZhXXgs obtained a judgment in their favour against Mr ChXX for $59,770.55. Nonetheless, one case in which it may be appropriate to depart from the general principle stated in r 42.1 is where a successful party has lost a clearly dominant or severable issue.[5] This is such a case. The ZhXXgs pursued two largely, if not entirely discrete claims, against Mr ChXX. They succeeded on the lesser claim (in monetary terms), but ultimately failed on the larger claim. Of the two claims, the larger claim took up considerably more hearing time at the trial.

In my opinion, these circumstances warrant a departure from the general rule stated in UCPR r 42.1. I think that justice will be done if no order is made as to the costs in the District Court of the ZhXXgs’ claims against Mr ChXX, with the intent that the parties bear their own costs.

Accordingly, Order 5 made in the Principal Judgment should be replaced with the following:

5. In lieu of Order 9(c) made on 18 January 2016, there be no order as to the costs of the Respondents’ claim in the District Court against the Appellant, with the intent that the parties bear their own costs.

Other orders

Order 3 in the Principal Judgment sets aside Orders 5, 6 and 9(c) made by the primary Judge. Order 3 should remain unaltered.

Order 4 in the Principal Judgment provides that in lieu of Orders 5, 6 and 9(c), the ZhXXgs’ claim against Mr ChXX be dismissed. It is necessary, however, to take account of Order 7 made by the primary Judge, which gave judgment for the ZhXXgs against Mr ChXX in the sum of $59,770.55, and which has not been set aside on the appeal. Accordingly, Order 4 in the Principal Judgment should be replaced by the following:

4. In lieu of Orders 5 and 6 made on 18 January 2016, order that, subject to Order 7 made on 18 January 2016, the Respondents’ (Plaintiffs’) claims against Mr ChXX (Third Defendant) be dismissed.

Orders

Pursuant to UCPR r 36.16 (1) and (3A), the following orders should be made:

1. Set aside Orders 4, 5 and 6 made on 5 August 2016.

2. In lieu thereof, make the following orders:

4. In lieu of Orders 5 and 6 made on 18 January 2016, order that, subject to order 7 made on 18 January 2016, the Respondents’ (Plaintiffs’) claims against Mr ChXX (Third Defendant) be dismissed.

5. In lieu of Order 9(c) made on 18 January 2016, there be no order as to the costs of the Respondents’ claim in the District Court against the Appellant, with the intent that each of the parties bears their or his own costs.

6. The Respondents pay 70 per cent of the Appellant’s costs of the appeal.

************

[1] ChXX v ZhXXg [2016] NSWCA 193 (Principal Judgment).

[2] Order 6 made on 18 January 2016 prevented double recovery by the ZhXXgs.

[3] Barwon Region Water Authority v Aquatec-Maxcon Pty Ltd (2007) 17 VR 480; [2007] VSCA 186 at [35] (Kaye AJA).

[4] UCPR r 42.14, reproduced at [12] above.

[5] Griffith v Australian Broadcasting Corporation (No 2) [2011] NSWCA 145 at [15]- [20] (Hodgson JA, McClellan CJ at CL agreeing), and cases cited there.