FEDERAL COURT OF AUSTRALIA

New South Wales Lotteries Corporation Pty Ltd v Kuzmanovski (No 2) [2011] FCAFC 152

THE COURT ORDERS THAT:

1.    The Appellant pay 50% of the Respondents’ costs of the trial before the primary judge.

2.    Each party pay their own costs of the appeal.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

1    This Court delivered its decision in these proceedings on 24 August 2011: see New South Wales Lotteries Corporation Pty Ltd v Kuzmanovski [2011] FCAFC 106 (‘the Court’s decision’). The Court upheld the appellant’s appeal in part, and ordered, inter alia, that the parties file and serve written submissions within 28 days in respect of the costs of the appeal and of the hearing before the primary judge. Both the appellant and the respondents filed written submissions in relation to costs on 21 September 2011.

2    On this appeal the Court was required to determine the correctness of the primary judge’s findings that the appellant had breached its contract with the respondents and had contravened the provisions of the Trade Practices Act 1974 (Cth) (‘TPA’), as well as the issue of the constitutional validity of the Public Lotteries Act 1996 (NSW) (‘the Lotteries Act’) raised by the respondents’ Notice of Contention dated 1 October 2010.

Appellant’s Submissions

3    The appellant seeks an order that each party should bear its own costs on appeal, and that the appellant pay one-third of the respondents’ costs of the trial (or at least no more than half of such costs). The appellant relies on the decision of the Full Court in CV Sheepvaartonderneming Ankergracht v Stemcor (A/sia) Pty Ltd [2007] FCAFC 117 at [7] which states:

Where a plaintiff succeeds on one basis but fails on another, it is frequently necessary to consider whether that mixed result should be reflected in any order for costs. In many, perhaps most, cases the different bases will merely reflect different legal mechanisms by which the same result might follow from the same facts. In such a case the extent of the costs solely attributable to the unsuccessful ground will frequently be very limited. Generally, that situation does not lead to separate orders for costs in connection with separate issues or to reduction in the successful party’s costs. In other cases, the alternative bases for the case may be quite discrete, and the unsuccessful basis may take up substantially more time, and account for substantially more of the costs, than does the successful basis. In those circumstances justice may require that the unsuccessful defendant not be compelled to pay the costs of the issue upon which it has succeeded.

4    The appellant submits that it ‘enjoyed substantial success’ at the appeal and achieved a reduction in its damages payable to the respondents by 80%. The appellant further submits that while the respondents were successful in their claim under the TPA, they failed on their primary breach of contract claim, and on their claim of constitutional invalidity of the Lotteries Act.

5    The appellant submits that the breach of contract claim was the ‘dominant issue before the Court’ and occupied the ‘vast bulk of the hearing’ at both the trial and on appeal. Further, the appellant submits that ‘less than 15%’ of the hearing time before the primary judge and this Court was devoted to the claim upon which the respondents were successful, namely the TPA claim.

6    The appellant further seeks an order that the respondents’ taxed costs be reduced by one-third by virtue of Rule 40.08 of the Federal Court Rules 2011 (‘the Rules’) (set out in [24] below).

Respondents’ Submissions

7    The respondents submit that the appellant should be ordered to pay the respondents’ costs of the proceedings before the primary judge and of the appeal.

8    The respondents submit that while the appeal was allowed in part, effectively the respondents ‘substantially succeeded in the trial below’. The respondents further submit that their success in their TPA claim is a ‘proper factor to take into account which significantly supports an exercise of discretion’. The respondents submit that the relevant principles were identified by the Full Court in EMI Songs Australia Pty Limited v Larrikin Music Publishing Pty Ltd [2011] FCAFC 92 at [9], at which the Full Court said:

The submissions of the EMI parties do not reflect the applicable principles, which may be summarised as follows. Costs are in the discretion of the Court (Federal Court of Australia Act 1976 (Cth) s 43). The discretion is broad but is to be exercised judicially. The fundamental purpose of the discretion is to compensate the successful party, not to punish the unsuccessful party. The furtherance of the goal of compensation means that, in general, a successful party will obtain an order for costs in its favour (Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11 at [65]-[68]). However, “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…” (Hughes v Western Australian Cricket Association (Inc) (1986) ATPR 40-748 at 48,136). If apportionment of costs is appropriate, the object is not mathematical precision (Dodds Family Investments Pty Ltd (formerly Solar Tint Pty Ltd) v Lane Industries Pty Ltd (1993) 26 IPR 261 at 272) but a result that best reflects the interests of justice in the overall circumstances of the case.

9    The respondents also submit that this is not an appropriate case where any adverse costs order should be made on an issue by issue basis, but rather the ‘overall balance of success by the respondents supports the proposed orders to compensate the respondents’.

10    As to the constitutional issue raised by the Notice of Contention in this Court, the respondents submit that little time was spent on this issue. The respondents further submit that it is not appropriate that a reduction be ordered pursuant to Rule 40.08 of the Rules.

Relevant Legal Principles

11    Section 43(2) of the Federal Court of Australia Act 1976 (Cth) (‘the Court Act’) vests in this Court the power to award costs in all proceedings before it including the cost of the appeal and of the hearing before the primary judge. The Court’s power to award costs is unfettered except that such power must be exercised judicially: see Oshlack v Richmond River Council (1998) 193 CLR 72; Ruddock v Vardarlis (No 2) (2001) 115 FCR 229 at [9]. In Oshlack McHugh J observed at [66] that a successful litigant is generally entitled to an award of costs. See also Dias Aluminium Products Pty Ltd v Ullrich Aluminium Pty Ltd (No 2) (2005) 225 ALR 569 at [2] per Crennan J. In Latoudis v Casey (1990) 170 CLR 534 McHugh J at 567 referred to the principle that the function of an award of costs is to compensate the successful party, and that such order does not include any aspect of punishment.

12    Various authorities exist for the principle that where a party has succeeded on some issues but not others, apportionment of costs may be appropriate. In JMVB Enterprises Pty Ltd (Formerly A‘Van Campers Pty Ltd) v Camoflag Pty Ltd (No 2) [2007] FCAFC 6 the Full Court (Emmett, Stone and Bennett JJ) said at [7]:

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.

13    For further examples of such principle, see Roadshow Films Pty Ltd v iiNet (No. 4) (2010) 269 ALR 606; Hughes v Western Australian Cricket Association (Inc) (1986) ATPR 40-748 at 48,136; H Lundbeck A/S v Alphapharm Pty Ltd (No 2) [2009] FCAFC 118 at [8]; Dodds Family Investments Pty Ltd (formerly Solar Tint Pty Ltd) v Lane Industries Pty Ltd (1993) 26 IPR 261 at 271; Aristocrat Technologies Australia Pty Ltd v Global Gaming Supplies Pty Ltd (No 2) [2010] FCA 277; In Re Elgindata (No 2) [1993] 1 All ER 232 at 237, 239 per Nourse LJ.

14    However, it has also been held that where multiple issues arise in proceedings, it is not as a rule desirable for a Court to attempt to apportion costs based on parties’ relative success over various issues: see Doric Products Pty Ltd v Lockwood Security Products Pty Ltd (2002) 54 IPR 495 in which Hely J observed at [10]:

The courts have cautioned against too ready a resort to apportionment according to issue based outcomes: see, eg, Australian Trade Comission v Disktravel (2002) ATPR 41-85.

15    Further, Jacobs J in Cretazzo v Lombardi (1975) 13 SASR 4 expressed ‘… a note of cautious disapproval’ of applications to apportion costs.

Findings

16    The case law referred to above shows that there are authorities both in favour of apportionment and those which caution against apportionment. The above authorities are cited solely to demonstrate the broad powers of the Court in the award of costs. In the exercise of its discretion, the Court may take into consideration, among other matters, the circumstances out of which the dispute has arisen.

(a) Costs of the Appeal

17    The appellant, whilst unsuccessful in respect of the TPA issue, was successful in the breach of contract claim and the constitutional challenge to the Lotteries Act. Notwithstanding the success that the appellant enjoyed on the appeal, it contended that the appropriate order was that there be no order for costs on the appeal. This contention reflects the announcement the appellant made during the hearing of the appeal that it would not seek its costs of the appeal in the event that the appeal was upheld.

18    The respondents, however, contended that the appellant should pay their costs on the appeal. In our view, this contention is not to be accepted. The appellant enjoyed a greater measure of success on the appeal than the respondent, including in relation to the Notice of Contention which was relied upon by the respondents in support of their constitutional challenge. Further, the matters on which the appellant succeeded occupied more time in the hearing, and more space in the judgment, than did the issue on which the respondents succeeded.

19    In these circumstances, each party should be ordered to pay its and their own costs of the appeal.

(b) Costs of the Trial

20    The respondents were successful before the primary judge in respect of both the contractual claim and the claim made under the TPA and were awarded $100,000 in damages. It appears that the claim that the Lotteries Act infringes s 109 of the Constitution was raised for the first time in the Notice of Contention as it was not referred to in the decision of the primary judge. Certainly if the constitutional issue was raised before his Honour, it occupied little hearing time.

21    The Court takes into consideration the circumstances giving rise to this litigation, and of the fact that the respondents had justification for believing that they were entitled to receive the prize. Had the playing instructions for the appellant’s game and the entitlement to win a prize been more comprehensible and fair, this litigation might well have been avoided. However as this Court has found, as a matter of law the respondents could not succeed on the contractual claim.

22    The Court takes into account these matters and the fact that the respondents were successful at appeal with regard to their TPA claim, and that it was necessary for the respondents to go to trial to obtain any compensation from the appellant. The Court finds that the costs of the trial should be apportioned. This apportionment does not arise necessarily on a strict issue by issue basis, but is intended to achieve a just and fair result taking into account all of the circumstances of this litigation.

23    The Court considers that it is appropriate that the appellant be ordered to pay 50% of the respondents’ costs of and incidental to the trial. As Gray J in Howards Storage World Pty Ltd v Haviv Holdings Pty Ltd (2010) 182 FCR 84 said at [17]:

Attention must always be paid to the particular circumstances of the individual case. The aim is to do substantial justice in relation to costs, based on the outcomes of the various issues in the proceeding, as between the entities that are parties to that proceeding.

24    Finally, the appellant submits that any costs order made against them with respect to the trial should be reduced by one third pursuant to Rule 40.08 of the Rules. Such rule provides:

Rule 40.08 Reduction in costs otherwise payable

A party other than in a proceeding under the Admiralty Act 1988 may apply to the Court for an order that any costs and disbursements payable to another party in the proceeding be reduced by an amount to be specified by the Court if:

(a)    the applicant has claimed a money sum or damages and has been awarded a sum of less than $100 000; or

(b)    the proceeding (including a cross-claim) could more suitably have been brought in another court or tribunal.

25    The appellant submits that as the respondents are now only successful in a sum of $20,000 the costs should be reduced. However, the Court considers that Rule 40.08 merely vests the power in the Court to make such an order where the sum awarded is less than $100,000. In the present circumstances the Court considers that it is inappropriate to exercise such discretion. Further, the Court considers that it was not inappropriate for the dispute between the parties to be instituted in this Court instead of the New South Wales Supreme Court nor the Federal Magistrates Court as contended by the appellant.

Orders

26    For the above reasons, the Court makes the following orders with respect to costs:

1.    The Appellant pay 50% of the Respondents’ costs of the hearing before the primary judge.

2.    Each party pay their own costs of the appeal.

Associate:

Dated:    1 December 2011