Federal Court of Australia

Ezy-Fit Engineering Group Pty Limited v Microm Nominees Pty Limited (No 4) [2025] FCA 411

ORDERS

THE COURT ORDERS THAT:

1.    The first respondent pay 15% of 30% of the applicants' costs.

2.    The second respondent pay 85% of 30% of the applicants' costs.

3.    The parties by their legal representatives are to confer and attempt to agree the quantum of costs prior to engaging in any formal taxation of costs.

4.    The applicants' costs are to be taxed by a registrar of this Court if not agreed.

5.    Each party bear their own costs of the cross-claim.

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

REASONS FOR JUDGMENT

BANKS-SMITH J:

Introduction

1    On 3 May 2024, I published reasons determining the issues of liability in this proceeding: Ezy-Fit Engineering Group Pty Limited v Microm Nominees Pty Limited [2024] FCA 441 (Ezy-Fit No 1).

2    I then addressed a number of outstanding issues with respect to the assessment of damages and apportionment between the respondents: Ezy-Fit Engineering Group Pty Limited v Microm Nominees Pty Limited (No 2) [2024] FCA 1367 (Ezy-Fit No 2).

3    An unresolved issue on the pleadings relating to election was dealt with in Ezy-Fit Engineering Group Pty Limited v Microm Nominees Pty Limited (No 3) [2024] FCA 1415 (Ezy-Fit No 3).

4    Orders disposing of the trial proceedings were made on 9 December 2024. All that remains is the contested issue of costs. Five sets of submissions have been filed with the final set filed on 11 April 2025. I have been asked to deal with costs on the papers.

Summary of findings

5    I will continue to use the defined terms from the previous reasons, and familiarity with those reasons is assumed. I will refer to the applicants generally as Ezy-Fit. Where necessary to distinguish them, I will refer to the first and second applicants as Ezy-Fit Engineering and Ezy-Fit Marine respectively. I will refer to the first respondent as Ron Mack and the second as FAT HACO.

6    In summary, in 2015 Ezy-Fit agreed to buy a specialised automated turn-mill known as the FTM1000. The FTM1000 was designed by FAT HACO in Poland. The sale of the FTM1000 was conducted through Ron Mack, which relevantly acted as a dealer in Australia for machine tools produced by FAT HACO.

7    The FTM1000 was delivered to Ezy-Fit's premises in 2017 but had a number of defects. Efforts by FAT HACO to repair the machine were unsuccessful, and Ezy-Fit commenced proceedings against Ron Mack and FAT HACO in 2019 seeking damages for, among other things, breach of contract, misleading or deceptive conduct under s 18 of the Australian Consumer Law (ACL) and negligence.

8    I found that there was no contract between Ezy-Fit Engineering and FAT HACO, but there was a contract between Ezy-Fit Engineering and Ron Mack. Ron Mack breached an implied term of the contract as to fitness for purpose of the FTM1000.

9    I also found both Ron Mack and FAT HACO were liable to Ezy-Fit Engineering for representations relating to the FTM1000 that were misleading or deceptive in contravention of s 18 of the ACL. As to apportionment, I concluded that FAT HACO should bear 85% of the liability for Ezy-Fit Engineering's loss and Ron Mack should bear 15%: Ezy-Fit No 2 at [86].

10    I found that Ezy-Fit Engineering was entitled to damages that accord with the estimated cost of rectifying the defective FTM1000 and compensation for loss of profits from the hypothetical use of an alternative machine for a specified period. I estimated the rectification costs at $193,200. The final inclusive award for damages and interest was $883,952.

11    Ezy-Fit Marine's claims failed.

12    The orders made on 9 December 2024, as extracted in Ezy-Fit No 3, were as follows:

1.     There be judgment for the first applicant against the first respondent on the first applicant's claim for damages for breach of contract in the sum of $772,435 plus interest pursuant to s 51A of the Federal Court of Australia Act 1976 (Cth) in the sum of $111,517, being a total sum of $883,952.

2.     There be judgment for the first applicant against the first respondent on the first applicant's claim for damages for breach of s 18 of the Australian Consumer Law in the sum of $115,865 plus interest pursuant to s 51A of the Federal Court of Australia Act in the sum of $16,728, being a total sum of $132,593.

3.     There be judgment in favour of the first applicant against the second respondent on the first applicant's claim for damages for breach of s 18 of the Australian Consumer Law in the sum of $656,570 plus interest pursuant to s 51A of the Federal Court of Australia Act in the sum of $94,789, being a total sum of $751,359.

4.     The first applicant is not entitled to recover pursuant to orders 1 to 3 more than a total judgment sum of $883,952.

5.     All other claims of the first applicant and the second applicant are dismissed.

The competing positions on costs

Ezy-Fit

13    Ezy-Fit primarily proposed orders that address the costs of Ezy-Fit Engineering and Ezy-Fit Marine jointly, so as to avoid the need to excise costs incurred by Ezy-Fit Marine. It submitted there should be a 5% discount to have regard to the fact that Ezy-Fit was unsuccessful on two identified issues (agency and negligence). It proposed a further 10% discount to reflect an accepted disproportion between the number of defects, the number of representations and the quantum pursued at trial. It proposed a further 7.5% discount having regard to Ezy-Fit Marine having failed in its claims. It denied there should be any apportionment of liability for costs as between Ron Mack and FAT HACO. Accordingly, it sought a costs order that the respondents pay 77.5% of the applicants' costs of the proceeding.

14    In the alternative it sought an order that the respondents pay 85% of Ezy-Fit Engineering's cost of the proceedings, and Ezy-Fit Marine bear its own costs.

The respondents' joint position

15    The respondents' primary position was that they had made offers of compromise which, properly understood, were for sums greater than the judgment sum awarded, so that Ezy-Fit should pay the respondents' costs on an indemnity basis from 24 September 2020 (FAT HACO drafted submissions of substance and Ron Mack sought to adopt those submissions). The offers provided for payment to be made by FAT HACO.

16    Those offers of compromise were made on 22 September 2020 and were said to be made under both part 25 of the Federal Court Rules 2011 (Cth) and in accordance with Calderbank principles. The first offer was in the amount of $320,000 plus costs on a standard basis. The second (alternative) offer was for $1 million inclusive of costs. They were said to be open for acceptance for 28 days. Neither offer was accepted.

17    The respondents also submitted that their liability for costs for the period preceding that date should be reduced by 50% to take into account the relative lack of success on the part of Ezy-Fit Engineering, the failure of Ezy-Fit Marine to make out its case and the disproportion between the manner in which the proceeding was pursued and the judgment awarded. They submitted that the 50% liability for costs up to 24 September 2020 should be apportioned 15% to Ron Mack and 85% to FAT HACO, consistent with the findings on apportionment in the proceeding.

18    Ezy-Fit Marine was unsuccessful in attempting to assert delay on the part of the respondents had caused its failure to secure the BAE periscope work. Nor did it otherwise have a claim for damages: Ezy-Fit No 1 at (in particular) [46]-[136], [1097]. The respondents therefore sought an order that Ezy-Fit Marine bear its own costs (although in the alternative FAT HACO accepted that it may be simpler to provide for a greater discount on any costs otherwise payable by the respondents).

Ron Mack's revised position and its role in the proceeding

19    By submissions filed in reply to Ezy-Fit's submissions, Ron Mack put forward an alternative position in relation to apportionment. It claimed that in the event the Court declined to make orders requiring the applicants to pay the respondents' costs on an indemnity basis after 24 September 2020, then any costs to be paid by the respondents after 11 August 2021 should not be apportioned on the 15%/85% basis but on a 3%/97% basis. Ron Mack sought to rely on a letter its solicitors had written to the parties and the Court on 11 August 2021 stating that Ron Mack would take no further role in the proceedings, would abide by the decision of the Court, would not appear at trial but reserved all its rights in relation to costs. Ron Mack said it had not contributed in any significant way to the costs of the action since 11 August 2021.

Some initial comments

20    Ezy-Fit had some success in its action. However, there were many issues on which it did not succeed. Its approach to the litigation added a level of unnecessary time and complexity: for example, Ezy-Fit No 1 at [773], [793]. The trial ran for 10 days. A supplementary hearing for quantum issues was required. Written submissions ran to hundreds of pages. In my view, this is not a case where costs should follow the event in the usual way. Whilst a consideration of issues on which Ezy-Fit succeeded and failed is justified, the exercise of discretion properly involves an overarching impressionistic approach.

21    There is no doubt that the end result for Ezy-Fit reveals a disproportion between the claims as put and damages as determined. There are a number of ways to present the calculations, and they changed significantly by the time of written closing submissions. However, a useful starting point is that Ezy-Fit's claim was advanced on 12 July 2019 by way of an amended statement of claim for $11,569,385 plus GST and interest. The end result was an award of $772,435 plus interest.

22    Although Ezy-Fit Engineering had some success in the litigation, Ezy-Fit Marine failed. It pursued a substantive issue (relating to the BAE tender). This too is to be taken into account.

23    Added to this context are the offers of compromise.

24    Whilst there are a number of ways in which the submissions might be grouped, I will first address why the ordinary costs rule should not apply and the matters that have persuaded me to make a percentage discount to the costs that might otherwise be awarded.

25    I will then deal with the question of apportionment, before explaining why I have declined to make orders under r 25.14 or in accordance with Calderbank principles.

Principles

The broad discretion

26    The Court has a broad discretion under s 43(2) of the Federal Court of Australia Act 1976 (Cth) when determining appropriate costs orders. This discretion must be exercised judicially: Summers v Repatriation Commission (No 2) [2015] FCAFC 64 at [14] (Kenny, Murphy and Beach JJ).

27    In the ordinary course the discretion to award costs is exercised in favour of a successful party: Oshlack v Richmond River Council (1998) 193 CLR 72 at [35] (Gaudron and Gummow JJ), [66]-[67] (McHugh J) and [134] (Kirby J); Foots v Southern Cross Mine Management Pty Ltd [2007] HCA 56; (2007) 234 CLR 52 at [25] (Gleeson CJ, Gummow, Hayne and Crennan JJ); Northern Territory v Sangare [2019] HCA 25; (2019) 265 CLR 164 at [25].

28    A successful party may be deprived of a proportion of its costs, or even required to pay costs to the other party, if the successful party succeeded only upon a portion of its claim, or failed on issues that were not reasonably pursued, or where the result of the litigation might be described as mixed: Impiombato v BHP Group Limited (No 2) [2025] FCAFC 28 at [13] (Beach and O'Bryan JJ), citing Ruddock v Vadarlis (No 2) [2001] FCA 1329; (2001) 115 FCR 229 at [11]; Queensland North Australia Pty Ltd v Takeovers Panel (No 2) [2015] FCAFC 128; (2015) 236 FCR 370 at [11].

29    Where there is a mixed outcome, the courts have guarded against apportioning costs on an issue by issue basis: Australian Trade Commission v Disktravel [2000] FCA 62 at [3]-[4]; The State of Victoria v Sportsbet Pty Ltd (No 2) [2012] FCAFC 174 at [8]; Firebird Global Master Fund II Ltd v Republic of Nauru (No 2) [2015] HCA 53 at [6]. Difficulties with apportionment of costs to issues means that mathematical precision may well be illusory: McCasker v OMAD (NT) Pty Ltd (No 4) [2023] NTSC 89 at [36] (Brownhill J), cited in Gold Valley Iron Ore Pty Ltd v FE Accommodation Pty Ltd (Costs) [2024] NTCA 3 at [15] (Grant CJ, Barr and Brownhill JJ). The trial judge brings to the task their own impression derived from the hearing and their own consideration of the evidence and submissions, rather than by detailed references to transcripts and submissions: Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service (No 2) [2011] NSWCA 171 at [6] (Hodgson JA).

30    Where both sides achieve a substantial measure of success, the just and appropriate order in the circumstances may be that each party must bear its own costs: AWB Limited v Honourable Terence Rhoderic Hudson Cole (No 6) [2006] FCA 1274 at [16]-[17] (Young J).

31    Alternatively, one side may get its costs on some issues, if an issue by issue approach will produce a fairer result: Forbes Engineering (Asia) Pte Ltd v Forbes (No 5) [2009] FCA 873 at [10]-[11](Collier J); Bowen Investments Pty Ltd v Tabcorp Holdings Ltd (No 2) [2008] FCAFC 107 at [5] (Finkelstein and Gordon JJ); and cases referred to in Hockey v Fairfax Media Publications Pty Limited (No 2) [2015] FCA 750; (2015) 237 FCR 127 at [84]-[90] (White J).

32    The courts also have regard to the furtherance of the overarching purpose set out in s 37M of the Federal Court of Australia Act and the obligations on the parties under s 37N to act consistently with those objectives, and so seek to resolve disputes as quickly, inexpensively and efficiently as possible. In exercising the discretion to award costs, the court may take account of the failure of a party or their lawyer to comply with the overarching purpose: Stefanovski v Digital Central Australia (Assets) Pty Ltd (No 2) [2018] FCAFC 113 at [14] (McKerracher, Robertson and Derrington JJ).

33    It follows that notable disproportion between the time and costs of a trial and its outcome is relevant to the exercise of the costs discretion: Jones v Sutton (No 2) [2005] NSWCA 203 [48]-[53] (Beazley, Santow JJA and Stein AJA); Specsavers Pty Ltd v The Optical Superstore Pty Ltd (No 4) [2012] FCA 652 [29], [39] (Katzmann J).

34    There are many examples where costs orders have reflected the 'actual course of the proceeding': Wu v Li [2015] FCAFC 109 at [56]. The parties referred to Wu v Li, where although Mr Li succeeded on only one of many claims, the usual costs order was made in his favour as it was Mr Wu's conduct that had led to the cost and number of issues raised: at [56]. On the other hand, in Jireh International Pty Ltd v Western Export Services Inc (No 2) [2011] NSWCA 294, although WES secured a substantial judgment (in excess of $1,000,000 before interest), the proportion of the claim recovered was low. Jireh was ordered to pay only 65% of WES's costs of the proceeding. In WES's favour was that it had succeeded on most of the issues that were litigated. In Fairfield Pastoral Holdings Pty Ltd v Ridge Estate Pty Ltd (Unreported, FCA, 4 January 2022) White J dealt with costs that related to a trial that covered many competing issues. The orders and reasons are discussed in Ridge Estate Pty Ltd v Fairfield Pastoral Holdings Pty Ltd [2024] FCAFC 17; (2024) 302 FCR 375 at [183], [192]-[196]. His Honour acknowledged that although the Fairfield parties had succeeded on some claims and failed on others, the greater part of the trial was taken up with a claim on which they had failed. The general effect of the costs orders was that the respondents were ordered to pay 30% of the Fairfield parties' costs at trial.

Apportionment

35    A successful litigant is generally entitled to their costs and should be entitled to them regardless of whether one or more of multiple unsuccessful parties can or is willing to pay them. A consequence is that it is common to make joint and several costs orders against unsuccessful parties.

36    However, the court is not obliged to make joint and several costs orders. The discretionary nature of costs orders permits the apportioning of costs between parties. In Morris v Riverwild Management Pty Ltd [2009] VSC 439 Pagone J considered a number of measures for apportioning costs, and observed (at [13]):

The discretionary nature of costs orders may permit a less rigorous apportionment of costs as between different parties than might be required when determining the apportionment of liability to reflect fault or causation. The apportionment of costs between parties should bear some relationship to the part played by the parties in the overall proceeding however imprecise that relationship must be in any given case. A measure based upon the number of parties (with appropriate adjustments where two or more parties should be considered as in effect one) may be inexact but is rational. Similarly, a measure that apportions the costs against the quantum recovered from each contributor to the overall settlement proceeds (if the costs component can be excised from the settlement figures) would also be appropriate where the facts allow and would also be rational, albeit imprecise.

37    Although aspects of Pagone J's reasons in Morris were criticised by the Court of Appeal in Morris v Riverwild Management Pty Ltd [2011] VSCA 283; (2011) 38 VR 103, the reasons at [13] were not criticised. The reasons at [13] from Morris are relied upon by Gino Dal Pont, Law of Costs (5th ed, LexisNexis 2021) at [11.3] and cited in a number of cases, including O’Donnell v O’Donnell (No 2) [2023] NSWSC 1196 at [146] (Robb J).

38    That is not to say that there should be an apportionment of costs whenever liability for damages is apportioned. Depending on the circumstances, joint and several orders as to costs may be appropriate. Tsu v Nemeth [2012] NSWCA 29 provides an example where despite apportionment of liability for damages in accordance with a statutory scheme, joint and several costs order were made having regard to the fact that liability of the defendants depended upon a common substratum of facts: at [54]-[56],[69] (Handley AJA, Beazley and Whealy JJA agreeing).

39    Apportionment of costs in this case is to be considered against the backdrop that orders have already been made that apportion liability as between Ron Mack and FAT HACO in relation to the Australian Consumer Law claims the subject of the proceeding.

Offers of compromise

40    Part 25 of the Federal Court Rules concerns offers to settle. Rule 25.01 permits a party to make an offer of compromise by serving a notice in accordance with Form 45 on another party.  Where an offer of compromise is made in accordance with the Federal Court Rules and the offer is not accepted, r 25.14 provides for the costs consequences.

41    Relevantly, r 25.14(1) provides that:

Costs where offer not accepted

(1)    If an offer is made by a respondent and not accepted by an applicant, and the applicant obtains a judgment that is less favourable than the terms of the offer:

(a)    the applicant is not entitled to any costs after 11.00 am on the second business day after the offer was served; and

(b)    the respondent is entitled to an order that the applicant pay the respondent’s costs after that time on an indemnity basis.

42    The notice must state whether the offer is inclusive of costs or costs are in addition to the offer: r 25.03.

43    The Court may make an order that is inconsistent with the Federal Court Rules: r 1.35. There is power to make an order inconsistent with r 25.14 where there is reason to do so, including in those cases where the application of r 25.14 would lead to or cause injustice or not meet the justice of the case: Sydney Equine Coaches Pty Ltd v Gorst [2017] FCAFC 34 (Rares, Flick and Bromwich JJ) at [14]-[24].

44    As to consideration of a Calderbank offer, the mere refusal of the offer does not lead to an award of indemnity costs. It must be shown that the rejection of the offer was imprudent or unreasonable: Keays v JP Morgan Administrative Services Australia Ltd [2012] FCAFC 100 at [125] (Besanko J, Gray and North JJ agreeing). Assessment of whether an offeree's refusal is unreasonable is a wide-ranging inquiry that is not restricted to consideration of matters such as the quantum rejected: Anchorage Capital Partners Pty Limited v ACPA Pty Ltd (No 2) [2018] FCAFC 112 at [8] (Nicholas, Yates and Beach JJ).

45    The factors that night be taken into account in such assessment are well-recognised: Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) [2005] VSCA 298; (2005) 13 VR 435 at [25] (Warren CJ, Maxwell P and Harper AJA). They include:

(a)    the stage of the proceeding at which the offer was received;

(b)    the time allowed to the offeree to consider the offer;

(c)    the extent of the compromise offered;

(d)    the offeree's prospects of success, assessed as at the date of the offer;

(e)    the clarity with which the terms of the offer were expressed; and

(f)    whether the offer foreshadowed an application for indemnity costs in the event of the offeree rejecting it.

46    Having regard to r 25.03, it is apparent that an offer under the regime in the Federal Court Rules may be made inclusive of costs. In the context of Calderbank principles, such offers have sometimes not been treated as effective. However, the circumstances of the case must always be considered.

47    The position was addressed in Anjoul v Anjoul (No 4) [2023] NSWSC 142 (Robb J):

[88]    The principles that the Court applies when considering the significance of a supposed Calderbank offer that has been made on an 'inclusive of costs' basis are summarised in GE Dal Pont, Law of Costs, (5th ed, 2021, LexisNexis) (Dal Pont) at [13.81]-[13.83]. It is clear that, as the Court cannot fetter the discretion conferred by s 98 of the Civil Procedure Act by imposing upon itself arbitrary rules, the Court must always consider the circumstances of the particular case, and there can be no rule that an offer 'inclusive of costs' will always be ineffective as a Calderbank offer: see, for example, DSE (Holdings) Pty Ltd v Intertan Inc [2004] FCA 1251; (2004) 51 ACSR 555 at [12]-[14] (Allsop J, as his Honour then was); Ying v Song [2011] NSWSC 618 at [70] (Ward J, as her Honour then was); and Marriner v Australian Super Developments Pty Ltd [2016] VSCA 141 at [231].

[89]    However, in fact, there has been a tendency for courts to decline to treat offers 'inclusive of costs' as being effective Calderbank offers: 'because it usually does not allow the Court to decide whether the verdict eventually given is one under which the offeree fares worse than he or she would have done if he or she had accepted the offer': Van Zonneveld v Seaton [2005] NSWSC 175 at [6] (Campbell J, as his Honour then was). See also GEC Marconi Systems Pty Ltd (t/as Easams Australia) v BHP Information Technology Pty Ltd [2003] FCA 688 at [34] (Finn J). I note, however, the reference by Dal Pont at [13.82] to the reasoning of Basten JA in Elite Protective Personnel Pty Ltd v Salmon [2007] NSWCA 322 at [143], where his Honour doubted the logic in the hesitation in accepting offers 'inclusive of costs' as being valid Calderbank offers, as his Honour observed that a party receiving such an offer should be able to ascertain the party's own costs at the time by enquiry of the party's solicitor. Of course, Basten JA's observations only apply to the case where the offer is made to a party 'inclusive of costs' on the basis that the amount offered will cover the offeree's costs, on the assumption that the offeree would be awarded its costs upon success at a final hearing.

Assessment of matters relevant to discount

48    Ezy-Fit accepts that although it had some success, costs should be deducted because some of the issues on which it did not succeed unduly extended the time and expense of the litigation.

49    Ezy-Fit provided a schedule in which it set out a percentage assessment for what it saw as the issues in the trial and how long was spent on them, having regard to the number of paragraphs apparently accorded to them in the reasons in Ezy-Fit No 1, the length of the submissions that addressed them and the trial time occupied by witnesses giving evidence said to relate to those issues.

50    I did not find the schedule of assistance. Rather, it served to highlight how inaccurate and ineffectual such a task can be in purporting to reflect the time spent on unravelling and determining issues of fact and law in a judgment. It should never be assumed that writing, say, 20 paragraphs on one issue takes longer than writing 5 paragraphs on a different issue. It might. It might not. Such metrics are not useful. Some aspects of a case are straightforward. Other aspects are dense. Another difficulty with such an analysis is that it has the potential to treat as divisible the evidence in the trial that may inform the resolution of a number of issues or questions. Further, emphasis on submission length or time spent cross-examining witnesses may tend to reward the prolix rather than the focused: Ridge Estate at [206]. Even acknowledging that Ezy-Fit undoubtedly provided the schedule with good intentions as a rough and ready tool, it does not properly encompass the many issues covered by the trial or addressed in the reasons or reflect the proportion of time involved in their disposition.

51    Whilst I have considered the schedule, and the submissions made about it, I intend to approach the consideration of the separate issues upon which Ezy-Fit succeeded or failed as a matter of impression, taking a more broad-brush approach which seeks to balance the relative importance of those various issues. I also aim to make costs orders that will facilitate the ready quantification of costs without further undue dispute and delay.

52    I will work through the various issues briefly and generally in the same order as in the liability reasons.

53    Ezy-Fit failed in the BAE tender claim. That is, it failed to establish that delay in supply of the FTM1000 caused it to lose the BAE tender for periscope work. There was a substantial body of communications and factual evidence related to the BAE tender. It was not a minor issue in the trial. In order to assess the relevance of the BAE tender evidence it was also necessary to consider evidence related to Ezy-Fit Engineering's claims based on the alleged delay in delivery: Ezy-Fit No 1 at [100], [368]-[371]. Ultimately, Ezy-Fit Marine failed in establishing any entitlement to damages.

54    Ezy-Fit failed in the contract case against FAT HACO, which required a determination of the disputed date of the contract, its terms (express and implied), the agency issue and questions of breach. Ezy Fit maintained to trial that Ron Mack was FAT HACO's agent. I concluded that there was no sale by an agent and there was no conduct, even when viewed cumulatively, that amounted to a representation of authority as an agent. I also rejected Ezy Fit’s implied authority case. The agency case involved issues of factual and legal substance in the trial. By reason of the agency case, FAT HACO was required to address all aspects of the breach of contract case.

55    Although Ezy-Fit succeeded in the contract case against Ron Mack, it succeeded only in relation to the breach of an implied fitness for purpose term. It did not abandon but did not develop its pleaded case to the effect that there was a breach of an express term of the contract or a common law implied term claim. The breach of the implied term of fitness for purpose was established because certain defects were established. The defects case was unnecessarily expansive. I will come to this. Ezy-Fit failed in its claim that delay in delivery constituted a breach of contract. The factual circumstances relating to the terms for delivery, the actual delivery and the alleged delays involved close attention to factual evidence and communications over a period of time.

56    Ezy-Fit succeeded in part in its misleading or deceptive conduct claims against both FAT HACO and Ron Mack. There were a number of aspects of this part of the case relevant to costs. The manner in which the alleged representations and misleading or deceptive conduct were identified and pleaded added an undue layer of legal complexity and factual density to the proceeding. They were gathered by Ezy-Fit under three overarching descriptions being Pre-contractual representations, Pre-commissioning representations and Post-commissioning representations. Under those headings a number of separate representations were pleaded, many of which had separate pleaded 'sub-representations': Ezy-Fit No 1 at [753]. Ezy-Fit's chosen course of continuing to rely on each representation rendered this issue more complex than it needed to be, especially as the experts agreed that the machine as delivered had certain defects: Ezy-Fit No 1 at [793].

57    Ezy-Fit succeeded in only the Pre-contractual representations claim. Even then it succeeded in relation to only three of the 22 representations alleged.

58    Ezy-Fit also ran a 'conduit' argument that revealed a complexity with Ezy-Fit's case such that it was not always clear which party it alleged was liable for which representation: Ezy-Fit No 1 at [758]-[772].

59    As to the 'defects' case, underlying both the contract and misleading or deceptive conduct claims was the allegation that the FTM1000 did not work. Ezy-Fit maintained at trial that the FTM1000 was not repairable and had 69 defects. Ezy-Fit succeeded in establishing that there were defects with the FTM1000. But again, the manner in which the defects case was run added to its complexity: Ezy-Fit No 1 at [459]. There seemed to be an unwillingness on the part of Ezy-Fit to update or clarify its pleaded claim to specify which alleged defects were substantive, pursued or even resolved. Some of the 69 defects were trivial. Considerable time was spent addressing defects that were not significant. That is not to detract from the overall position in which Ezy-Fit found itself – the FTM clearly had some real issues (such as the squareness issue), and FAT HACO was not able to readily fix them, even following three rectification visits. But the continued reliance on all of many alleged defects obscured focus by the witnesses (including the experts) on the defects of substance. On occasion, even when Ezy-Fit's expert witness conceded certain matters were not defects, Ezy-Fit maintained submissions to the contrary. In the end I found that only 12 of the 69 defects were proved by Ezy-Fit: Ezy-Fit No 1 at [590]-[707].

60    Contrary to FAT HACO's submission, I do not place any great weight on the fact that it was eventually conceded in closing submissions that Ezy-Fit's expert ball bar test results may have had a measurement error. It was the process of evidence being given in conclave and the opportunity for both experts to consider the iterations and conflicting examples of ball bar results that no doubt led to this concession. The concession was properly made, after due consideration and acceptance by Ezy-Fit's expert that his results might be 'outliers'.

61    The nature of Ezy-Fit's quantum evidence, on the other hand, added unnecessarily to the cost of the proceeding. It advanced a complex assessment of its damages case with many different scenarios, at least 10 of which were before the Court with different and nuanced assumptions: Ezy-Fit No 1 at [956], [1011]. Many of the assumptions were not supported by evidence. The forensic evidence of Ezy-Fit's accounting expert ran to some 303 pages and advanced multiple lost opportunity scenarios ranging in value from $49,575,477 on an undiscounted basis to $4,283,290 (defence work) and $5,595,856 (periscopes project) on a discounted basis, a wasted expenditure claim of $2,909,809 (sale and replacement) and a no-transaction basis claim of $4,278,306. I have no doubt that great expense was incurred by Ezy-Fit but also by FAT HACO in seeking to meet this forensic evidence. It was only in closing submissions that Ezy-Fit conceded that there might be a simpler opportunity loss scenario. I did in fact prefer that simpler and objectively more realistic approach, leaving it unnecessary to closely analyse many of the variations as to potential quantum covered by the quantum reports.

62    An attempt by Ezy-Fit to rely on a valuer's report was rejected: Ezy-Fit No 1 at [990]-[995].

63    Ezy-Fit's negligence claim failed entirely. Although Ezy-Fit described it as a 'backstop' claim, FAT HACO was still obliged to deal with the three separate duties of care said to arise, the standard of care and the facts relied upon to support allegations of breach. The Court was obliged to make findings relevant to these issues, including the factual question of any lack of care (noting the obligations on a primary judge as summarised by Emerton JA in Braham v ACN 101 482 580 Pty Ltd [2018] VSC 575 at [268]-[272]). The negligence claim added unnecessarily to the costs and time of the action. I do not agree with Ezy-Fit's assertion that it took up only a 'small' amount of time. And regardless, the legal issues that arose were discrete and required attention.

64    Having regard to those matters, Ezy-Fit had limited success in terms of the number of issues raised by its claim. However, it did succeed on narrow versions of its broad contract and misleading or deceptive conduct claims. It succeeded in establishing that the FTM1000 was defective, contrary to representations as to its performance capacity. Although it was awarded far less then it sought, its concern about the FTM1000 was vindicated insofar as it was found to be defective. Its lost profits claim succeeded although in a refined and narrower scope than that sought. An 'issues count' costs assessment does not, however, take into account the extensive overlap in the time spent on issues relating to delay, commissioning and defects, nor the disproportionate amount of time spent on issues relating to the BAE tender, the contractual terms, the many alleged defects and quantum.

65    The parties referred to a comparison between the amount claimed and the judgment awarded. As I noted in my preliminary comments, there are a number of ways to present those calculations. I have accepted FAT HACO's submission, as acknowledged at [21] above, that a useful starting point is that the claim advanced on 7 May 2019 by way of the amended statement of claim was for $11,569,385 plus GST and interest. The end result was an award of $772,435 plus interest. Ezy-Fit in its closing submissions abandoned many alternative scenarios and relied upon what was referred to as Scenario 2. For the purpose of costs, it submitted that its claim was therefore in the sum calculated under Scenario 2, which it states was $4,408,448. On that basis Ezy-Fit submitted that the judgment sum reflected 20% of its claim. In my view this approach does not reflect the manner in which the case was pleaded and run. Costs (and court time) were applied to the running of the trial as pleaded, including by the provision of expert evidence that addressed the many scenarios. Whilst the decision to reduce certain arguments to Scenario 2 was ultimately useful, it came late and did not alter the fact that significant costs were already incurred in addressing the broader case relied upon until that time. I do not find Ezy-Fit's assessment that it recovered 20% of its claim objectively realistic in the circumstances. A percentage metric of this nature is not determinative of costs, but is not irrelevant. However, to the extent I take it into account, I consider that Ezy-Fit recovered less than 20% of its claim.

Orders and apportionment

66    Where the parties enjoyed some success and suffered some loss, I considered whether it might be appropriate to simply order that each party bear their own costs. This option had some initial attraction. However, in the end it remains the fact that Ezy-Fit succeeded in establishing that the machine it bought was defective and that it was entitled to relief, and I consider it is entitled to a measure of costs.

67    I have concluded, having regard to the above matters and my overarching impression of the process and outcome of the trial, that the just outcome is that respondents are to pay 30% of the applicants' costs of the proceeding on the standard party and party basis, such costs to be taxed by a registrar of this Court if not agreed. The 70% discount reflects the fact that although Ezy-Fit Engineering had some success, there were many issues on which the applicants did not succeed. It also takes into account that Ezy-Fit Marine did not succeed at all, and ordinarily would have been left in a position where it might be ordered to pay some of the respondents' costs. Ezy-Fit Engineering and Ezy-Fit Marine have at all times been represented by the same lawyers and counsel. To avoid the complication of a taxation that purports to carve out costs incurred that separately relate to the BAE tender issue or other aspects of the claim that purportedly involved Ezy-Fit Marine, I have applied a further discount to that which I otherwise would have applied to the recoverable costs. Although the parties did not agree on the discount that might be applied in such a scenario, they did not oppose the idea that the position of Ezy-Fit Marine might be addressed in this way.

68    The remaining question is that of any apportionment of liability for costs as between FAT HACO and Ron Mack. As noted above, FAT HACO sought apportionment of any costs to be paid by the respondents consistent with the apportionment of liability (15% Ron Mack, 85% FAT HACO). Ron Mack submitted that they should be apportioned so that it bore only 3% of whatever amount was ordered (3% Ron Mack, 97% FAT HACO). Despite referring to its letter of 11 August 2021, Ron Mack provided no guidance as to why that result might follow in circumstances where it had not made any concessions as to liability, where it had been found liable for breach of contract (and FAT HACO had not) and where it had also been found liable for misleading or deceptive conduct. It is open to the court to apportion costs against a respondent even where they have played little role in defending proceedings: for example, Shang v Zhang (No 2) [2007] NSWSC 1355 where Young CJ in Eq ordered that the first defendant, who had vehemently contested the proceedings, pay 75% of the plaintiff's costs, with the second defendant, who had played no role in defending it, to pay 25%.

69    Ron Mack pleaded a defence. It could have made useful limited admissions on some points, in particular relating to agency/dealership (Ezy-Fit No 1 at [278]), but declined to do so. It made submissions after trial on the apportionment of liability. Otherwise, it was left to FAT HACO to address and defend claims brought against both it and Ron Mack in contract and under the Australian Consumer Law, and to deal with all issues of quantum. Subject to s 37M and s 37N of the Federal Court of Australia Act, whilst Ron Mack was entitled to make strategic and forensic decisions about its role in the litigation having regard to its own interests, there is no doubt that it benefited from the work undertaken by FAT HACO: the quantum of Ron Mack's liability was found to be significantly less than that sought from it by Ezy-Fit in the statement of claim. This context is not irrelevant to any apportionment of costs liability as between Ron Mack and FAT HACO.

70    In all of the circumstances, I consider the appropriate result is that there be an apportionment of costs that has regard to these matters, and that the fair outcome is that the same apportionment that was determined in relation to liability apply in relation to costs.

The compromise offers

71    As set out above, on 22 September 2020 the respondents made two offers, both said to be under part 25 of the Federal Court Rules and in the alternative pursuant to Calderbank principles.

72    The first offer was in the amount of $320,000 plus costs on a standard party and party basis to be agreed or assessed. The second (alternative) offer was for $1 million inclusive of costs.

73    Whilst not express, it can be inferred that the amount of $320,000 that was offered reflected compensation for damages and any interest. The $1 million offer was not broken down but provided the added element of certainty in that no agreement or assessment of costs was required.

74    The FTM1000 was commissioned in South Australia in July 2017. There were then three rectification visits from FAT HACO representatives. The third was in April 2018. Uncertainty remained after the third rectification visit as to the cause of the under-performance of the machine: Ezy-Fit No 1 at [1069]. Letters of demand were issued by Ezy-Fit or its lawyers in October 2017, November 2017 and July 2018: Ezy-Fit No 1 at [254]-[255]. The proceedings were issued in May 2019. The relief claimed was damages for the lost opportunities to make profits. When the trial commenced, that remained the manner in which Ezy-Fit identified the relief sought: Ezy-Fit Fit No 1 at [945].

75    The compromise offers were made at a time when the experts were continuing to exchange reports as to the cause of the issue with the FTM1000, including the alleged defects: Ezy-Fit No 1 at [37]-[40]. Some of the issues that arose in assessing whether the machine could be repaired are addressed at [1069]-[1072]. In short, I found that it was the iterative process of the expert evidence that established to the requisite degree that the FTM1000 could be repaired. I refer in those paragraphs to the prior uncertainty as to the cause of its compromised performance.

76    This is important context in relation to costs. Ezy-Fit pursued a claim on the basis of the lost opportunity to make profits for the life of the machine. It did not proceed on the basis the machine could be repaired, with loss of profits thereby potentially limited to any given period.

77    FAT HACO contends that its offers were for amounts that exceed the judgment. It submitted that the judgment sum to be compared with the offer figure of $320,000 is $381,330. It says that by accepting either of the offers made on 22 September 2020, Ezy-Fit would have achieved a result more favourable than the November 2024 judgment, as costs would have been compensated for on the standard party and party basis without deductions relating to the manner in which the case was run, and without incurring the no-doubt substantial unrecoverable costs associated with the trial.

78    FAT HACO calculates $381,330 as the sum of: the amount awarded for repairs ($193,200); lost revenue taking into account the 70% Sellars discount and calculated on a daily rate for the period from 25 July 2017 to 22 September 2020 ($175,314); and pre-judgment interest for the period from 25 July 2017 to 22 September 2020 ($12,816).

79    Ezy-Fit submitted that for the purpose of r 25.14, the figure to be compared with the offer figure of $320,000 is the final judgment sum of $772,435, a figure that would be higher if interest is taken into account.

80    There are difficulties in comparing the quantum offered by the compromise offers with the judgment in the circumstances of this case. I do not consider such a process can be undertaken in a way that leads to a fair or just result on costs.

81    This is not a case where it is clear that the judgment is less favourable than the offers made. The position is relatively close for the $320,000 offer, with the re-calculated judgment sum on FAT HACO's calculations being only slightly more than the offered amount but with a remaining risk in relation to costs. The $1 million offer may well have had the result that Ezy-Fit would have ended up ahead, when one allows for the prospect that costs incurred by September 2020 may have been less than $680,000 (notionally subtracting $320,000 from the $1 million) and there would have been the added benefit of certainty, with no need to undertake any assessment of costs. However, these calculations involve some speculation and are imbued with a degree of hindsight, particularly in relation to the costs of the repair of the machine and the capacity for it to be repaired. After careful consideration, I have come to the view that this is an occasion where even assuming that the judgment was less favourable to Ezy-Fit than the terms of the offers, r 25.14(1) should not apply. I would exercise my discretion under r 1.35 to make an order inconsistent with it. Its application would not meet the justice of this case.

82    Nor, having regard to Calderbank principles, would I order that Ezy-Fit should pay the respondents' costs on an indemnity (or standard) basis from the time of lapse of the offer. It has not been shown that rejection of the offers was unreasonable in the circumstances.

83    In coming to these views on the compromise offers, I have taken into account a number of matters, none of which are necessarily determinative, but are to be viewed collectively:

(a)    the machine in fact had defects, but the cause and how they might be fixed was resolved through the iterative trial process: Ezy-Fit No 1 at [1071];

(b)    an assessment of how much it might cost to repair the machine, even if Ezy-Fit had allowed for that possibility, would have been difficult in September 2020;

(c)    an attempt to assess how and when the machine might be fixed, and so when any loss of the opportunity to earn high-end revenue from it might cease, would be difficult to predict prior to understanding the reasons for its under-performance;

(d)    whilst with hindsight informed by the trial findings it is easy to opine that a $1 million offer inclusive of costs should have been an attractive result for Ezy-Fit, the difficulties in ascertaining the source of the issues with the machine as at September 2020 were real (having regard to the expert evidence);

(e)    comparing the judgment sum and the offers involves comparing damages awarded under two heads (rectification and lost opportunity) with an assessment of the offers, presumably undertaken by Ezy-Fit but based on only one head (lost opportunity), noting that Ezy-Fit did not act unreasonably in refraining from rectifying the FTM1000 earlier and whilst the proceedings were on foot: Ezy-Fit No 1 at [986];

(f)    assessing the value of asserted lost profits was a nuanced and complex task as indicated by the quantum reports and involved consideration of a range of potential inputs; and

(g)    Ezy-Fit's argument that the task reduces to a comparison between (in effect) $320,000 and (at minimum) $772,435 is simplistic and does not take into account the nature of the relief claimed. The quantum of lost profits, assuming a plaintiff to be successful, would inevitably continue to accrue over time, diverging from an offer made some years before judgment, and FAT HACO was not wrong to attempt to compare 'like with like' in its submissions, although that task in the end was not persuasive.

84    For those reasons and as discussed above, I consider the appropriate manner in which to exercise the costs discretion in this case is to award Ezy-Fit a percentage of its costs of the action as set out at [67] above.

Conduct not improper

85    Finally, in my reasons in Ezy-Fit No 1 and in these costs reasons I have had occasion to be critical of some aspects of the manner in which this proceeding was run by Ezy-Fit. It is fair to say that there was a scattergun approach to aspects of the case. When difficulties and obscurities with Ezy-Fit's pleaded case were properly highlighted by FAT HACO, they were not always addressed by Ezy-Fit. It is not surprising, having pitched its level of loss in the many millions, that Ezy-Fit was met by a thorough defence. To be clear, in making the observations about the conduct of the trial I do not suggest that any of Ezy-Fit or its professional advisers acted improperly. Rather, the observations are highly relevant to costs.  If litigation is run in a particular way, there must be costs consequences. To conclude otherwise is to pay lip service to s 37M and s 37N of the Federal Court of Australia Act and to fail to have proper regard to the allocation of the limited resources of the Court and parties.

Orders

86    There will be orders accordingly.

Associate:

Dated:    29 April 2025