Supreme Court New South Wales

• Medium Neutral Citation: King v Benecke [2014] NSWSC 957
• Hearing dates: 14 March 2014
• Decision date: 22 July 2014
• Before: Harrison J

Decision

1. Subject to orders 2, 3 and 4 below, order Mr King to pay Mr Benecke's costs of and incidental to the proceedings on the ordinary basis.

2. Order that the costs of the motion filed on 23 August 2012 and determined on 31 August 2012 should be Mr Benecke's costs in the proceedings.

3. Order Mr Benecke to pay Mr King's costs of and incidental to Mr Benecke's proportionate liability defence.

4. Order Mr King to pay 80 percent of Mr Benecke's costs of and incidental to this application for costs.

• Catchwords: COSTS - professional negligence - verdict for the defendant - general rule that costs follow the event under UCPR 42.1 - whether court should order otherwise - whether order should reflect plaintiff's partial success - whether plaintiff should be awarded nominal damages
• Legislation Cited: Civil Liability Act 2005; Civil Procedure Act 2005; Uniform Civil Procedure Rules 2005
• Cases Cited: Ambulance Service of New South Wales v Worley (No 2) [2006] NSWCA 236; (2006) 67 NSWLR 719; Australian Conservation Foundation v Forestry Commission of Tasmania (1988) 81 ALR 166; Chaina v Alvaro Homes Pty Ltd [2008] NSWCA 353; Cretazzo v Lombardi (1975) 13 SASR 4; Dodds Family Investments Pty Ltd (formerly Solartint Pty Ltd v Lane Industries Pty Ltd (1993) 26 IPR 261; Elite Protective Personnel Pty Ltd & Anor v Salmon (No2) [2007] NSWCA 373; Evans Shire Council v Richardson (No 2) [2006] NSWCA 61; Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407; (2009) 76 NSWLR 603; Gold and Copper Resouces Pty Ltd v Newcrest Operations Ltd [2013] NSWSC 345; Grace v Grace (No 4) [2013] NSWSC 385; Griffith v Australian Broadcasting Corporation (No 2) [2011] NSWCA 145; Hughes v Western Australian Cricket Association (Inc) (1986) 8 ATPR 40-748; James v Surf Road Nominees Pty Ltd (No 2) [2005] NSWCA 296; Keddie v Foxall [1995] VLR 320; King v Benecke [2013] NSWSC 568; King Network Group Pty Ltd v Club of the Clubs Pty Ltd (No 2) [2009] NSWCA 204; Leichhardt Municipal Council v Green [2004] NSWCA 341; Lollis v Loulatzis (No2) [2008] VSC 35; Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service (No 2) [2011] NSWCA 171; McLaughlin v Dungowan Manly Pty Ltd [2010] NSWSC 306; Mid-City Skin Cancer and Laser Centre v Zahedi-Anarak [2006] NSWSC 1149; Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72; Permanent Trustee Australia Limited v FAI General Insurance Co Limited (NSWSC, Hodgson CJ in Eq, 3 June 1998, unreported); Ritter v Godfrey (1920) 2 KB 4; Sabah Yazgi v Permanent Custodians Ltd (No2) [2007] NSWCA 306; State of New South Wales v Stevens [2012] NSWCA 415; Sydney Attractions Group Pty Ltd v Frederick Schulman (No 3) [2013] NSWSC 1544; Turkmani v Visalingham (No2) [2009] NSWCA 279; Waters v PC Henderson (Australia) Pty Ltd [1994] NSWCA 338; (1994) 254 ALR 328
• Category: Costs
• Parties: George Berkeley Ewart King (Plaintiff); Ian John Benecke (Defendant)
• Representation: Counsel: D Williams SC with M Newton (Plaintiff); I Pike SC with J Hutton (Defendant); Solicitors: Thompson Eslick Solicitors (Plaintiff); Yeldham Price O'Brien Lusk (Defendant)
• File Number(s): 2009/297857
• Publication restriction: Nil

Judgment

1 HIS HONOUR: George King seeks an order that Ian Benecke pay 60 percent of his costs of the proceedings, even though Mr King was unsuccessful in establishing that Mr Benecke was liable to him in damages. Mr King's contention is based upon the proposition that he was successful on every significant issue in the proceedings except causation: see King v Benecke [2013] NSWSC 568. Mr King also seeks an order that I substitute an award of nominal damages for the verdict for Mr Benecke, upon the basis that Mr King in fact established that Mr Benecke breached his retainer.

2 Mr King's general assessment is that the time spent on issues upon which he was successful occupied approximately 80 percent of the time taken up in the proceedings as a whole, compared to the remaining 20 percent allocated to issues that he lost. His nomination of 60 percent as a fair and proper figure is therefore proffered as an estimate or approximation of those proportions netted off one against the other.

3 Mr Benecke defended the proceedings by denying the issues of retainer, duty and breach. I concluded that his resistance to Mr King's case on those issues was unfounded. In addition, Mr Benecke raised a proportionate liability defence implicating the conduct of Mr King's former solicitors, with the result that he was forced to retain new solicitors and counsel. Mr Benecke then adduced no evidence to support the allegation. Mr King contended that Mr Benecke's approach to the claim against him was in those circumstances also overlaid with a disregard for s 56(3) of the Civil Liability Act 2005, and that I should take that into account in accordance with s 56(5).

Nominal damages

4 It is convenient to deal with this issue first. My decision in the principal proceedings was intentional, not inadvertent. I directed that there should be a verdict for Mr Benecke, rather than that Mr King should be awarded, say, $100 as nominal damages for his breach of contract. In doing so I neither intended to advance Mr Benecke's position by denying Mr King an award of nominal damages, nor to disadvantage Mr King by denying him whatever illusory benefit may have accompanied such an order in his favour. I did so simply because in the particular circumstances of this case, where millions of dollars were potentially at stake, there appeared to be little, if any, practical difference between the two results.

5 However, the historical circumstance that strictly supports an award of nominal damages in favour of Mr King does not reliably inform the resolution of any other dispute between the parties. That includes the question of costs. To that extent I consider that the present contest is effectively sterile. The several and competing arguments about who should pay the costs of the proceedings are not, and should not be, influenced or affected by whether or not there was ultimately a verdict for Mr Benecke, or whether Mr King ought to receive an award of nominal damages: see, for example, State of New South Wales v Stevens [2012] NSWCA 415; (2012) 82 NSWLR 106 [22] and [67] and Mid-City Skin Cancer and Laser Centre v Zahedi-Anarak [2006] NSWSC 1149 at [47] - [52].

6 The parties referred me to several other authorities dealing with this so-called issue. It is unnecessary to refer to them here. It seems to me to be sufficient to observe that I consider there to be no practical or procedural difference between the two outcomes, in the particular circumstances of this case, for the purposes of the question of who should pay the costs of the litigation, or in what proportions. In my view, the difference between the two positions is entirely neutral, and I am uninfluenced by any competing attempts to suggest that it may or should be persuasive or important. It seems to be clear that there is simply no utility in making the order for which Mr King now contends.

Apportionment of costs by reference to success on issues where plaintiff fails overall

7 Mr King's primary concern is that there should in this case be a departure from the usual rule that costs follow the event, and that costs should be apportioned having regard to the extent to which he was successful on the many separate issues litigated within the proceedings as a whole. For example, the affidavit of Peter Thompson sworn 3 October 2013, read in support of Mr King's contentions, listed some 13 issues that were put in issue in the proceedings by Mr Benecke. The only issue among those upon which Mr King did not succeed, according to Mr Thompson, who was not cross-examined, was the issue of causation.

8 The "usual rule" emerges in the following context. The Court has power under s 98 of the Civil Procedure Act 2005 to determine by whom, to whom and to what extent costs are to be paid. Ordinarily, costs follow the event. UCPR 42.1 provides as follows:

"42.1 General rule that costs follow the event

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."

9 The consequence of this rule is that successful litigants receive their costs in the absence of special circumstances justifying some other order: Hughes v Western Australian Cricket Association (Inc) (1986) 8 ATPR 40-748 at 48,136. Success is defined by reference to the event.

10 The "event" extends to any disputed question of fact or law and the notion is not limited to issues in the technical pleading sense: Hughes v Western Australian Cricket Association (Inc) at 48,136, citing Cretazzo v Lombardi (1975) 13 SASR 4 at 12. Once the successful party has been identified by reference to an event, the "commencing position" is that it is ordinarily appropriate to award the costs of proceedings to the successful party without attempting to differentiate between the particular issues on which it was successful and those on which it was not: Sabah Yazgi v Permanent Custodians Ltd (No 2) [2007] NSWCA 306 at [24]; Waters v PC Henderson (Australia) Pty Ltd [1994] NSWCA 338; (1994) 254 ALR 328.

11 Qualifications to that general rule have been expressed in the context of both the maintenance of an issue as well as the manner in which it is maintained. If a party unreasonably pursues or persists with unmeritorious points, such conduct may constitute a relevant consideration with respect to costs, even where the party is otherwise successful overall: Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72 at 122.

12 Even in the absence of unreasonable conduct of the otherwise successful party, there may be sufficient justification to depart from the usual order to reflect a party's failure on particular issues: Permanent Trustee Australia Limited v FAI General Insurance Co Limited (NSWSC, Hodgson CJ in Eq, 3 June 1998, unreported, at [10] - [11]).

13 The usual rule may be departed from if a particular issue or group of issues on which the successful party failed was clearly dominant or separable: Waters v PC Henderson (Australia) Pty Ltd at 331; James v Surf Road Nominees Pty Ltd (No 2) [2005] NSWCA 296 at [31]-[33]. The usual rule may also be departed from where the matters upon which a party was unsuccessful took up a significant part of the trial, either by way of evidence or argument: Elite Protective Personnel Pty Ltd & Anor v Salmon (N o2) [2007] NSWCA 373 at [6]-[7].

14 It is not necessary for a party to show that an issue was both "clearly dominant" and "separable" to justify departure from the usual order as to costs: Turkmani v Visalingham (No 2) [2009] NSWCA 279 at [12]. A successful party who has failed on certain issues may not only be deprived of the costs of those issues but may also be ordered to pay the other party's costs of them: Hughes v Western Australian Cricket Assn (Inc) at 48,136.

15 There is also a long established principle that a successful party, prima facie entitled to costs, may be denied costs if the party has done something connected with the conduct of the suit (objectively) calculated to occasion unnecessary litigation and expense: Ritter v Godfrey (1920) 2 KB 47 at 60; Keddie v Foxall [1995] VLR 320 at 323-324. In Lollis v Loulatzis (No 2) [2008] VSC 35 at [29], the Court said:

"...that principle is particularly applicable in light of the trend, in recent years, for the trial of cases to take an unduly long period of time to complete. As the consequential burden of costs to all parties is increasing exponentially, it behoves trial judges to be conscious of the principle that a losing litigant ought not to be required to bear that portion of the successful party's costs which is attributable to conduct of the successful party which has unduly protracted the length of the trial."

16 In Dodds Family Investments Pty Ltd (formerly Solar Tint Pty Ltd v Lane Industries Pty Ltd (1993) 26 IPR 261 at 272, Gummow, French and Hill JJ observed that:

"... the demands of the community for greater economy and efficiency in the conduct of litigation may properly be reflected in a qualification of the presumption that a successful party is entitled to all its costs."

17 In the principal proceedings, Mr Benecke denied the existence of any retainer from Mr King to act for him with respect to the Berkeley Transaction and contested the extent of the retainer with respect to the Peter Transaction. Mr Benecke also denied any relevant breach although that denial was not pursued with enthusiasm. At [407] of my reasons for judgment I said this:

"[407] The existence of the transactions is uncontroversial. The question of whether or not Mr Benecke acted for George King with respect to either of them is not. Indeed, the determination of this question is at the heart of Mr Benecke's first line of defence to George King's claims against him: Mr Benecke denies the existence of any such retainer from George King to act for him with respect to either transaction. (There is a formal denial of any relevant breach but the defendants have not vigorously pursued this). The second line of defence is that Mr Benecke denies that there was any causal connection between any breach of duty or retainer by Mr Benecke and any loss that George King can prove. The third line of defence in the alternative consists in Mr Benecke's denial that George King suffered any loss in the events that occurred..."

18 I ultimately considered this at [758] and [759] in these terms:

"[758]... I have concluded that Mr Benecke owed duties of the type and with the content alleged by George King and that he breached those duties in the way George King claims. A significant persuasive influence in coming to those conclusions was the exposure of reasonable and obvious propositions put to Mr Benecke during his cross-examination with which he was unable easily to deal. Whether this amounts to dishonesty or confusion is neither easy to determine nor particularly relevant. Either conclusion leads me to discard Mr Benecke's evidence on the questions of whether or not he was acting for George King at any particular time with respect to particular matters, and upon whether he fell short of his obligations as George King's solicitor to act in accordance with acceptable professional standards. The uncontested opinions of Mr Boyce serve only to shore up my views that Mr Benecke was consistently trying to avoid the unavoidable and to deny the undeniable.

[759] ... First, although he did not concede the existence or breach of the alleged duty or retainer, Mr Benecke's case on these issues was to my observation and to some extent conducted with at least some degree of resignation about the outcome. Counter intuitively, Mr Benecke's evidence reviewed above suggests that he may have been less inclined to recognise the strength of George King's case on breach and duty than those representing him..."

19 I had earlier made the following assessments at [453] and [454]:

"[453] It is wholly unrealistic in my opinion to conclude that Mr Benecke was not at all times relevantly acting for George King on all critical aspects of the transactions and agreements at the heart of his case. There are potentially several additional reasons for this, but it suffices to mention at least the following.

[454] George King was not a solicitor and had no legal training. The agreements with his father and his uncle were reasonably straightforward in theory but extremely complex in fact. That was the result as much as anything of the tortuous series of interrelated companies and shareholdings and the legal and beneficial interests they held or controlled relating to the practical business of running Coombing Park. Mr Benecke could have been in no doubt from the very start that George King consulted him for legal advice in relation to the transactions and expected to receive advice that gave effect to them."

20 Mr King submitted that based upon what led to my findings, Mr Benecke could have been in no doubt from the very start about the worth or otherwise of his first line of defence, namely that there was no retainer from Mr King to act for and advise him with respect to both transactions, as well as the associated denial of any breach. Mr Benecke persisted with that approach until the end of the trial.

21 Mr King submitted that Mr Benecke's denials increased his costs. He contended that in determining where the burden of costs should fall, I would have regard to the following matters. First, Mr King succeeded upon the issues of retainer, duty and breach. Secondly, there was no proper basis for Mr Benecke to deny the alleged retainer or duty. Thirdly, acceptance of those matters should have led to a corresponding acceptance of breach. It follows that Mr Benecke should have conceded the existence and breach of the alleged retainer and duty at an early stage.

22 Mr King submitted that it was more appropriate in the circumstances for me to apportion costs on a percentage basis, as distinct from making costs orders that are tied to the outcome with respect to specific issues. That approach suggests an assessment of the time taken to determine the issues as a fraction of the time taken to litigate the whole case operates better to inform a just, quick and cheap outcome.

23 Mr Thompson's estimate of 80 percent arises from his evidence at paragraph 125 of his affidavit. He said this:

"125 Although it is difficult to estimate, I would estimate that probably somewhere in the vicinity of 80% of the work my firm did on this matter was directed to liability issues in this case and the other issues in the case where Mr King was successful...i.e. on all issues other than causation of loss..."

24 Mr King submitted additionally that even if Mr Benecke were to be considered the successful party on those issues, having regard to the final result, my findings on those issues of retainer, duty and breach satisfy the relevant criteria upon which courts have proceeded to deny successful parties the usual order as to costs. Those matters included in this case the fact that Mr Benecke's evidence was at times less than full and frank. For example, I said this at [747]:

"[747] Far from giving the candid evidence that might be expected of a solicitor, Mr Benecke's evidence as to the identity of his client varied as it suited him depending on the questions being asked."

25 On the discrete issue of Mr Benecke's proportionate liability defence, Mr King's written submissions traced the evidentiary background to this issue in great detail. It is presently unnecessary to repeat that material here. Mr King submitted that he should have the costs of this issue, whatever else I may decide with respect to his application as a whole.

26 One of my conclusions on the proportionate liability issue was that as a direct result of being nominated as concurrent wrongdoers, Mr King's former solicitors and counsel were confronted with an apparent conflict of interest that prevented them from continuing to appear for him. Mr King was therefore forced to retain alternative representation. That caused significant cost, disruption and delay. I referred to this at [726] as follows:

"[726] Those allegations were first pleaded in September 2011, more than two years after the proceedings were commenced. Cheney & Wilson and Mr Kerr were at that time acting for him in relation to these proceedings. As a direct result of being named as concurrent wrongdoers by the defendants, Cheney & Wilson and Mr Kerr were prevented by reason of a conflict of interest from continuing to act. George King was forced to engage new legal representation, causing significant cost, disruption and delay."

27 I disposed of Mr Benecke's contentions at [731]:

"[731] George King's submissions on this issue are unanswerable. Mr Benecke's contention that George King's lawyers were somehow at fault fail for a complete want of supporting evidence."

28 Mr King contended that the proportionate liability allegations were discrete and separable. He succeeded on that issue. Mr King submitted that he should have his costs of defending these allegations as they were never supported by evidence and should never have formed any part of the proceedings. He insisted that such a result should follow whatever the ultimate fate of his costs application generally.

Mr King's summary

29 Mr King's written submissions concluded with the following summary:

"54. The defendants lost on all issues save for causation, including on the critical issues of retainer, duty and breach. They also lost on their proportionate liability allegations. This, however, is not simply a question of success or failure on particular issues. First, on the Court's findings and on the evidence for this application, the defendants had no proper basis for their denials and proportionate liability allegations. Secondly, the combination of the plaintiff's [sic, defendants'] unfounded denials and affirmative allegations prolonged these proceedings by forcing a change in the plaintiff's legal representation and multiplying issues (including in an amended statement of claim). The Thompson affidavit gives detailed evidence of the course of the proceedings. If the defendants had conducted themselves differently, it is more than likely this case would have been heard in the order of 12 months earlier than it was and at significantly less expense."

Mr Benecke's response

30 Mr Benecke did not accept Mr Thompson's 80 percent analysis. On the contrary, he relied upon an affidavit sworn by Timothy Price on 30 October 2013, upon which he was also not cross-examined, particularly at paragraphs 19 to 21 as follows:

"19 It is my assessment from my review of the affidavit evidence, written submissions, transcript and other matters relevant to the conduct of the proceedings that the focus of the issues in these proceedings very much concerned what can be described as the causation/loss issues. On my analysis about 70% of the work done at the hearing and in preparation for the hearing was concerned with those issues.

20 In my opinion, if the defendant had made more admissions of breach of duty and/or retainer in his defence then it is unlikely that significant work (by the parties or the Court) would have been avoided. This was a case where much of the factual background relevant to those issues also informed the causation/loss issues and it would have been very difficult to divide the two into entirely separate compartments or have proper consideration to the latter without some regard to the former.

21 My estimate of 70% takes into account the necessity for evidence as to the background for the purposes of the causation/loss issues. I am comforted in my assessment because it accords with my analysis of the evidence, submissions and Court time."

31 Apart from this quantitative assessment, Mr Benecke's response not unexpectedly also emphasised an orthodox approach. Mr King had sued for damages and failed because he had not demonstrated any causal connection between established breaches and any loss suffered by him. The practical result was that he lost the case so that costs should follow that event.

32 Mr Benecke also contended that the issues of causation and loss were in fact the central issues in terms of legal and factual complexity. If Mr King only allocated 20 percent of his time and resources to that issue, it was a mistake to do so, and not something for which Mr Benecke should be responsible.

33 Mr Benecke submitted that causation and loss were not identified as central issues until only about one month before the trial commenced, as Mr King asserted. Whatever may have been the time by which Mr King realised the importance of the issue of causation to the overall success of his claim, it was unambiguously raised in important pre-trial correspondence. A Calderbank letter dated 4 July 2012 canvassed the issue of causation at length, as the following extracts demonstrate:

"3.3 the plaintiff's evidence does not support the critical proposition that the plaintiff entered into the settlement with his family in December 2008 under the alleged pressure caused by the conduct of the first defendant;

3.4 the loss and damage claimed (which is denied) was not caused by any conduct of the defendants in that the plaintiff has not established and cannot establish that he would have been in any different position had the alleged breaches not occurred;

3.5 the loss ad damage claimed (which is denied) was caused entirely, or contributed to, by the conduct of the plaintiff including the decision by the plaintiff (on legal advice) to pursue a course for a period of at least 12 months of negotiating a resolution with his family and to take no other steps to protect his interests and in particular to guard against or respond to the circumstances which he now says give rise to intense pressure that allegedly forced him to pay about $2.35 million more than he otherwise would have paid to acquire certain shares from his parents and siblings;

3.6 the plaintiff has failed to account for a number of benefits that he received pursuant to the settlement with his family in December 2008 which he would not otherwise have received;"

34 Mr Benecke offered $200,000 with each party paying its own costs. Mr King rejected the offer two days later. Mr Benecke suggests that this establishes that Mr King prepared and conducted his case fully aware that Mr Benecke considered his best points to be causation and loss but was evidently prepared to risk losing on those issues. Mr Benecke submitted that that conclusion should influence the overall costs outcome, even if it does not also trigger an entitlement to indemnity costs.

35 Moreover, Mr Benecke submitted that Mr King's claim was extraordinary: not only does he assert that he should not be liable for costs as the losing party, but claims to be entitled to 60 percent of his costs from the victor. If, contrary to Mr Benecke's strenuous opposition, this were a case for a differential costs order, Mr Benecke insisted it should only sound in a modest discount of the costs to which he would otherwise, and ordinarily, be entitled.

36 Mr Benecke said that the "event" or "practical result" in this case was plain. Mr King sought substantial damages for breach of contract and failed to establish causation or loss. Accordingly, "that empty victory usually does not bring with it an entitlement to costs": Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407; (2009) 76 NSWLR 603 at [685].

37 Mr Benecke once again referred me to considerable authority. The principles are not in dispute and the decisions in the cases are generally fact specific. They support the notion that except in special circumstances, a court should not attempt to differentiate between issues on which a party succeeded and those on which it failed in substitution for application of the usual rule. A differential costs order is more likely to follow in the exercise of the costs discretion where the issue or issues on which the otherwise successful party lost was "clearly dominant" or "separable". However, a differential costs order does not automatically follow if the exception is available. The exercise of the Court's discretion as to costs requires an assessment of what is fair and reasonable in all of the circumstances: McLaughlin v Dungowan Manly Pty Ltd [2010] NSWSC 306 at [22] and [24].

38 Mr King contends that Mr Benecke conducted himself unreasonably in raising a defence of proportionate liability. Mr Benecke says that this submission rests on a "persistent misunderstanding" about the role of the proportionate liability defence. That defence was an alternative that only arose if I did not accept Mr Benecke's primary contentions on causation, which were that Mr King was not under pressure and that any pressure he was under arose because of his own misconduct.

39 Mr Benecke submitted that in order to understand why the proportionate liability case was raised as an alternative defence, it is necessary to consider the position he was in when the defence was foreshadowed in November 2010. Mr King had, a few months before, put on evidence that he entered into the December 2008 settlement because he felt that his disadvantageous legal position meant that he had "no option" but to settle with his family members, and that he had been so advised. Mr Benecke was faced with the need to confront that case.

40 With the assistance of documents obtained under subpoenas and notices to produce, Mr Benecke was ultimately able to do so successfully. I found that Mr King did not believe his legal position to be weak at the December 2008 mediation or at any time, that he was not then under pressure by reason of a perception about his legal position, that he did not pay any more at the December 2008 mediation than he otherwise would have and that he agreed to the settlement because it was within the range of values he considered to be "fair" and comfortably affordable. I found that the settlement suited his wider business interests.

41 With the benefit of those findings, the proportionate liability defence receded in importance. However, that was not something of which Mr Benecke could always be confident. According to Mr Benecke, the prospect of such favourable findings only became apparent when he finally managed to obtain documents produced under subpoena and in response to notices to produce. That was something that Mr King had strongly opposed. Mr Benecke maintained that until the position became clear, his proportionate liability defence was a reasonable step to take to protect his position.

42 Mr Benecke sought to emphasise this by reference to the mutual undertakings not to take prejudicial action that were exchanged in January 2008. I had referred to these at [640] as follows:

"[640] Having regard to this evidence, it is clear that in February 2008 George King was advised to pursue mediation and not to commence proceedings. This was primarily because he had the benefit of the undertaking, but also because he did not want to provide an opportunity for his family to ventilate the issue of his wrongdoing in relation to The Wellness House. The parties were close to settlement in any event."

43 The need to seek such undertakings was one of the particulars of the proportionate liability defence: Mr Benecke alleged that Mr King's legal advisers should have sought "written undertakings" that would have reduced the pressure to settle disadvantageously that Mr King claimed he was under. For what Mr Benecke now suggests are "obvious reasons", Mr King did not refer to these undertakings in his evidence, as they were inconsistent with his case that he was under significant pressure. When Mr Benecke discovered that such undertakings had in fact been exchanged, it was a matter that strengthened the causation defence and correspondingly weakened the proportionate liability defence: it was apparent that Cheney & Wilson and Mr Kerr SC had done exactly what the defendants alleged they should, acting competently, have done. Mr Benecke maintains that there was until then nothing unreasonable in him taking Mr King's evidence at face value and constructing a proportionate liability defence on that basis.

44 Mr Benecke submitted that the defence was in all the circumstances pleaded appropriately and in a timely manner. Mr Benecke maintained that any disruption that may have arisen from Mr King's need to change lawyers as the result of the proportionate liability defence was not something for which he could be held responsible or for which he could be criticised if the defence were otherwise available and properly raised. Mr Benecke contended that if a defence is available, a party is entitled to raise it notwithstanding that it causes inconvenience to the other side. The need to change legal representatives as a result of action by an opponent is a natural hazard of litigation.

Consideration

45 It will be apparent that if costs ordinarily follow the event, the discretionary apportionment of costs between successful and unsuccessful claims and issues will be out of the ordinary. To some extent there is an unavoidable circularity in the equation, because the outcome to a great extent depends upon identifying "the event". The issue is not to be decided by discarding common sense or ignoring what is reasonable. Nor should one lose sight of the fact that the conduct of litigation is inherently perilous and unpredictable so that the self-defensive positions reasonably adopted by parties in the early stages of a case and before the outcome is known ought not always or necessarily with the benefit of hindsight be regarded as unreasonable. Burchett J adverted to this in Australian Conservation Foundation Inc v Forestry Commission of Tasmania (1988) 76 LGRA 381; (1988) 81 ALR 166 at 169 as follows:

"A party against whom an unsustainable claim is prosecuted is not to be forced, at his peril in respect of costs, to abandon every defence he is not sure of maintaining, and oppose to his adversary only the barrier of one hopeful argument: he is entitled to raise his earthworks at every reasonable point along the path of the assault. At the same time, if he multiplies issues unreasonably, he may suffer in costs. Ultimately, the question is one of discretion and judgment."

46 Similar sentiments were reflected in the remarks if Hodgson JA in Griffith v Australian Broadcasting Corporation (No 2) [2011] NSWCA 145 at [19]:

"[19] Further, in my opinion, the underlying principles concerning costs identified in Commonwealth of Australia v Gretton [2008] NSWCA 117 at [121] and Ohn v Walton (1995) 36 NSWLR 77 at 79 (referred to in Turkmani at [13]) suggest that the application of these principles may not be exactly the same for successful defendants as for successful plaintiffs. In the former case, the defendant has been caused to incur costs in defending a claim which the decision in the case has wholly rejected, and has thus determined should not have brought about the incurring of any costs at all. In those circumstances, it may be considered appropriate that the defendant have costs associated with reasonable defences, even if they ultimately proved to be unsuccessful and severable. In the latter case, the plaintiff has chosen to bring the whole proceedings and thereby to incur costs and cause costs to be incurred which otherwise would not have been incurred; and in those circumstances, it may be seen more readily as appropriate that the plaintiff be liable for the costs of unsuccessful severable claims or issues, even if it was reasonable to include those claims or issues."

47 His Honour made the same point in Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service (No 2) [2011] NSWCA 171 at [9] - [10] as follows:

"[9] One further matter that was the subject of submissions was whether the principle that a successful party may be deprived of costs and may be ordered to pay the other party's costs, in respect of issues lost by the successful party where that issue was clearly dominant or severable, operates more strongly against a successful plaintiff: see Australian Conservation Foundation Inc v Forestry Commission of Tasmania (1988) 81 ALR 166 at 169, Richmond River Council v Oshlack (1996) 39 NSWLR 622 at 637, Hendriks v McGeoch [2008] NSWCA 53 at [104], Griffith v Australian Broadcasting Corporation (No 2) [2011] NSWCA 145 at [19]-[20], [38]-[39].

[10] In my opinion, generally this is so. Where a plaintiff's case fails, it may sometimes be appropriate to order the plaintiff to pay the costs of issues unsuccessfully raised by the defendant, even if those issues are severable, so long as the defendant acted reasonably in raising those issues. It is I think less often the case that a defendant would be ordered to pay the costs of severable issues unsuccessfully raised by an otherwise successful plaintiff. However, the requirements of s 56 of the Civil Procedure Act 2005 that parties assist the court to facilitate the just, quick and cheap resolution of the real issues on the proceedings, and take reasonable steps to resolve or narrow the issues in dispute, do apply to defendants as well as plaintiffs; and this is relevant to the exercise of the costs discretion."

48 In Gold and Copper Resouces Pty Ltd v Newcrest Operations Ltd [2013] NSWSC 345, Stevenson J declined to make a differential costs order against a successful defendant who lost on the issue of breach of contract even though his Honour considered that it was separable from the issue of causation upon which it won. Stevenson J observed that at trial it was apparent that causation was "a central issue" (at [33]) and that the defendant had not conducted its defence in a manner that was "improper or unreasonable" (at [36]). See also Sydney Attractions Group Pty Ltd v Frederick Schulman (No 3) [2013] NSWSC 1544 at [3] and Grace v Grace (No 4) [2013] NSWSC 385 at [9].

49 Mr King's submissions necessarily invite a determination of the relative importance of the liability issues on the one hand and the causation and loss issues on the other hand. In this respect the competing percentage assessments are to a large extent unavoidably impressionistic and difficult to compare. Nor are the time and resources allocated by each party to particular issues automatically informative, far less conclusive, upon the question of whether or not it was reasonable strenuously to contest them.

50 Mr Benecke's written submissions closely analyse the way in which the respective pre-trial activities of the parties demonstrate just how significant the issues of causation and loss actually were, as revealed by correspondence between them, the pleadings and the affidavit evidence upon which they both relied. I accept that these submissions, in accordance with authority, were intended to establish that the issue was central in the overall scheme of the case. However, it does not seem to me to be a complete answer in this case for Mr Benecke to emphasise only the absolute or relative importance of the causation and loss issues upon which he won, so much as the need also to establish the reasonableness of contesting the issues of duty and breach upon which he lost. After all, Mr King's proposition is most fundamentally that the case should have been fought only upon issues that were really contestable and that the issues of duty and breach were not of that kind. Mr Benecke's obvious response to that proposition is that the issues of causation and loss were equally plain: Mr King should have recognised his vulnerability and either chosen not to sue in the first place or accepted the offer of compromise in the second place.

51 It seems to me that a retrospective analysis of the proceedings by the parties, each with the benefit of their current knowledge and understanding of the ultimate outcome, ought not be permitted too readily to determine what the parties should have foreseen or recognised might occur. It is true that Mr Benecke did not rush to make concessions that he should arguably have made. Indeed, as far as I recall, he occasionally appeared to resile from or retract some of his previous admissions and to distance himself from some certain of his earlier concessions. Be that as it may, the facts in these proceedings were not uncomplicated and Mr Benecke was central to most of them. That included the events leading up to the final settlement that was at the heart of Mr King's case, by which time Mr Benecke was no longer formally involved. There were tactical and strategic benefits to Mr King in the prosecution and presentation of his case that were generated by demonstrating the egregious nature of Mr Benecke's breaches and his associated refusal to acknowledge them. That process also very significantly explained and amplified the factual background that was relevant to an understanding of whether or not Mr King settled either on unfavourable terms at all, or because of pressure upon him that was related to Mr Benecke's failings.

52 I do not think that Mr Benecke conducted his defence on the questions of duty and breach in a way that was improper or unreasonable. Mr King submitted that Mr Benecke sought to keep liability in issue so as to exhaust his funds. There is no evidence of that assertion and it ought not to have been made.

53 Mr King relies generally upon the evidence of Mr Thompson to suggest that Mr Benecke was delinquent in the way in which he defended the proceedings. I do not accept that proposition. To my observation, the proceedings were conducted efficiently on both sides of the record.

54 Mr King has also contended that the liability issues, apart from causation, were so clear and one sided that they should have been conceded at an early stage. However, Mr King went to some trouble to establish the existence of breaches of duty by calling expert evidence about it. Whether that was a not unreasonable response to Mr Benecke's defence or an obvious recognition of the complexity of the issue is difficult to discern. That is because the way that the case unfolded has since illuminated that issue in a way that was not so clear when the parties first faced off across the courtroom, or when preparing their respective cases beforehand. The litigation was hard fought and it seems to me to be dangerous to ascribe improper motives to a defendant for tenaciously responding to claims that are intended to impugn his or her professional reputation and integrity.

55 Nor do I consider that the issue of causation upon which he succeeded was either not central to the case or alternatively separable from the main issues in it. The very fact that two experienced solicitors, admittedly not at arm's length from the parties to the proceedings, have arrived at opposing views about what issues received what emphasis, alone suggests there is room for doubt about it. Accepting that an issue will not be "clearly severable" if arguments relied upon in relation to it also have "some bearing" on another issue or issues (see Griffith at [11]), it can be seen that the liability issues upon which Mr Benecke failed arguably fell into that category. For example, the terms of the agreement between Mr King and his father in 1999, the Bellamy litigation and the manner in which it was resolved, the assurances given by Mr King's father in the context of a close and trusting family relationship up until about 2006 that he held the 15 Somers shares for Mr King, and Mr Benecke's conflict of interest breaches in 2007 and 2008 all to a greater or lesser extent spanned issues of liability, causation and quantum of loss.

56 It follows that I am not satisfied that by reason of the way Mr Benecke approached the issues of duty and breach there should in these circumstances be any order for costs other than the usual order.

57 The issue concerning the proportionate liability defence is more difficult. On balance I consider that Mr Benecke's failure to lead any evidence in support of the defence indicates that it was always destined to fail. I appreciate that Mr Benecke says that evidence to support it was both difficult to acquire in the first place and only ever likely to emerge, if ever, in the course of the trial in the second place. However, that seems to me to be a forensic risk that necessarily falls at his feet. It was a separate and severable issue upon which Mr Benecke failed and he took the chance that Mr King would be required to incur legal costs to respond to it. In the events that occurred, Mr King's costs were also significantly increased by the consequent disruption to his preparation occasioned by the need to retain and instruct an entirely different legal team.

58 In the circumstances I consider that Mr Benecke should pay Mr King's costs of and incidental to that issue.

Indemnity costs

59 Mr Benecke seeks an order that Mr King pays his costs on an indemnity basis from 6 July 2012. On that day, Mr King's solicitors rejected Mr Benecke's offer made two days earlier offering to settle the proceedings by the payment of $200,000 and that the parties bear their own costs. Mr Benecke submits that this was an unreasonable rejection of a genuine offer of compromise that should attract a special costs order: see Ambulance Service of New South Wales v Worley (No 2) [2006] NSWCA 236; (2006) 67 NSWLR 719 at [18]. The offer was expressed to be open for 14 days. It was made following an unsuccessful mediation conduct before Ian Callinan QC some weeks beforehand. The letter set out a series of seven reasons why Mr Benecke contended that Mr King would fail. Five of those reasons related to proof of causation and loss: see paragraph [33] above.

60 Mr King's rejection of the offer was accompanied by a counter-offer. That counter-offer proposed the payment to Mr King of $1.4M plus costs. That sum was the same amount that I decided Mr King would have been entitled to receive as damages if he had been successful.

61 Mr Benecke contended that the rejection was unreasonable for the following reasons. First, he was given 14 days to consider it, about which no complaint was, or could have been, made. Secondly, the offer represented a substantial compromise having regard to the result determined by me. Thirdly, there could have been no doubt that the offer was made with a view to making the present claim for indemnity costs: it expressly said so. Fourthly, the offer clearly articulated the causation problems that ultimately defeated Mr King. Fifthly, the fact that Mr Benecke did not succeed on all causation issues should not matter. Sixthly, Mr King's counter-offer was not a reasonable response, as it contained no compromise by him.

62 Mr King opposed the making of such an order. In my opinion, Mr King should not be required to pay Mr Benecke's costs on an indemnity basis. My reasons for coming to that view are as follows.

63 The issue is whether Mr King acted unreasonably in not accepting the offer. The onus lies upon Mr Benecke to establish that: Evans Shire Council v Richardson (No 2) [2006] NSWCA 61 at [26]. The proof of unreasonableness is co-extensive with the demonstration on clear grounds of blameworthy conduct: Chaina v Alvaro Homes Pty Ltd [2008] NSWCA 353 at [113]. The question of whether a party's non-acceptance of an offer is unreasonable is an evaluative judgment to be made by reference to the terms of the offer and the surrounding circumstances: King Network Group Pty Ltd v Club of the Clubs Pty Ltd (No 2) [2009] NSWCA 204 at [11]. A court will be slow to find that a party's non-acceptance of an offer was unreasonable where the issues in the case were complex and contestable: King Network Group at [16] and [22].

64 When Mr Benecke made his offer, Mr King's claim was for almost $2.74M. His costs then approached $300,000. The offer was not adequate even to cover Mr King's party/party costs incurred up to that time. Mr King contends that the offer was derisory and amounted in effect to an invitation to capitulate. Bryson JA discussed this in Leichhardt Municipal Council v Green [2004] NSWCA 341 at [59]:

"... The respondent's case did not succeed, but it was not a case which could not reasonably be argued and it succeeded at first instance. The only element of compromise in the offer was as to costs: otherwise it was a call on the respondent to capitulate and give up: the element of compromise was slight, and the respondent's ultimate lack of success does not to my mind demonstrate that the reasonable course for the respondent was to capitulate, nor does anything show that the respondent was delinquent in going on with the trial or in resisting the appeal."

65 I agree with Mr King's submission that he was being invited to capitulate and to accept that his prospects of success were marginally above nonexistent. Viewed in prospect, it is not fair to say that that was a reasonable assessment of his chances at the time. It was in my opinion not unreasonable, having regard to the number and complexity of issues that had emerged, for Mr King to consider that Mr Benecke's offer was not based upon an accurate assessment of the parties' then relative strengths and weaknesses and significantly overestimated Mr Benecke's then prospects of success. The offer was accordingly heavily one-sided: its acceptance would have constituted a windfall for Mr Benecke and a simultaneous sacrifice of the chance of a better outcome by Mr King. That conspicuous imbalance made it entirely reasonable for Mr King to reject the offer when he did.

Costs of 31 August 2013

66 On 23 August 2012, Mr King filed a notice of motion seeking to set aside Mr Benecke's subpoena to produce documents from the National Australia Bank and a notice to produce served on him. I dismissed that application upon the basis that, contrary to Mr King's submissions, each of the subpoena and the notice to produce had a legitimate forensic purpose. I also made an order that the costs of the motion should be Mr King's costs in the proceedings.

67 Mr Benecke inquires now whether the costs order was a slip, having regard to the likelihood that the more conventional order in the circumstances would have been that the costs of the motion be Mr Benecke's costs in the proceedings.

68 UCPR 36.17 is apposite. It is as follows:

"36.17 Correction of judgment or order ("slip rule")

If there is a clerical mistake, or an error arising from an accidental slip or omission, in a judgment or order, or in a certificate, the court, on the application of any party or of its own motion, may, at any time, correct the mistake or error."

69 Mr King has indicated that it is a matter for me in the circumstances. That is a proper acknowledgment that if I consider that I made an accidental slip I should proceed to correct it.

70 It is apparent to me, having had the matter drawn to my attention, that I intended to order that the costs in question should be Mr Benecke's costs in the proceedings. So much is reasonably apparent from the outcome of the motion and the reasons published by me at the time. I propose in the circumstances to correct the slip and amend the order accordingly.

Conclusions and Orders

71 I consider that the following orders should be made:

(1) Subject to orders 2, 3 and 4 below, order Mr King to pay Mr Benecke's costs of and incidental to the proceedings on the ordinary basis.

(2) Order that the costs of the motion filed on 23 August 2012 and determined on 31 August 2012 should be Mr Benecke's costs in the proceedings.

(3) Order Mr Benecke to pay Mr King's costs of and incidental to Mr Benecke's proportionate liability defence.

(4) Order Mr King to pay 80 percent of Mr Benecke's costs of and incidental to this application for costs.

**********

Decision last updated: 22 July 2014