Assets China Pty Ltd and Anor v Eastern Blue Pty Ltd and Anor (Costs)
[2020] VSC 786
•25 November 2020
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
JUDICIAL REVIEW AND APPEALS LIST
S ECI 2019 03667
| ASSETS CHINA PTY LTD (ACN 093 530 583) & ANOR (according to the attached Schedule) | Appellants |
| v | |
| EASTERN BLUE PTY LTD (ACN 620 756 694) & ANOR (according to the attached Schedule) | Respondents |
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JUDGE: | Ierodiaconou AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 18 November 2020 |
DATE OF RULING: | 25 November 2020 |
CASE MAY BE CITED AS: | Assets China Pty Ltd & Anor v Eastern Blue Pty Ltd & Anor (Costs) |
MEDIUM NEUTRAL CITATION: | [2020] VSC 786 |
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COSTS – Indemnity costs – Offer of compromise – Court declined to award indemnity costs pursuant to Supreme Court (General Civil Procedure) Rules 2015 r 26.08(4) – United Petroleum Australia Pty Ltd v Herbert Smith Freehills [2020] VSCA 15 – United Petroleum Australia Pty Ltd v Herbert Smith Freehills (a firm) (No 2) [2018] VSC 501 – Marsh v Transport Accident Commission (Costs) [2020] VSC 283.
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APPEARANCES: | Counsel | Solicitors |
| For the Appellants | Mr A Thapliyal, solicitor | ALT Legal Associates |
| For the Respondents | Ms J Anthony-Shaw | Nicholas William Albon |
TABLE OF CONTENTS
Summary.............................................................................................................................................. 1
Background......................................................................................................................................... 1
Respondents’ submissions............................................................................................................... 2
Appellants’ submissions.................................................................................................................. 3
Applicable principles........................................................................................................................ 4
Analysis................................................................................................................................................ 8
Stage of the proceeding................................................................................................................ 8
Time allowed to the offeree to consider the offer..................................................................... 8
Extent of the offer of compromise.............................................................................................. 8
Offeree’s prospects of success as assessed as at the date of the offer.................................... 8
Clarity with which the terms of the offer were expressed...................................................... 8
Whether the offer foreshadowed an application for indemnity costs in the event of the offeree rejecting it............................................................................................................................. 9
Conclusion........................................................................................................................................... 9
HER HONOUR:
This proceeding was an appeal from a decision of a Magistrate on questions of law. I dismissed the appeal and gave reasons.[1] Given the appellants were unsuccessful, they must pay the respondents’ costs. This ruling determines whether the appellants should pay the respondents’ costs on an indemnity basis. The respondents rely upon their offer of compromise.
[1]Assets China Pty Ltd & Anor v Eastern Blue Pty Ltd v Anor [2020] VSC 685.
Summary
The issues in dispute are as follows.
(a) Does r 26.08(4) of the Supreme Court (General Civil Procedure) Rules 2015 (‘the Rules’) apply? Yes.
(b) Did the appellants unreasonably fail to accept the offer of compromise? No.
I will make orders that the appellants pay the respondents’ costs of the appeal on a standard basis.
Background
The unsuccessful appeal concerned orders made by the Magistrates’ Court on 17 July 2019 that the appellants pay the respondents $50,000 plus interest and costs.
This proceeding commenced on 14 August 2019.
The respondents’ offer of compromise dated 17 August 2020 (‘the offer’) follows.
TO: The [Appellants]
TAKE NOTICE the Respondents offer to compromise this proceeding by accepting from the Appellants the sum of $50,000.00, inclusive of their costs in this proceeding, in full settlement of this proceeding.
For the purposes of clarity this Offer of Compromise is not inclusive of the costs so awarded to the Respondents as Plaintiffs in Magistrates Court proceeding No J1156016 for which the Respondents at all times reserve their rights.
THIS OFFER is served in accordance with Order 26 of the SUPREME COURT (GENERAL CIVIL) PROCEDURE RULES 2015 and remains open for 14 days after service of this Offer.
There is no evidence before the Court that the respondents’ solicitor sent any explanatory cover letter with the offer of compromise.
There is no evidence before the Court or indeed any contention that the appellants’ solicitor responded to the offer prior to its expiry, sought an explanation of the terms or questioned their validity.
A summary of the parties’ main submissions follows.[2] Where relevant and necessary, the authorities they rely upon are referred to in the analysis below.
[2]On 22 October 2020, the respondents’ Counsel provided written submissions. Both parties then made oral submissions.
Respondents’ submissions
The appellants were unsuccessful on all grounds of their appeal. Costs follow the event. The respondents rely on the appellants’ rejection of the offer to found an entitlement to indemnity costs. The offer stated it was made pursuant to O 26 and it was open for 14 days.
The respondents seek an order the appellants pay the respondents’ costs of and incidental to the appeal to 11.00am on 19 August 2020 on a standard basis, and thereafter on an indemnity basis.
Firstly, r 26.08(4) applies. An offer of compromise under the Rules is not strictly required to meet the criteria required of a Calderbank offer, however the same policy rationale applies where an offer has been made and rejected. It is not in dispute that the offer was properly served. The Court does not need to inquire into whether or not the offer represents a genuine compromise because r 26.08(8) is not applicable as this is not a matter equivalent to damages for judgment or debt. Notwithstanding that, the offer was genuine. The Court must take into account the totality of circumstances. The legal questions in the appeal were binary, that is yes or no. The proceeding was not capable of resolution by a finding of some other quantum of loss. It was made wholly inclusive of all of the respondents’ costs which was a significant discount. It was inclusive, too, of interest.
Secondly, ‘unless the Court otherwise orders’, it cannot be said that the appellants had no real opportunity to consider the effect of the offer, contingencies and risk as they were legally represented. There was no uncertainty as to the issues in dispute and evidence. Having rejected the offer of compromise, they ran the risk of an indemnity costs order.
Thirdly, the offer was unreasonably rejected. The appellants were in possession of the respondents’ written submission and were on notice of the substance of the arguments put against them. The appellants were represented. Each ground of appeal failed. Ground 2 was conceded part-way through the appeal hearing. The respondents were already in possession of the Magistrates’ Court orders entitling them to repayment of $50,000. The appellants did not press their stay application. The appellants were offered the opportunity bear only their own costs, when they had chosen to bring the appeal, and were wholly unsuccessful.
Section 24 of the Civil Procedure Act 2010 (‘the CPA’) provides an obligation to ensure costs are reasonable and proportionate. For the appellants to press an appeal knowing the respondents’ case was fully set out and [would be] fully successful demonstrates ignorance or at least a failure to have regard to the overarching principles of the CPA.
Appellants’ submissions
Rule 26.08(4)(a) is relevant. The onus is on the respondents to prove the appellants’ refusal of the offer was unreasonable. The respondents have not discharged the onus. The principles of reasonableness that apply to Calderbank offers also apply to offers of compromise.
Firstly, this appeal related to determination of legal questions not the payment of $50,000. It was an offer to walk away and pay that sum. That is unreasonable because there was no basis for the respondents to seek payment over and above the judgment already in their favour as a basis for seeking abandonment of the appeal.
Secondly, it was reasonable to refuse the offer on the basis the terms lacked clarity. The offer was unclear. It made no comment on the interest payable on the Magistrate’s orders. It did not include costs of the Magistrates’ Court proceeding. It was unreasonable to include the sum of $50,000.
Thirdly, no assessment of the prospects of success had been made at the date of the offer and at that stage of the proceeding. There is an onus on the respondents to show the appeal was hopeless or conducted in bad faith. The respondents succeeded on a basis other than those properly contended in the appeal. It cannot be said that at the time the offer was rejected, the appeal was hopeless or in bad faith.
Fourthly, ground 2 of the appeal was not pursued when it became clear the respondents were not seeking to uphold the Magistrates’ decision on an alternative finding of unjust enrichment. There was no concession by the appellants. The respondents do not explain how the abandonment of a ground of appeal affects costs.
Fifthly, it was not a genuine compromise. There is no evidence to support the respondents’ submission that there was a significant discount in costs in the offer. It was an unspecified discount. An offer should be attractive and not merely a demand to capitulate. It is not unreasonable to refuse an offer that is no more than a walk away with the need to pay an additional $50,000.
Sixthly and in the alternative, as to the discretion vested in the Court to ‘otherwise order’: the appellants rely on their submissions as to the reasonableness of their refusal. It ought enliven the jurisdiction to otherwise order.
Finally, the respondents’ submission on s 24 of the CPA ought be rejected as the appeal was not hopeless nor brought in bad faith.
Applicable principles
Rule 26.02(1) of the Rules is applicable and follows.
Offers of compromise generally
(1)A party may, in respect of any claim in a proceeding, serve on another party an offer of compromise on the terms specified in the offer.
Rule 26.02 applies ‘in respect of any claim in a proceeding’. Rule 1.13 defines proceeding as: ‘any matter in the Court commenced by writ or originating motion or as otherwise provided by or under any Act or these Rules’. This proceeding was not commenced by writ or originating motion. It was however commenced by way of notice of appeal in accordance with r 58.07 and accordingly falls within the definition of ‘proceeding’.[3]
[3]See: Marsh v Transport Accident Commission (Costs) [2020] VSC 283 [18] (Niall JA) (‘Marsh v TAC’).
I adopt the following analysis and will proceed on the basis that the claim was embodied in respect of the questions of law identified.[4]
The term ‘claim’ is of indeterminate meaning and will take its meaning from the context in which it appears. In Grbavac, Tadgell JA held, in the context of an action for damages in negligence for personal injury, that the claim was the cause of action.[5]
…
In the present context, I shall proceed on the basis that the claim was embodied in the contention that the Tribunal had erred in respect of the question of law identified, with the consequence that the decision should be set aside, a favourable decision substituted or the matter remitted to the Tribunal for further consideration.
[4]Ibid [19], [21]
[5]Grbavac v Hart [1997] 1 VR 154, 158.
Rule 26.08 follows.
Costs consequences of failure to accept
(1)This Rule applies to an offer of compromise which has not been accepted at the time of verdict or judgment.
…
(4)Where an offer of compromise is made by a defendant and the plaintiff unreasonably fails to accept the offer and the claim to which the offer relates is dismissed or judgment on the claim is entered in favour of the defendant, then unless the Court otherwise orders—
(a)the defendant shall be entitled to an order against the plaintiff for the defendant’s costs in respect of the claim until 11.00 a.m. on the second business day after the offer was made, taxed on the ordinarily applicable basis; and
(b)the defendant shall be entitled to an order against the plaintiff in respect of the defendant’s costs after the time referred to in paragraph (a) taxed on an indemnity basis.
…
(7)Paragraphs (2), (3) and (4) shall not apply unless the Court is satisfied by the party serving the offer of compromise that that party was at all material times willing and able to carry out the party’s part of what was proposed in the offer.
...
As the respondents contend, r 26.08(8), which requires the Court to be satisfied the offer is a genuine compromise, is not applicable because it concerns judgment for debt or damages.
I adopt the following analysis in respect of r 26.08.[6]
Rule 26.08 deals with the costs consequences when the offer of compromise has not been accepted at the time of verdict or judgment. That rule provides for indemnity costs in certain situations and, in terms of timing, differentiates between proceedings for damages arising from death or bodily injury[7] and other claims.[8] The Rules also provides for the timing of payment where the offer is one providing for payment of a ‘specified sum’.[9] Generally, although not always, the offer will entail a payment of money and reflect a claim for an amount of money as damages or compensation.
[6]Marsh v TAC [20].
[7]Rules r 26.08(2)(a).
[8]Ibid r 26.08(2)(b).
[9]Ibid r 26.03.1.
In United Petroleum Australia Pty Ltd v Herbert Smith Freehills (a firm) (No 2),[10] Elliott J outlined the following principles, which I adopt.[11]
[10][2018] VSC 501, cited in Milfoil Pty Ltd v Commonwealth Bank of Australia (No 2) [2019] VSC 734 (Lyons J).
[11]Ibid [19]–[22].
In the exercise of the court’s discretion, the unreasonable refusal to accept an offer of compromise provides clear grounds for indemnity costs to be awarded in favour of the offeror.[12] The offeror bears the onus of establishing that the offeree has acted unreasonably.[13] Whether the relevant rejection is unreasonable is a matter of judgment and impression, and requires consideration of the applicable circumstances at the time of the offer.[14] The following matters are, ordinarily, relevant to determining whether an offer of compromise has been unreasonably rejected:[15]
[12]Hazeldene’s Chicken Farm v Victorian WorkCover Authority (No 2) (2005) 13 VR 435, 442 [28] (Warren CJ, Maxwell P and Harper AJA). See also Marriner v Australian Super Developments Pty Ltd [2016] VSCA 141, [234]-[236] (Tate ACJ, Kyrou and Ferguson JJA).
[13]Defteros v Google Inc [2017] VSC 189, [8] (John Dixon J).
[14]Hazeldene’s Chicken Farm v Victorian WorkCover Authority (No 2) (2005) 13 VR 435, 441-442 [23]-[24], 443 [30]; Victorian Workcover Authority v O’Brien [2017] VSC 68, [6]-[7] (J Forrest J); Premier Building & Consulting Pty Ltd v Spotless Group Ltd (No 13) [2007] VSC 516, [13] (Byrne J); Berrigan Shire Council v Ballerini (No 2) [2006] VSCA 65, [10] (Callaway JA), [33]-[34] (Nettle JA).
[15]Masters Home Improvement Pty Ltd v North East Solution Pty Ltd (No 2) [2017] VSCA 113, [2] (Santamaria, Ferguson and Kaye JJA), citing Hazeldene’s Chicken Farm v Victorian WorkCover Authority (No 2) (2005) 13 VR 435, 442 [25] (Warren CJ, Maxwell P and Harper AJA).
(1)The stage of the proceeding at which the offer was received.
(2)The time allowed to the offeree to consider the offer.
(3)The extent of the offer of compromise.
(4)The offeree’s prospects of success as assessed as at the date of the offer.
(5)The clarity with which the terms of the offer were expressed.
(6)Whether the offer foreshadowed an application for indemnity costs in the event of the offeree rejecting it.
Offers of compromise may also be made pursuant to r 26.02(1) of the Supreme Court Rules, which provides that a party may serve an offer of compromise on another party on the terms specified in the offer. The same policy rationale underlies the special orders available where either form of offer of compromise has been made and rejected.[16]
Rule 26.08 sets out the costs consequences of a failure to accept an offer of compromise, as follows: …
It is well established that, in some circumstances, a “walk away” offer[17] or an offer by a party to “bear a very small portion of its own costs”[18] may constitute a sufficient offer of compromise to make a rejection of the offer unreasonable. There have also been cases where such offers have been treated as offers to capitulate as opposed to genuine offers.[19]
[16]Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) (2005) 13 VR 435, 441 [21] (Warren CJ, Maxwell P and Harper AJA), referring to Grbavac v Hart [1997] 1 VR 154, 164.7-165.5 (Hayne JA).
[17]Defteros v Google Inc [2017] VSC 189, [6], [15] (John Dixon J); Love v State of Victoria (No 2) [2009] VSC 531, [27]-[29] (Cavanough J); Roads and Traffic Authority of New South Wales v Refrigerated Roadways Pty Ltd (No 2) [2009] NSWCA 336, [17] (Campbell JA, with whom McColl JA and Sackville AJA agreed). Cf Re Akron Roads Pty Ltd (in liquidation) (No 4) [2016] VSC 778, [7]-[9] (Robson J).
[18]Towie v Medical Practitioners Board (Vic) [2008] VSCA 157, [41] (Redlich and Weinberg JJA and Mandie AJA). See also Nolan v Department of Environment & Primary Industries (No 2) [2014] VSC 467, [35] (McMillan J).
[19]… See also Re Akron Roads Pty Ltd [2016] VSC 778, [7]-[9] (Robson J); Williams v Katis [2014] VSC 471, [21]-[24] (J Forrest J); Commissioner of State Revenue v Challenger Listed Investments Ltd (No 2) [2011] VSCA 398, [17] (Buchanan and Tate JJA and Sifris AJA); Berrigan Shire Council v Ballerini (No 2) [2006] VSCA 65, [17] (Callaway JA).
In United Petroleum Australia Pty Ltd v Herbert Smith Freehills,[20] the Court of Appeal upheld Elliot J’s decision.[21]
In relation to offers of compromise, the principles are also well established. The judge recorded that Calderbank letters must represent a genuine compromise, as opposed to an invitation to capitulate. Where an offer is not accepted and the offeree does not achieve a more favourable outcome than that contained in the offer, there is a basis for awarding costs at a higher level. The unreasonable refusal to accept an offer of compromise provides a basis for indemnity costs to be awarded in favour of the offeror.
[20][2020] VSCA 15.
[21]Ibid [125] (citations omitted).
Analysis
Turning now to the application of the factors in the United Petroleum decisions above, to determine whether the appellants unreasonably failed to accept the offer.
Stage of the proceeding
The offer was made after submissions were exchanged and almost four weeks prior to trial.
Time allowed to the offeree to consider the offer
Consistently with r 26.03(3), the offer was open for acceptance for 14 days.
Extent of the offer of compromise
The offer was to compromise the proceeding by payment of $50,000 inclusive of the costs of this proceeding.
Offeree’s prospects of success as assessed as at the date of the offer
The offerees, being the respondents, had a strong prospect of success, which would have been evident by their submissions as at the date of the offer. I refer to the judgment, which it is unnecessary to reiterate here. The appellants were wholly unsuccessful.
Clarity with which the terms of the offer were expressed
The offer related to the orders made in the Magistrates’ Court but it was unclear as to precisely how. It could perhaps be reasonably inferred that the $50,000 sought was the same $50,000 that was the subject of the Magistrates’ Court orders, as the respondents’ submit. On the other hand, the appellants submit, in effect, that it was an additional $50,000 payment. The confusion arises because the offer does not state whether the $50,000 is the subject of the Magistrates’ Court orders. In contrast, the offer expressly states it does not include the costs of the Magistrates’ Court proceeding. Adding to the lack of clarity is the issue of interest. The Magistrates’ Court orders provided for the payment of interest. In contrast to the reference in the offer to the Magistrates’ Court costs orders, the offer does not address the issue of interest at all.
The terms of the offer should be precise, unambiguous and self-contained. In many cases, such offers are accompanied by a cover letter containing reasons why the offer should be accepted. That does not appear to have occurred here. At any rate, it would not have assisted the issue concerning the lack of clarity of the terms. Even had the offer been accepted, it may have resulted in further litigation regarding how it was to be interpreted.
Whether the offer foreshadowed an application for indemnity costs in the event of the offeree rejecting it
The offer did not expressly foreshadow an application for indemnity costs in the event of rejection. However, the offer did refer to O 26, and it was served upon solicitors. This was sufficient to foreshadow the respondents’ application for indemnity costs in the event the appellants rejected the offer.
Conclusion
Given the lack of clarity with which the offer was expressed, it was not unreasonable for the appellants to fail to accept it. Consequently, the respondents cannot rely upon their offer of compromise as a basis for an indemnity costs order.
It is unnecessary to deal with other submissions of the parties given the findings above.
I will make orders that the appellants pay the respondents’ costs of the proceeding on a standard basis.
SCHEDULE OF PARTIES
| S ECI 2019 03667 | |
| BETWEEN: | |
| ASSETS CHINA PTY LTD (ACN 093 530 583) | First Appellant |
| MICHELLE SIU PIK CHAN | Second Appellant |
| - v - | |
| EASTERN BLUE PTY LTD (ACN 620 756 694) | First Respondent |
| MIAN ZHANG | Second Respondent |
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