Bacchus Gift Pty Ltd v Martrak (Vic) Pty Ltd and Reardon (No 2)

[2010] VCC 621

IN THE COUNTY COURT OF VICTORIA Revised

Not Restricted

AT MELBOURNE

COMMERCIAL LIST

Case No. CI-07-03139

BACCHUS GIFT PTY LTD	Plaintiff
v
MARTRAK (VIC) PTY LTD	First Defendant
and
MICHAEL HUGH REARDON	Second Defendant

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JUDGE:	HIS HONOUR JUDGE GINNANE
WHERE HELD:	Melbourne
DATE OF HEARING:	10 June 2010
DATE OF JUDGMENT:	10 June 2010
CASE MAY BE CITED AS:	Bacchus Gift Pty Ltd v Martrak (Vic) Pty Ltd & Reardon (No 2)
MEDIUM NEUTRAL CITATION:	[2010] VCC 0621
(Revised 15 June 2010)

REASONS FOR JUDGMENT

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Catchwords: COSTS – Failure of successful defendants to comply with discovery obligations – effect on proceeding – offer of compromise – each party to bear its own costs.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr C R Northrop	Bazzani Scully Brand
For the Defendants	Mr C R Hanson	Paul B Connor
HIS HONOUR:

1          In this matter, the proceedings have been dismissed and the normal order would be that the defendants are entitled to their costs.

2          However, the question has arisen whether the defendants have done something connected with the conduct of the litigation calculated to cause unnecessary litigation and expense, to use the words of Atkin, LJ in Ritter v Godfrey.[1] That consideration is a matter relevant to the exercise of the Court’s discretion on costs although, of course, it does not limit the discretion: Verna Trading Pty Ltd v New India Assurance Co Ltd.[2]

[1] [1920] 2 KB 47 at 60-61.

[2] [1991] 1 VR 129.

3          Subject to the consideration of the offer of compromise, I would have considered the appropriate order in this proceeding to be that each party bear their own costs, save as otherwise dealt with by particular costs orders that have been previously made.

4          I would reach that conclusion because of the late production of the replacement, reconstructed Business Activity Statements on day three of the trial. I ultimately accepted the replacement, reconstructed BAS statements as an authentic indicator of information provided to the Australian Taxation Office in respect of the first defendant’s sales in the financial year 2004-2005, and in respect of the first two quarters of the 2005-2006 year. The BAS statements were described as reconstructed because the relevant data contained in them had been lodged electronically with the ATO and the second defendant had reproduced the data lodged with the ATO in the format of a BAS statement.

5          Counsel for the defendants, during his submissions on costs, reminded me that on the first day of the trial, he had referred to the fact that the discovered BAS statements were incorrect. However, there was no explanation for the production of the accurate, reconstructed documents occurring on day three of the trial. Earlier reconstructed versions of the BAS statements had been discovered, but only after much effort by the plaintiff. These discovered BAS statements were, at trial, conceded by the defendants to be erroneous. The BAS statements produced at trial were ultimately significant in my determination of the case in favour of the defendants. I consider that this late production of the documents was likely to have affected, adversely from the plaintiff’s point of view, the effectiveness of a number of interlocutory steps. These included:

(a)	the accuracy and reliability of the discovery process;
(b)	the preparation of expert witness statements, including that of Mr Wilkinson, which was based at least in part, on the validity of the discovered, reconstructed BAS statements;
(c)	the plaintiff’s consideration of what offers of settlement or compromise were appropriate.

6          Counsel for the plaintiff has also referred to the fact that a number of other potentially significant documents of the first defendant were not available, or were no longer in the possession of the defendants.

7          The plaintiff drew my attention to the comments of Judge Anderson on 19 December 2008, regarding the manner in which the defendants had conducted the litigation over the previous months.

8          In the above circumstances, due to the unsatisfactory manner in which the defendants conducted the discovery process, in the absence of any other consideration, the appropriate exercise of the discretion as to costs would be that each party should bear their own costs.

9          I was informed on 10 June 2010 of an offer compromise made by the defendants on 1 May 2008 which offered to compromise the proceeding by the payment of $50,000 to the plaintiff. Because of that offer and the outcome of the proceeding, under Rule 26.08, the defendants are entitled to costs orders in accordance with that Rule, unless I otherwise order.

10        In this case, I do consider it appropriate to otherwise order and to make the order that I have already mentioned. At the time at which that offer of compromise was received, the defendants had already filed two Affidavits of Documents – on 8 January and 21 February 2008 – which did not include either the reconstructed BAS statements, ultimately discovered, or the correct BAS statements, which were tendered at trial. I consider the taxation and financial records of the first defendant were important documents and essential to a proper evaluation of the case. To omit them from the discovery, albeit the inadequate discovery that had been provided at the time that the offer of compromise occurred, meant that the plaintiff was being asked to assess an offer of compromise on an incomplete and potentially misleading basis. By this I mean that the plaintiff, having received discovery, was entitled to assume that no BAS statements were being relied on by the defendants. The truth of the matter was that finally, on day three of the trial, the defendants would produce BAS statements which proved significant in their defence of the proceeding.

11        The chronology of interlocutory steps in the proceeding, provided to the Court by the plaintiff, reinforces the conclusion as to the unsatisfactory conduct of interlocutory steps by the defendants.

12        This is an unusual case and justifies a departure from the consequences that the offer of compromise would otherwise have had.

13        Counsel for the defendants submitted that discovery of the incorrectly reconstructed BAS statements would only have fortified the plaintiff in its view of the strength of its case and would have been unlikely to have led the plaintiff to accept the offer of compromise. I consider that to accept that submission would involve far too much speculation. Rather, the Court should be alive to the need to ensure that parties conduct litigation and discovery in accordance with the Rules. No doubt from time to time errors occur in the production of documents, but for the error to be perpetuated up to day three of the trial is a highly unusual circumstance.

14        The defendants’ counsel also submitted that the plaintiff’s case involved allegations of a sham and were analogous to allegations of fraud. It was suggested that Mr Wilkinson, an expert witness called on behalf of the plaintiff, had engaged in speculation about the possible combining of accounts as an explanation for the contents of the BAS statement tendered at trial. However Mr Wilkinson made those observations in circumstances where he had never had an opportunity to consider the tendered BAS statements. Therefore, I do not consider that his comments require the application of the principles relating to the award of costs where there has been an unsuccessful allegation of fraud. I also do not consider that those principles should apply at all in this case. The plaintiff’s case was not without substance and ultimately the complexion of the case changed when the tendered reconstructed BAS statements were produced.

15        The orders of the Court are therefore:

(1)	The proceeding is dismissed.
(2)	Subject to Order 3, each party bear its or his own costs of the proceeding.

(3) Order 2 does not affect any order previously made in the proceeding in

respect of costs.

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