Bai v Zuo (Costs)
[2022] VCC 368
•25 March 2022
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
Case No. CI-20-01555
| Bai & Anor | Plaintiffs |
| v | |
| Zuo & Anor | Defendants |
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JUDGE: | Her Honour Judge Burchell | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | On the papers; written submissions dated 15, 21 and 23 March 2022 | |
DATE OF RULING: | 25 March 2022 | |
CASE MAY BE CITED AS: | Bai & Anor v Zuo & Anor (Costs) | |
MEDIUM NEUTRAL CITATION: | [2022] VCC 368 | |
RULING
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Subject:COSTS
Catchwords: Whether costs should be paid on a standard or indemnity basis – whether rejection of Calderbank Offer reasonable
Legislation Cited: Civil Procedure Act 2010 (Vic) ss41, 42 and 46; County Court Civil Procedure Rules 2018 rr63A.07, 63A.17, 63A.20.1, 63A.30 and 63A.31
Cases Cited:Calderbank v Calderbank [1975] 3 All ER 333; Xplore Technologies Corporation of America v Tough Corp Pty Ltd [2008] NSWSC 1267; Bao v Qu; Tian (No 2) [2020] NSWSC 588; Aljade and MKIC v OCBC [2004] VSC 351; Oshlack v Richmond River Council (1998) 193 CLR 72; Colgate-Palmolive Co & Anor v Cussons Pty Ltd (1993) 46 FCR 225; IMC Aviation Solutions Pty Ltd v Altain Khuder LLC [2011] VSCA 248; BHP Billiton Olympic Dam Corporation Pty Ltd v Steuler Industriewerke GmbH (No 3) [2012] VSC 414; Protec Pacific Pty Ltd v Steuler Services GmbH & Co KG [No 2] [2015] VSCA 123; Hannover Life Re of Australasia v Colella [2014] VSCA 205; Baygol Pty Ltd v Foamex Polystyrene Pty Ltd [2005] FCA 1089; Neesham v 6PR Southern Cross Radio Pty Ltd (No 2) [2008] WASC 72; Beoco Ltd v Alfa Laval Co Ltd [1995] QB 137; Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) (2005) 13 VR 435; Jacomb v Australian Municipal, Administrative, Clerical and Services Union [2004] FCA 1600; Herning v GWS Machinery Pty Ltd (No 2) [2005] NSWCA 375; Leichhardt Municipal Council v Green [2004] NSWCA 341; Hobartville Stud Pty Ltd v Union Insurance Co Ltd (1991) 25 NSWLR 358
Texts Cited:M Davies et al, Nygh’s Conflict of Laws in Australia (LexisNexis, 10th ed, 2020)
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr A Richardson | J2 Legal |
| For the Defendants | Canaan Lawyers |
HER HONOUR:
Introduction
1On 7 March 2022, I gave summary judgment for the plaintiffs in this matter. I invited the parties to make written submissions on the question of costs to be determined on the papers.
2The plaintiffs seek orders of the Court that:
(a) the defendants pay the plaintiffs’ costs of the summons filed on 8 November 2021, including the hearing on 7 March 2022 on an indemnity basis; and
(b) the defendants pay the plaintiffs’ costs of the proceeding, including any reserved costs, on a standard basis to be taxed in default of agreement up to 15 December 2021 and thereafter on an indemnity basis.
3The defendants submit that the appropriate orders ought to be as follows:
(a) The plaintiffs pay the defendants’ costs thrown away by reason of the amendments to the statement of claim filed 25 January 2022 on an indemnity basis; and
(b) each party otherwise bear their own costs of the proceedings until 25 January 2022 and the defendants shall bear the costs of the proceedings since that date, taxed on a standard basis in default of agreement.
4For the reasons set out below, the plaintiffs ought to pay the defendants’ costs thrown away by reason of the further amended statement of claim on a standard basis to be taxed in default of agreement and in accordance with Judge Ryan’s orders made on 24 January 2022 and the defendants pay the plaintiffs’ costs of and incidental to the proceeding, including their summons filed on 8 November 2021 and any reserved costs, on a standard basis to be taxed in default of agreement.
Procedural History
5On the plaintiffs’ summary judgment application, I accepted that a judgment of the Shenzhen Intermediate People’s Court made on 21 April 2020 in favour of the first plaintiff and the judgment of the Guangzhou Baiyun District People's Court, made on 29 July 2020 in favour of the second plaintiff (“the Chinese judgments”), met the common law criteria for prima facie enforcement in this Court.
6The Court observed that to enforce a foreign judgment at common law, the judgment creditor must bring a fresh action in the appropriate Australian court. There are two bases for a common law action to enforce a foreign judgment.[1] First, the judgment creditor can sue for the judgment amount as a debt in an Australian court. Alternatively, or in addition, the judgment creditor may bring an action in an Australian court on the original cause of action for which judgment was obtained in the foreign court. The judgment creditor can then rely on the foreign judgment as creating an estoppel which prevents the judgment debtor from raising any defence which was or could have been raised in the foreign proceedings.
[1] Xplore Technologies Corporation of America v Tough Corp Pty Ltd [2008] NSWSC 1267 (“Xplore”) at [15]–[19].
7Further, Justice Rothman explained in Bao v Qu; Tian (No 2)[2] citing the text Nygh’s Conflict of Laws in Australia:[3]
At common law, a foreign judgment is prima facie capable of recognition and enforcement if the following requirements have been met:
the foreign court must have exercised jurisdiction of the requisite type over the defendant (also known as jurisdiction “in the international sense”);
the judgment must be final and conclusive;
there must be identity of parties between the judgment debtors and the defendants in any enforcement action; and
the judgment must be for a fixed, liquidated sum.
[2] [2020] NSWSC 588.
[3] M Davies et al, Nygh’s Conflict of Laws in Australia (LexisNexis, 10th ed, 2020).
8The criteria were satisfied:
(a) The foreign court had jurisdiction because the defendants were deemed served within that geographical jurisdiction, and arguably had submitted to the foreign court.
(b) The foreign judgment was decided on the merits and determined matters in controversy between the parties. This holding confirms the view that the foreign analogue of a default judgment may still be “final” for private international law purposes.
(c) The defendants to the Chinese proceedings were the same people defending the current proceedings.
(d) The judgment was for a specified amount.
9The Court considered whether the Chinese judgments’ disposition was obtained by fraud, contrary to Australian public policy and was penal in character. The Court dismissed the defendants’ contentions and made orders for judgment against the defendants to enforce the foreign judgments in the State of Victoria.
Legal Framework
10It is common ground that as a general rule, the Court will order costs to be taxed on the standard basis: O63A r31 of the County Court Civil Procedure Rules 2018 (“Rules”) (see r30 regarding the meaning of “standard basis”). The discretion to make a special costs order is an unlimited one, though it must be exercised judicially and not unreasonably, and the circumstances should be “special”.[4] The usual order as to costs is that costs follow the event, and the successful party is entitled to an award of costs in its favour.[5]
[4] Aljade and MKIC v OCBC [2004] VSC 351 at [10].
[5] Oshlack v Richmond River Council (1998) 193 CLR 72 at [97].
11In Colgate-Palmolive Co & Anor v Cussons Pty Ltd,[6] Justice Shepherd set out many categories of circumstances which will warrant the making of a special costs order:
(a) the making of allegations of fraud knowing them to be false;
(b) the making of irrelevant allegations of fraud;
(c) evidence of particular misconduct that causes loss of time to the court and to other parties;
(d) the fact that the proceedings were commenced or continued for some ulterior motive or with wilful disregard of known facts or clearly established law; and
(e) the making of allegations which ought never to have been made or the undue prolongation of a case by groundless contentions.
[6] (1993) 46 FCR 225 at [23]–[24].
12In the matter of IMC Aviation Solutions Pty Ltd v Altain Khuder LLC,[7] the Court of Appeal also stated that:
Special circumstances may be found where, for instance, the unsuccessful party has made serious unfounded allegations, pursued the proceeding for an ulterior purpose, wasted the court’s time, committed a contempt of court or engaged in some other improper conduct. But in each case it is a question to be determined in the light of the particular facts and circumstances.
[7] [2011] VSCA 248 at [325].
13In considering whether or not a party should have their indemnity costs, the principles that guide the Court are set out in the decision of Justice Habersberger in BHP Billiton Olympic Dam Corporation Pty Ltd v Steuler Industriewerke GmbH (No 3)[8] as follows:
[8] [2012] VSC 414 at [59]–[67] (with reference to Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCoverAuthority (No 2) (2005) 13 VR 435).
First, the fact that a less favourable result is achieved does not give rise to a presumption of a special costs order. The making of an offer and its rejection are “but two albeit important circumstances” to which the Court will have regard in the exercise of its costs discretion.
Secondly, the competing policy objectives relevant to the exercise of the costs discretion are principally the desirability of promoting settlement and reducing litigation costs as against the undesirability of discouraging potential litigants from bringing their dispute to the courts.
Thirdly, the critical question is whether the rejection of the offer was unreasonable in the circumstances. As the Court of Appeal said in Hazeldene:
In our view, these competing considerations can be sufficiently accommodated by applying a test of (un)reasonableness. The critical question is whether the rejection of the offer was unreasonable in the circumstances. We see no justification for a more stringent test such as “manifestly” or “plainly” unreasonable.
Fourthly, a court considering submissions that the rejection of a Calderbank offer was unreasonable should ordinarily have regard at least to the following matters:
the stage of the proceeding at which the offer was received;
the time allowed for the offeree to consider the offer;
the extent of the compromise offered;
the offeree’s prospects of success, assessed as at the date of the offer;
the clarity with which the terms of the offer were expressed; and
whether the offer foreshadowed an application for indemnity costs in the event of the offeree rejecting it.
Fifthly, as the determination of whether it was unreasonable for the offeree to have rejected the offer is made “as at the time, or within a reasonably short time after, the offer” was made,[9] the Court should not too readily embrace submissions that it was inevitable that the proceedings would fail. As Hamilton J put it in Grynberg v Muller:
These submissions focus the bright light of hindsight. Hindsight sings a siren song of which Judges must be cautious …
Sixthly, the onus lies on the offeror to demonstrate the unreasonableness of the offeree’s rejection of the offer. This means that it is necessary to analyse what was proposed.
Seventhly, there is no general rule that the Calderbank offer must set out with specificity the basis for the offeror’s contention that the offeree should accept the compromise. Whether there is a need to do so depends upon a consideration of all of the circumstances existing at the time of the offer.
Eighthly, it is not necessary for the applicant for an indemnity costs order to establish matters which might be relevant to other, well-recognised, grounds for indemnity costs. Such conduct is not a pre-requisite for a finding that the rejection of the Calderbank offer was unreasonable.
Ninthly, an “all in” offer is permitted in a Calderbank offer. (citations omitted)
[9] Australian Competition and Consumer Commission v Australian Safeway Stores Pty Ltd (No 3) [2002] FCA 1294 at [21] per Goldberg J.
14Justice Habersberger’s decision was upheld on appeal to the Court of Appeal: Protec Pacific Pty Ltd v Steuler Services GmbH & Co KG [No 2].[10]
[10] [2015] VSCA 123 at [55].
15The above “principles established by Habersberger J” were referred to by the Court of Appeal in Hannover Life Re of Australasia v Colella[11] without any criticism.
[11] [2014] VSCA 205 at [91].
Submissions
16The plaintiffs rely on two Calderbank letters dated 15 December 2021; one being marked “without prejudice” and the other being an open letter. The letters offered to settle the proceeding by entering summary judgment in the sum of the Chinese judgments plus interest and costs on a standard basis by way of consent orders.
17The offer was open for a period of 14 days, referenced Calderbank and subsequent authorities and warned that the letter would be produced to the Court in the event of an application for costs, including on an indemnity basis, if the plaintiffs happened to be successful. The letter explained the reasons why the defences of res judicata and estoppel were misconceived and doomed to fail. The defendants did not reply to the Calderbank within the 14-day period, or at all.
18The plaintiffs contend that the defendants’ failure to accept the offer was unreasonable for the following reasons:
(a) the terms of the offer were clear;
(b) the period of 14 days for consideration was reasonable;
(c) it represented a genuine and fair offer and the parties’ costs for amended pleadings, summons and hearing would have been avoided;
(d) the Chinese judgments had been discovered and copies were provided to the defendants on 24 November 2021;
(e) the defendants were aware of enforcement of their house in China, having been seized and sold at public auction;
(f) the defendants should have known their defences had poor prosects of success at the date of the offer given the existence of the Chinese judgments; and
(g) the cost consequences of not accepting the offer were foreshadowed.
19In respect of the defendants’ costs thrown away by reason of the amendments to the statement of claim, the plaintiffs say that the costs thrown away are likely to be minimal and shall be taxed on a standard basis. They argue that the amendments went to the removal of the references to conversion of the loan amounts to Australian dollars, correction of grammatical errors and the inclusion of the Chinese judgments and enforcement.
20The plaintiffs rely on the conduct of the defendants in this proceeding, such as their failure to pay their costs order made on 24 November 2021 by Judge Woodward fixed in the amount of $2,750.00 by 20 December 2021 (and further extended to 22 February 2022 by Judge Ryan on 24 January 2022); their failure to make discovery in the proceeding and the deficiencies in their defences and particulars resulting in pleading amendments.
21The defendants contend that they have not obtained a judgment less favourable to it than the terms of the offer contained in the letter dated 15 December 2021 as would be required of a persuasive costs argument based on a rejection of a Calderbank offer.
22The defendants argue that the 15 December 2021 offer requests that the defendants consent to summary judgment in the sums of the Chinese judgments, plus interest and costs on a standard basis. The judgment entered on 7 March 2022 is essentially in the same terms as that provided in the offer.
23Further and in the alternative, the defendants contend that the rejection of the offer was not unreasonable as it was not a genuine compromise.[12] They argue that the offer envisages no compromise and instead merely demands capitulation to the terms agreeable to the plaintiffs.
[12] Baygol Pty Ltd v Foamex Polystyrene Pty Ltd [2005] FCA 1089 per Tamberlin J.
24In respect of the defendants’ costs thrown away by reason of the amendments to the statement of claim, the defendants say that significant costs were thrown away as a result of the amendments to the statement of claim and the nature of the plaintiffs’ cause of action was changed dramatically as a result of the amendments.
25The defendants contend that the original iterations of the claim were made on the basis of the enforcement of and the quantum of the five loan agreements. However, after 24 January 2022, the issue in dispute was changed entirely to the enforcement of a foreign proceeding and, therefore, the pleadings prior applicable were no longer required. The defendants say that none of the substantive pleadings contained in the earlier versions of the defences were at all relevant to the defence of the further amended statement of claim.
26The defendants submit that the costs should be taxed on an indemnity basis as the delay, prolongation, error and waste may trigger a special costs order where they amount to an abuse of process.[13]
[13] Neesham v 6PR Southern Cross Radio Pty Ltd (No 2) [2008] WASC 72.
27The defendants claim that the plaintiffs deliberately misled them regarding the nature of the claim by purposefully hiding the existence of the Chinese judgments until 24 January 2022, as well as failing to comply with procedural requirements such as their failure to file an overarching obligations certificate until 17 February 2022. They contend that this conduct shows entirely unreasonable behaviour and has caused the defendants to incur costs significantly in excess of what they could have reasonably expected.
28The defendants submit that had the plaintiffs claimed to enforce the Chinese judgments from the beginning of the proceedings, they would not have spent a significant portion of time and money to defend what is essentially a hopeless case as any defence that was available in the Chinese proceedings would be estopped in the current proceeding.
29The defendants contend that the general rule that costs follow the event ought not apply in the present case. They say that the plaintiffs succeeded on a late amendment which significantly altered the case without which the plaintiffs would have failed. The defendants claim that they are entitled to the costs of the action until the date of the amendment.[14]
[14] Beoco Ltd v Alfa Laval Co Ltd [1995] QB 137 per Stuart-Smith LJ.
30Further, they argue that the plaintiffs’ claims were unnecessarily complex and brought on multiple issues in which they need only have raised the issue of enforcement of the Chinese judgments and that this resulted in prejudice to the defendants.
31Finally, the defendants rely on the failure of the plaintiffs to file appropriate certifications under ss41 and 42 of the Civil Procedure Act 2010 (Vic) (“CPA”) until 25 January 2022. As such, they rely on s46 of the CPA, that the Court may take into account any failure to comply with the certification requirements of the Act in determining costs in the proceeding generally.
Analysis
32The plaintiffs’ statement of claim dated 8 April 2020 and amended statement of claim filed 26 August 2021 concerned a fresh cause of action for the five loan agreements as a debt in an Australian court. The second further amended defence filed 20 December 2021 raised for the first time the existence of the Chinese judgments to form the basis of a res judicata and issue estoppel defence.
33The plaintiffs filed a further amended statement of claim and amended summons on 25 January 2022 to include alternatively, or in addition, reliance on the Chinese judgments and sought entry of those judgments in this Court.
34Although Judge Ryan granted leave to the plaintiffs to file a further amended statement of claim on 24 January 2022, leave to amend the summons was not granted until the hearing on 7 March 2022. Judge Ryan further ordered that the plaintiffs pay the defendants' costs thrown away, if any, occasioned by reason of the amendment to the statement of claim. The defendants now seek a variation to this costs order such that the plaintiffs pay the defendants’ costs thrown away on an indemnity basis.
35There is no evidence before the Court that suggests that the plaintiffs deliberately misled the defendants regarding the nature of the claim by purposefully hiding the existence of the Chinese judgments until 24 January 2022. The common law entitled the plaintiffs to either sue on the five loan agreements and/or seek to enforce the Chinese judgments.[15] This is what the plaintiffs did in the present case. First, on the five loans as an original cause of action and then subsequently on both grounds. Further, the plaintiffs discovered the Chinese judgments and provided copies to the defendants on 24 November 2021.
[15] Xplore at [16].
36Judge Ryan has already made orders in relation to the costs thrown away and by operation of rr63A.07, 63A.17, 63A.20.1 and 63A.31 of the Rules, the defendants’ costs are on a standard basis to be taxed in default of agreement. I see no grounds for the Court to exercise its discretion to grant indemnity costs. Any set off in relation to costs is a matter for the parties to agree, failing which, will be the subject of taxation in the ordinary course. The application to vary Judge Ryan’s costs orders made on 24 January 2022 is refused.
37In relation to the Calderbank offers, the mere refusal of an offer does not automatically mean that the Court should make an order for costs on an indemnity basis where the ultimate result is less favourable than that contained in the offer: see Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2).[16]
[16] (2005) 13 VR 435 at [18]–[20].
38I accept the plaintiffs’ submissions that the offer was more favourable than the judgment entered in respect of the interest calculation. The offer was for judgment on the Chinese judgments plus interest from the date of the writ. The judgment applied the interest calculations in accordance with the terms of the loan agreements.
39However, the principles are that the offer must be a genuine offer to compromise and there must be some unreasonableness in the refusal to accept: see Jacomb v Australian Municipal, Administrative, Clerical and Services Union.[17]
[17] [2004] FCA 1600 per Crennan J at [6].
40In my view, the letters dated 15 December 2021 were genuine offers to compromise, and they were not invitations to capitulate by discontinuing the proceedings on a basis that the defendants consent to judgment in the form of the Chinese judgments together with interest from the date of the writ and costs on a standard basis.[18]
[18] Herning v GWS Machinery Pty Ltd (No 2) [2005] NSWCA 375 at [5].
41I do not agree with the defendants’ proposition that an invitation by a plaintiff to forgo interest in accordance with its loan agreement is not a genuine attempt to resolve the proceeding by way of compromise for the purposes of considering the consequences of an offer made in a Calderbank letter. Further, in an appropriate case, the giving up by a plaintiff of the opportunity to recover from the defendant the indemnity costs it has incurred in a proceeding, or any costs, can constitute consideration for a compromise which is real, particularly where the costs incurred have been substantial.[19]
[19] Leichhardt Municipal Council v Green[2004] NSWCA 341 (“Leichhardt”).
42The renunciation of an opportunity to apply contractual interest as opposed to interest from the date of issue, in my view, clothes the offer with the cloak of a genuine compromise of substance. As Justice Giles said in Hobartville Stud Pty Ltd v Union Insurance Co Ltd, “compromise connotes that a party gives something away”.[20]
[20] (1991) 25 NSWLR 358 at 368.
43The principal submission, therefore, is whether it was not reasonable for the defendants to ignore the plaintiffs’ offer. In my view, the defendants did not act unreasonably in rejecting the offers. The pleading in relation to the Chinese judgments was not made until 24 January 2022 and both offers were made on 15 December 2021, prior to the claims being made. Leave to amend the pleading to include the Chinese judgments was not sought and obtained by the plaintiffs until the hearing before Judge Ryan.
44I do not accept the defendants’ contentions that, without the further amendments to raise the claim for enforcement of the Chinese judgments, the claim would fail. To enforce a foreign judgment at common law, the plaintiffs may bring a fresh action in an appropriate Australian court on the original cause of action or enforce the foreign judgment as a debt.[21] The amended summons in the alternative sought summary judgment on the five loans, however, it was unnecessary for the Court to consider the alternative limb as the plaintiffs were successful in enforcing the Chinese judgments. It does not follow that the plaintiffs would have failed on the original cause of action.
[21] Xplore at [16].
45Further, I do not accept that, if the plaintiffs had relied on the Chinese judgments from the outset, the defendants would not have had to defend a hopeless case as the Chinese proceedings would have been estopped in the current proceeding. The third further amended defence raised unparticularised allegations of fraud and maintained that the claims in relation to the loans should be stayed or struck out on the grounds of res judicata, issue estoppel or Anshun estoppel.
46Contrary to that submission, the defendants hotly contested the summary judgment application on the basis of the enforcement of the Chinese judgments using all four available defences, claimed the conditions were not satisfied to recognise the foreign judgments and claimed that it was the plaintiffs who were estopped and their claim was subject to res judicata.
47In my view, the plaintiffs’ offer was made prematurely in circumstances where the offer did not relate to the extant pleadings at the time the offer was made and where leave of the Court was required to include the cause of action founded on the Chinese judgments. Therefore, the rejection of the offer by the defendants was not unreasonable.
48The authorities indicate that an award of indemnity costs is given in exceptional circumstances.[22] The circumstances of the present case do not warrant the Court departing from its usual course. Both parties amended their pleadings multiple times. Both parties failed to comply with Court procedure: the defendants in breaching discovery and costs orders, the plaintiffs in failing to file their proper basis certificates until 25 January 2022.
[22] Leichhardt at [45] per Santow JA; Colgate-Palmolive Co & Anor v CussonsPty Ltd (1993) 46 FCR 225 per Sheppard J at 233.
49In light of all the circumstances, the Court’s discretion will not be exercised to depart from the usual order for costs as there are no special or unusual features or special circumstances to elevate the award for costs other than on a standard basis. Further and in the alternative, pursuant to s46 of the CPA, the failure of the plaintiffs to file their appropriate certifications under the Act is relevant to the Court’s discretion on the question of costs.
50The plaintiffs have ultimately been successful in its summary judgment application which has finally disposed of the proceeding. In my view, the usual order that costs follow the event ought to be granted.
Conclusion
51The appropriate orders are that paragraph 8 of the orders of Judge Ryan made on 24 January 2022 is confirmed and the defendants pay the plaintiffs’ costs of and incidental to the proceeding, including their summons filed on 8 November 2021 and any reserved costs, on a standard basis to be taxed in default of agreement.
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Certificate
I certify that these 14 pages are a true copy of the ruling of her Honour Judge Burchell delivered on 25 March 2022.
Dated: 25 March 2022
Andrea Ko
Associate to Her Honour Judge Burchell
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