Bakha Enterprises Pty Ltd v Smith (Ruling)
[2015] VCC 350
•27 March 2015
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMON LAW DIVISION | Revised Not Restricted Suitable for Publication |
GENERAL LIST
Case No. CI-12-05100
| BAKHA ENTERPRISES PTY LTD (ACN 052 486 503) | Plaintiff |
| v | |
| BEVERLEY DAWN SMITH | Defendant |
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JUDGE: | HER HONOUR JUDGE KINGS | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 3 October 2014 | |
DATE OF RULING: | 27 March 2015 | |
CASE MAY BE CITED AS: | Bakha Enterprises Pty Ltd v Smith (Ruling) | |
MEDIUM NEUTRAL CITATION: | [2015] VCC 350 | |
RULING AS TO COSTS
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Subject: COSTS
Catchwords: Indemnity costs – offer of compromise – whether failure to accept offer of compromise was unreasonable – whether offer to capitulate – prospects of success – hindsight
Legislation Cited: County Court Civil Procedure Rules 2008
Cases Cited:Bakha Enterprises Pty Ltd v Smith [2014] VCC 1709; Calderbank v Calberbank [1975] 3 All ER 333; Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) (2005) 13 VR 435; Foster v Galea & Anor (No 2) [2008] VSC 331; Smith v Jovanoska & Anor (No 2) [2013] VSC 714; Grbavac v Hart [1997] 1 VR 154; Aljade and Malaysian Kuwaiti Investment Co SDN BHD (MKIC) v Oversea-Chinese Banking Corp Ltd [2004] VSC 351; Commissioner of State Revenue v Challenger Listed Investments Ltd (No 2) [2011] VSCA 272; Berrigan Shire Council v Ballerini (No 2) [2006] VSCA 65
Ruling: Defendant succeeds on her application for indemnity costs from 12 July 2013. Prior to that, plaintiff to pay defendant’s costs on a party-party basis to the date of the Offer of Compromise.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr T D Best | De Wet Partnership |
| For the Defendant | Mr J McKay | Michael Benjamin & Associates |
HER HONOUR:
1 On 17 October 2014, I handed down Reasons for Judgment in this matter.[1] The plaintiff’s case was dismissed. The defendant seeks an order for her costs of and incidental to the proceeding.
[1]Bakha Enterprises Pty Ltd v Smith [2014] VCC 1709
2 The defendant relies upon two settlement offers, being:
(a) An Offer of Compromise dated 12 July 2013 made pursuant to Order 26 of the County Court Civil Procedure Rules 2008 (“the Rules”) (“the Offer of Compromise”); and
(b) An offer dated 27 September 2013 made pursuant to the principles applied in Calderbank v Calberbank[2] (“the Calderbank offer”).
[2][1975] 3 All ER 333
3 Neither offer was accepted by the plaintiff. Accordingly, the defendant seeks costs on an indemnity basis from 12 July 2013 or, alternatively, 27 September 2013.
The Offer of Compromise
4 The Offer of Compromise was in the following terms:
(a) The defendant pay the plaintiff the sum of $6,000 plus party-party costs according to the Rules;
(b) The offer was made in full and final settlement of all the plaintiff’s claims and all of the defendant’s claims in the proceeding. It was open for seventeen days.
The Defendant’s submissions
5 Counsel for the defendant put forward several submissions in support of its application for indemnity costs. The defendant submits that the plaintiff’s refusal to accept the Offer of Compromise was unreasonable.
6 The plaintiff’s case at trial was that a contract for the sale of land was formed without formal exchange of contracts, and without payment of a deposit. Counsel for the defendant submitted that all relevant communications between 24 August 2011 and 17 November 2011, as set out in my Reasons for Judgment (being the communications between the parties which were said to evidence the contract), were well known to the parties from the outset.
7 Counsel for the defendant drew attention to the fact that discovery had occurred by 7 May 2013, which was over two months before the Offer of Compromise. If there were further documents that the plaintiff needed to clarify its position, they were available by the time the plaintiff came to consider the Offer of Compromise.
8 The Offer was made approximately three months before trial, which was appropriate timing in all the circumstances.
9 Counsel submitted that the nature of the case run by the plaintiff was a particularly difficult case, and it ought to have been known to the plaintiff that its prospects of success at trial were questionable at best. The Offer of Compromise represented an opportunity for the plaintiff to extract itself from the litigation. The Offer was such that the plaintiff would have been paid its costs and a modest sum as compensation for expenses allegedly wasted in connection with the transaction.
10 Finally, counsel submitted that the offer was clear in its terms; it was open for acceptance for a reasonable period, being seventeen days.
The Plaintiff’s submissions
11 Counsel for the plaintiff submitted that the Offer of Compromise was sent at an early stage in the proceeding; the issues between the parties were still extant and the prospects of the defendant’s success were not apparent at that stage.
12 Counsel for the plaintiff relied on the following matters, based on the considerations raised in Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2):[3]
[3](2005) 13 VR 435
(a) It was not unreasonable for the plaintiff to reject the Offer of Compromise given the stage of the proceedings at which the offer was received;
(b) The plaintiff’s prospect of success could not reasonably be assessed at the date of the offer;
(c) The offer was made prematurely.
13 In particular, counsel noted that –
(i) Orders for further discovery and exchange of witness statements were made on 9 July 2013;
(ii) The plaintiff was required to change solicitors on 31 July 2013;
(iii) An expert report was not obtained until 2 August 2013;
(iv) Mediation was not completed until 9 September 2013;
(v) Further discovery was not completed until late September 2013;
(vi) The Notice of Defence contained bare denials, and a Notice to Admit was served by the plaintiff in September 2013.
14 Counsel for the plaintiff also submitted that the extent of the compromise allowed, being $6,000 plus costs, appeared to be a token offer, and it was an offer to capitulate.
15 Counsel for the plaintiff submitted that the case eventually turned upon findings of fact and credit. The findings of fact related to the question of whether there had been agreement between the parties on all terms for a concluded contract and/or whether there had been misleading and deceptive conduct on the part of the defendant.
Legal principles
16 Both parties accepted that at the date the Offer of Compromise was served, the Rules did not expressly provide for the consequences of a plaintiff rejecting a defendant’s offer of compromise in circumstances where the plaintiff failed in its claim; that is, where the case was dismissed or judgment was entered for the defendant. In such circumstances, the Rules were silent as to how offers of compromise were to be treated.[4]
[4] This was rectified on 7 October 2013 by Regulation 122/2013, which inserted Rule 26.08(4) into the Rules (“the new Rule”). The new Rule sets out the consequences where a plaintiff “unreasonably fails to accept” a defendant’s offer of compromise, and the claim to which the offer relates is dismissed or judgment entered in favour of the defendant. The new Rule provides that “unless the Court otherwise orders” the defendant shall be entitled to have its costs taxed on an indemnity basis. The new Rule does not apply retrospectively.
17 It was accepted that the Offer of Compromise is to be determined in accordance with the law that applied as at 12 July 2013 when the offer was served. A number of authorities have determined that, in circumstances such as the present, an offer of compromise should be treated in the same way as a Calderbank offer.
18 In Foster v Galea & Anor (No 2),[5] Byrne J dealt with a costs application where the plaintiff’s case was dismissed and the plaintiff had rejected an offer of compromise from the defendant. He applied the test laid down by the Court of Appeal in Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) (Hazeldene’s Case).[6] It was held that the plaintiff had acted unreasonably in rejecting the offer of compromise, and a special costs order was made from the date of the offer.
[5][2008] VSC 331
[6](2005) 13 VR 435
19 More recently, this was the position adopted by Associate Justice Zammit in Smith v Jovanoska & Anor (No 2).[7] I accept that the principles set out in Hazeldene’s Case are applicable to an offer of compromise.[8] Further, I am not precluded from taking into account any other matter I consider relevant, given that my discretion as to costs is unfettered.[9]
[7][2013] VSC 714
[8]Smith v Jovanoska & Anor (No 2) [2013] VSC 714 at paragraph [13]
[9]Smith v Jovanoska & Anor (No 2) (supra) at paragraph [14]
20 In Hazeldene’s Case,[10] the Court of Appeal cited with approval the policy objectives set out by Hayne JA in Grbavac v Hart[11] in respect of the rejection of an offer of compromise. In summary, the policy rationale is to encourage the saving of private costs and the avoidance of the inherent risks, delays and uncertainties of litigation by promoting early offers of compromise by defendants; to save the public costs which are necessarily incurred in litigation, which events demonstrate have been unnecessarily incurred; and to indemnify the defendant who has made the offer later found to have been reasonable against the costs later incurred.[12]
[10](2005) 13 VR 435 at paragraph [21]
[11][1997] 1 VR 154 at 164
[12]Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) (supra) at paragraph [21]
21 The Court of Appeal noted that there were competing objectives of equal importance, citing Redlich J in Aljade and Malaysian Kuwaiti Investment Co SDN BHD (MKIC) v Oversea-Chinese Banking Corp Ltd,[13] who said:
“… Potential litigants should not be discouraged from bringing their dispute to the Courts. It is such considerations which underlie the general rule that an order for special costs should only be made in special circumstances.”
[13][2004] VSC 351 at paragraph [60]
22 The Court of Appeal took the view that the competing policy objectives are embodied in a test of “(un)reasonableness”.[14] The critical question is whether the rejection of the offer was reasonable or not, in the circumstances.
[14]Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) (supra) at paragraph [23]
23 When considering a submission that the rejection of a Calderbank offer was unreasonable, the Court should ordinarily have regard at least to the following matters:
“(a)the stage of the proceeding at which the offer was received;
(b)the time allowed to the offeree to consider the offer;
(c)the extent of the compromise offered;
(d)the offeree’s prospects of success, assessed as at the date of the offer;
(e)the clarity with which the terms of the offer were expressed;
(f)whether the offer foreshadowed an application for indemnity costs in the event of the offeree’s rejecting it.”[15]
[15]Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) (supra)
24 However, the exercise is one of discretion, and the Court of Appeal said it was neither possible nor desirable to give an exhaustive list of circumstances. The Court of Appeal was providing a guide as to the matters the trial judge should ordinarily have regard to, in addition to such other matters as the judge might consider relevant. It is for the judge to give such weight, if any, as seems appropriate.[16]
[16]Foster v Galea (No 2) [2008] VSC 331 at paragraph [9]
25 The assessment is made at the time at which the offer was made and not with the benefit of hindsight, in particular, after a contested trial in which the facts have been the subject of detailed evidence.[17] The question must be determined based on the information available to the plaintiff at the time the offer was made.
[17]Eshuys v St Barbara Ltd (No 2) [2011] VSC 150 per Kaye J
26 The rejection of the Calderbank offer alone does not create a presumption in favour of a special costs order if the offeree received a less favourable result.[18] The correct approach is to treat the rejection of a Calderbank offer as a factor to which the Court should have regard to when considering whether to order indemnity costs.[19]
[18][2005] VSCA 298
[19]Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) (supra) at paragraph [20]
27 In relation to an offer that can be described as an invitation to capitulate, the Court of Appeal in Commissioner of State Revenue v Challenger Listed Investments Ltd (No 2),[20] said:
“There is authority to the effect that where the offer does not involve a genuine compromise, but is in fact either an invitation to capitulate or a derisory or nominal offer, it would not be unreasonable for the losing party to have rejected it.”
[20][2011] VSCA 272 at paragraph [13]
28 In particular, the Court of Appeal referred to Berrigan Shire Council v Ballerini (No 2).[21] Callaway JA observed that the treatment of Calderbank offers depends on whether the rejection was unreasonable in the circumstances. In that case, the offer was an offer to walk away. Callaway JA characterised it as a demand to capitulate that could reasonably be rejected.[22]
[21][2006] VSCA 65
[22]Chernov JA and Nettle JA in effect agreed with the observations made by Callaway JA. That case involved a claim for damages by a plaintiff for personal injury; however, the trial was before a judge alone.
Analysis
29 In my view, and for the following reasons, I accept it was unreasonable for the plaintiff not to accept the Offer of Compromise dated 12 July 2013.
The Plaintiff’s claim in contract
30 The plaintiff’s claim was that a contract for sale of land was formed without formal exchange of contract documents. The contract claim was a “documents case” and comprised letters, documents and emails between Mr Howe (the plaintiff’s accountant) and the defendant, as well as correspondence between the plaintiff’s solicitor and the defendant’s conveyancer. To the extent that the case involved the finding of facts, it was limited and based upon the communications between the parties and their respective legal representatives.
31 Discovery had occurred by 7 May 2013. On 9 July 2013, orders allowed for further discovery and exchange of expert reports over the following four weeks.
32 The Orders dated 9 July 2013 permitted or required only the plaintiff to make further discovery. The defendant was not ordered to do so. Counsel for the plaintiff drew attention to the defendant’s Supplementary Affidavit of Documents filed on 20 September 2013 (which included the defendant’s conveyancing file); however, the fact is that there was no order for the defendant to make further discovery when the offer of 12 July 2013 was made.
33 Counsel for the plaintiff submitted that the Notice of Defence contained bare denials and that it necessitated filing a Notice to Admit in September 2013. Counsel submitted this showed that significant facts were in dispute at the time the offer was made in July 2011.
34 I do not accept this submission for the plaintiff. Upon examining the original Notice of Defence filed, it is clear that important admissions were made by the defendant. The defendant admitted generally to communications having occurred between the defendant and the accountant, Mr Howe, and also between the parties’ legal representatives. Furthermore, the Notice of Defence admitted emails and correspondence on certain dates referred to in the Statement of Claim.[23] I take the view that the critical facts (set out in documents) which eventually sealed the plaintiff’s fate at trial were known by the plaintiff at the time the Offer of Compromise was made. The plaintiff was able to reasonably assess its contract claim as at the date of the Offer of Compromise in July 2013. I find there was no further discovery required or expected of the defendant at that time.
[23]The documents admitted in the original Notice of Defence are: email to the defendant from Mr Chris Howe dated 23 August 2011; email from the defendant dated 24 August 2011; letter from Milner Conveyancing dated 15 September 2011; letter to Milner Conveyancing dated 13 October 2011; letter to Milner Conveyancing dated 14 October 2011; letter from Milner Conveyancing dated 19 October 2011; letters sent to and from Milner Conveyancing dated 26 October 2011; letter from Milner Conveyancing dated 17 November 2011; letter to Milner Conveyancing dated 29 November 2011; letter from Milner Conveyancing dated 6 December 2011 and letter to Milner Conveyancing dated 14 December 2011.
35 The plaintiff says it was still in a state of uncertainty as to the facts, and so it filed a Notice to Admit in September 2013. The plaintiff submits that the Notice to Admit is evidence of material facts that were still in issue after the Offer of Compromise had been made. Upon examining the Notice to Admit, it is apparent that, among other things, it refers to certain emails and documents that were previously admitted in the defendant’s Notice of Defence.[24] Furthermore, in its Notice in Dispute, the defendant did not dispute the authenticity of the documents referred to. The defendant disputed certain allegations put forward by the plaintiff in the Notice to Admit. However, I was not directed to a specific fact (or facts) in the defendant’s Notice in Dispute which prevented the plaintiff from making a reasonable assessment of the Offer of Compromise in July 2011.
[24]The documents referred to in the Notice to Admit that were previously admitted in the Notice of Defence are: email to Mr Howe dated 24 August 2011; letter to Milner Conveyancing dated 13 October 2011 and letters to Milner Conveyancing dated 14 October 2011, 17 November 2011 and 29 November 2011.
36 I accept the nature of the contract claim run by the plaintiff was affected by significant difficulties. It ought to have known that its prospects of success were limited as at the date the Offer of Compromise was made.
The Plaintiff’s claim for misleading and deceptive conduct
37 The plaintiff’s misleading and deceptive conduct claim as at 12 July 2013 was based on the ‘Contract Representation’ as it was referred to in the Statement of Claim. Therefore, the prospects of success of the misleading and deceptive conduct claim were largely tied to the contract claim. Based on my findings that the contract claim had a limited prospect of success as at 12 July 2011, it is clear the alleged ‘Contract Representation’ also had a limited prospect of success. The Amended Statement of Claim was not filed until the day of trial.
Expert report
38 As to the submission in respect to the engagement of an expert in July 2013, any expert report could only have been of relevance if the Court had determined there was a contract between the parties.
Change of solicitors
39 I accept that on 31 July 2013, there was a change in legal representation of the plaintiff at the request of the defendant’s solicitor. The defendant contended that the plaintiff’s former solicitors had a conflict of interest. If there was a delay in considering the Offer of Compromise, that was not presently raised before me. In any event, if the change of solicitors was an issue in the timing of the acceptance of the Offer of Compromise, it would have been appropriate for an extension of time for the consideration of the Offer of Compromise to be sought. There was no indication that an extension of time had been sought.
Mediation
40 The fact that mediation did not occur until 9 September 2013 is not a matter that I would take into consideration given the circumstances at the stage of the proceeding at which the offer was received. The fact that the parties were yet to undertake mediation does not assist the plaintiff with respect to its present submissions. The critical documents and facts were before the parties. Given my findings above, it was not reasonable for the plaintiff to wait until mediation to attempt to settle the proceeding.
Terms of the Offer of Compromise
41 I accept that the Offer of Compromise provided a modest sum as compensation for the plaintiff’s expenses wasted in connection with the transaction. The plaintiff would have been paid its costs had it accepted the Offer of Compromise at that time. I do not accept that the Offer amounted to a capitulation given the circumstances of the case. The Offer was more than a simple offer to walk away.
42 I take the view that the Offer was clear in its wording, and relevantly, made reference to Order 26 of the Rules.
43 The defendant succeeds on her application for indemnity costs from 12 July 2013. Prior to that, the plaintiff is to pay the defendant’s costs on a party-party basis to the date of the Offer of Compromise.
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