BB Harvesting Pty Ltd v Bogan Farms Pty Ltd (No 2)

[2024] VCC 1238

IN THE COUNTY COURT OF VICTORIA

AT MELBOURNE

COMMERCIAL DIVISION

 Revised
Not Restricted
Suitable for Publication

GENERAL LIST

Case No. CI-22-01918

BB HARVESTING PTY LTD	Plaintiff
v
BOGAN FARMS PTY LTD	Defendant

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JUDGE:	HIS HONOUR JUDGE MACNAMARA
WHERE HELD:	Melbourne
DATE OF HEARING:	None.  On the papers
DATE OF JUDGMENT:	15 August 2024
CASE MAY BE CITED AS:	BB Harvesting Pty Ltd v Bogan Farms Pty Ltd (No 2)
MEDIUM NEUTRAL CITATION:	[2024] VCC 1238

REASONS FOR JUDGMENT
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Subject:COSTS        

Catchwords:              Costs – plaintiff entirely successful in its claim – defendant partially successful on counterclaim – whether a single aggregated costs order ought be made or separate orders as to the costs of claim and counterclaim – offer of compromise by defendant more favourable than net outcome for plaintiff – counterclaim successful only on the basis of unforeshadowed evidence by final witness on last day of trial – aggregate order for defendant to pay plaintiff 50 per cent of its costs of and incidental to the proceeding, including claim and counterclaim         

Legislation Cited:      

Cases Cited:Murrihy v Radio 2UE Sydney Pty Ltd [2000] NSWSC 318; David v Abdishou [2007] NSWSCA 90; Molnar v Butas (No 2) [2017] VSC 719; Harrington v Greenwood Grove Estate Pty Ltd (No 2) [2011] NSWSC 1598; Farraday v Rappaport [2007] NSWSC 353; FJ and PN Curran Pty Ltd v Almond Investors Land Pty Ltd (No 2) [2019] VSCA 273; Beoco Ltd v Alpha Laval Co Ltd [1995] QB 137; Bonic v Pacific General Security Limited [2009] NSWSC 1221; Polwood Pty Ltd v Foxworth Pty Ltd (No 2) [2008] FCAFC 168; Motium Pty Ltd v Arrow Electronics Australia Pty Ltd [2009] WADC 184; Eden Productions Pty Ltd v Southern Star Group (No 3) [2003] NSWSC 584 and Bannon v Nauru Phosphate Royalties Trust [2019] VSCA 303; Davis v Robek Australia Pty Ltd [2014] VSC 360; Simply Irresistible Pty Ltd v Couper [2011] VSC 33; A J Lucas Drilling Pty Ltd v McConnell Dowell Constructors (Aust) Pty Ltd (No 2) [2010] VSCA 128; Shaw v Jarldorn (1999) 76 SASR 28

Judgment:                  The defendant must pay 50 per cent of the plaintiff’s costs of the proceeding, including claim and counterclaim to be assessed in default of agreement upon a standard basis    

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff		Mr. G. Lubofsky	Colin Biggers and Paisley
For the Defendant		Mr. J. Castelan	Terrill and Holmes Lawyers

HIS HONOUR:

Background

1On 2 July 2024, I published reasons determining the substantive issues in this proceeding. ([2024] VCC 972)

2The plaintiff, BB Harvesting Pty Ltd (“BBH”), sought payment of amounts said to be outstanding and payable to it by the defendant, Bogan Farms Pty Ltd (“Bogan”) for the provision of harvesting services.  Bogan resisted payment based on a counterclaim composed partly the claim for damages for alleged misleading or deceptive conduct, and partly for damages based on the loss or downgrading of part of its crop by reason of alleged defaults on the part of BBH.

3I upheld the claim under the invoices.  I rejected the claim for damages for misleading or deceptive conduct but allowed the counterclaim for losses or downgrading of BBH’s crop.  I reduced the amount of damages claimed in that regard by 35 per cent based upon a number of attacks mounted upon the assessment of those damages made by Bogan’s agriculture expert.  I reserved costs.

Contentions on behalf of BBH

4BBH’s primary contention was that there should be a global assessment of the relative costs liabilities between the parties rather than an award of costs as to particular parts of the plaintiff’s claim and the defendant’s counterclaim, with BBH being awarded 75 per cent of its costs of the proceeding to be assessed in default of agreement upon a standard basis.

5As a fallback, BBH contended that Bogan ought to be required to pay BBH’s costs of its claim on a standard basis and, as to the counterclaim, either there ought be no order as to costs or that BBH’s liability for the costs of the counterclaim should be assessed on a standard basis “but only from the date of Bogan Farms’ [sic] filing its Further and Better Particulars on 12 March 2024”.

6In the forefront of BBH’s contention made by its counsel, Mr. G. Lubofsky, was the ascertain that Bogan’s counterclaim continually evolved until the final day of trial.  Mr Lubofsky noted that, as initially filed, the counterclaim relative to the crop loss attributed it to delay in carrying out the second stage of the harvest.  Bogan’s expert witness, Mr Hartley, did not support this attribution in his report and the counterclaim then changed to an assertion that the crop loss was caused by a lack of efficiency in the substitute headers engaged by Bogan to complete the work which BBH should have undertaken.

7He said that on 12 March 2024, following Mr Hartley’s report, Bogan filed Further and Better Particulars of loss which attributed the crop loss and stage two of the harvest to the age and lack of efficiency of the substitute headers.  He noted a supplementary report of Mr Hartley was filed as late as 27 May 2024.  He noted that my reasons [128]-[131] rejected this second iteration of the counterclaim.  He noted that the counterclaim was successful as to 65 per cent upon the finding that the substitute headers lacked the horsepower of the BBH units which ought to have been deployed to have completed the harvest.  Also, that grain loss was suffered because these machines with their lesser horsepower could only meet the exigencies of a harvest which needed to be completed promptly to avoid further loss and downgrading of the crop at the expense of a loss of efficiency and increased grain loss.  He said this explanation for the grain loss, which I adopted, was disclosed only on the final day of the trial when a third party witness who operated one of the substitute and less powerful headers, Mr Pack, gave his evidence.  He said that these matters were not foreshadowed in Mr Pack’s outline of evidence.

8At paragraph 15, Mr Lubofsky said:

“In the premises, it is plain that had Mr Pack’s evidence not been given on the final afternoon of trial, Bogan Farms’ counterclaim would have failed absolutely. That is, the evidence led on the final afternoon of the trial, without any prior notice to BB Harvesting, was instrumental in the Court upholding Bogan Farms’ counterclaim. In BB Harvesting’s submissions, this fact is of critical importance in assessing the costs to which Bogan Farms is entitled in respect of that counterclaim.” (Costs Submissions, [15])

9Therefore, said Mr Lubofsky, “Bogan Farms should not get the costs of its counterclaim”.  This flowed, he said, from the principle that the successful party may be deprived of a costs order against an unsuccessful party where the basis of the success is introduced at a late stage, or that the successful party pay the costs of the unsuccessful party prior to the date of the new matter.  He referred to Murrihy v Radio 2UE Sydney Pty Ltd [2000] NSWSC 318 [9]; David v Abdishou [2007] NSWSCA 90; Molnar v Butas (No 2) [2017] VSC 719 [12](f); Harrington v Greenwood Grove Estate Pty Ltd (No 2) [2011] NSWSC 1598; Farraday v Rappaport [2007] NSWSC 353; FJ and PN Curran Pty Ltd v Almond Investors Land Pty Ltd (No 2) [2019] VSCA 273 [26]; and a decision of the English Court of Appeal in Beoco Ltd v Alpha Laval Co Ltd [1995] QB 137, 154; Bonic v Pacific General Security Limited [2009] NSWSC 1221 [14] and Dal Pont Law of Costs (4^th ed, 2018) [8.49].

10He said that Bogan fundamentally changed the basis of its counterclaim less than three months before trial.  The basis of success of the counterclaim, he said, was never pleaded and the evidence relied on was adduced only on the final afternoon of the trial.

11At paragraph 22 of his costs contentions, Mr Lubofsky said:

“The manner in which Bogan Farms case’ changed, and ultimately succeeded, caused BB Harvesting substantial prejudice and wasted costs. Until March 2024, BB Harvesting was preparing for a case based on delay. After Mr Hartley’s report was filed, BB Harvesting spent substantial time (both at trial and in preparation thereto) addressing the question of the age and specifications of the various headers. Substantial time was spent in cross-examining Mr Hartley on the matters raised in his report, much of which was unrelated to the findings ultimately made by the Court.” (Costs Submissions [22])

12Therefore, he said (at [24]), there should be a netting off of costs aggregating the costs of claim and counterclaim.  He referred to Polwood Pty Ltd v Foxworth Pty Ltd (No 2) [2008] FCAFC 168 [12]; Motium Pty Ltd v Arrow Electronics Australia Pty Ltd [2009] WADC 184; Eden Productions Pty Ltd v Southern Star Group (No 3) [2003] NSWSC 584 and Bannon v Nauru Phosphate Royalties Trust [2019] VSCA 303 [326].

13Mounting a pre-emptive strike on the contention that he anticipated would be made on behalf of Bogan, Mr Lubofsky said that despite the offer in the form required by Rule 26.08 of the court’s rules and served on BBH on 9 December 2022 offering to compromise the proceeding for $400,000 plus costs, no award of costs on a full indemnity basis ought be made in favour of Bogan.  He said the court should, as the rules entitled it to do, “order otherwise”. 

14He said that one of the main grounds upon which courts have ordered otherwise:

“is where a party changes its case in a crucial respect after the date of service of the relevant offer. As a matter of common sense, it cannot be unreasonable for a party to reject an offer when the offer is based on a case that does not ultimately proceed to, or succeed at, trial.” (Costs Submissions [31]

15He referred to Dal Pont’s Law of Costs (4^th ed, 2018) [13.43]; Davis v Robek Australia Pty Ltd [2014] VSC 360 [18], [24] and Simply Irresistible Pty Ltd v Couper [2011] VSC 33 [15]-[16] and A J Lucas Drilling Pty Ltd v McConnell Dowell Constructors (Aust) Pty Ltd (No 2) [2010] VSCA 128 [42].

16The offer of compromise, he said, was made at a time when “Bogan Farms was running a counterclaim based on delay”. (Costs Submissions [36])

17Next, he said that the offer of compromise was made “at a very early stage in the proceeding – less than two months after Bogan Farms filed its counterclaim and 16 months before it filed its expert evidence” (Costs Submissions, [37]), leaving BBH in the situation where it could not realistically assess its situation.  Therefore, according to Mr Lubofsky, this was “the clearest case in which the Court should ‘otherwise order’.” (Costs submissions [38])

18In his reply submissions, Mr Lubofsky contended that both with respect to the first settlement offer for $315,000 and the second for $400,000, Bogan had miscalculated the “value” of such offers by calculating interest from the wrong date.  He conceded, however, that:

“… even with interest calculated only to 10 December 2022, BB Harvesting’s entitlements as at 10 December 2022 were $567,422.60, meaning that its overall entitlement at that date of $364,444.19 was less than the $400k Offer.  BB Harvesting therefore accepts that the threshold criteria in r 26.08 are met by the $400k Offer.”

(Reply submissions, paragraph 8)

He said that as at 10 December 2022, it was:

“… not clear why BB Harvesting was obliged to speculate at the time of receiving the offer about the risk of Bogan Farms succeeding on unpleaded allegations that had never been raised with BB Harvesting to that point in time. It cannot be said that BB Harvesting was obliged to compromise on an entitlement that the Court has vindicated because of an allegation that had not been made.”

(Reply submissions, paragraph 15)

Contentions on behalf of Bogan

19Contentions by Bogan’s solicitors stated “Bogan Farms seeks its costs [as to its counterclaim] from the date/s of either of two offers of compromise that were served by it”, (Costs Submission [4]) being an offer made on 26 October 2022 to settle for $315,000 plus costs, or on 9 December 2022 to offer $400,000 plus costs to BBH.  They noted that BBH made only one offer to settle for $540,000 plus costs, such offer made on 9 December 2022.

20The contentions undertook a detailed consideration of the net effect of the outcome of the claim and counterclaim, contending that the result obtained by BBH was not more favourable than either of those offers.

21Accordingly, the usual result as provided by Rule 26.08 should flow, namely that Bogan should have its costs on the counterclaim on a full indemnity basis on and from the failure to accept the offer.  They said that BBH took the risk that its case would fail in a number of respects, and which it ultimately did, and the policy underlying Order 26 of the court’s rules mandated a costs award that they advocated. 

22They conceded that BBH should have the costs of its claim to be assessed on a standard basis in default of agreement.

23In submissions in reply, counsel for Bogan, Mr Castelan, stressed that the issue as to the operation of Rule 26.08(3) was not whether it was unreasonable for BBH to refuse the offer or offers as would be the case if this were an instance of the rejection of a Calderbank offer in the form of a letter.  Rather, the Rule created a presumption in favour of the award of indemnity costs.  Merely to show that the rejection of the offer was unreasonable would not be a sufficient basis for the Court to “otherwise order”.  He referred to the decision of Davis v Robek Aust Pty Ltd [2014] VSC 36 per Daly AsJ and the decision of the Full Federal Court in ISTC Broking Services Ltd v Commissioner of Taxation [2010] FCASC 31 [9] and [12].  He said the reason that Daly AsJ “otherwise ordered” in Davis’s case was quite different from the present situation.  Likewise, Mr Castelan said that the reliance placed by Bogan on Simply Irresistible Pty Ltd v Couper [2011] VSC 33 was unjustified. He said this was an instance where the plaintiff won only nominal damages and was ordered to pay 80 per cent of the defendant’s costs following the rejection of the offer. As to A J Lucas Drilling Pty Ltd v McConnell Dowell Constructors (Aust) Pty Ltd (No 2) [2010] VSCA 128 [42], Mr Castelan said the reason for the Court “otherwise ordering” was because of the uncertainty of the offer and the fact that in complex proceedings the issues had not been adequately identified.

24Accordingly, there is no occasion here, Mr Castelan said, for the Court to “otherwise order”.  He said this was not a case where the basis of Bogan’s counterclaim had entirely shifted.  At all times, it was a claim for Bogan’s grain losses because of the BBH’s failure to complete the harvest.  He referred to particulars given in that respect where the losses were said to be constituted by the costs of advertising for replacement headers and drivers, the costs of the replacement headers and “reduced crop yields and proceeds”.  Therefore, said Mr Castelan, it was incorrect to say that the counterclaim, as originally mounted, was all about “delay”.  He stressed that trials were unpredictable and the fact that matters did not turn out exactly as predicted by one or the other or both parties is not a zone for “otherwise ordering”.  He referred the decision of Perry J in Shaw v Jarldorn (1999) 76 SASR 28, 34. According to Mr Castelan, it was plain to all parties that a grain loss had taken place which must have been attributable to the use of the alternative contractors. He said BBH also took the risk that the risk that Bogan had “called off” the harvest prematurely would not be accepted. He concluded:

“The purpose of the Order 26 costs regime is to promote compromise.  BBH never wanted to compromise.  It now complains that litigation can be uncertain.  That was precisely why it ought to have accepted the $400k Offer.  It should have to pay the costs consequences in line with Rule 26.08(3).”

(Reply Costs submissions, paragraph 20)

Conclusions

25I accept the contention on behalf of BBH that the preferable way of dealing with the costs of the proceeding is upon an aggregate basis.  This avoids the difficult issues of allocation which arise when separate orders are made as to a claim and counterclaim dealt with as part of the same proceeding and determined following a single trial.

26I also accept BBH’s contention that the counterclaim which was successful for crop losses succeeded on a basis which was neither originally pleading nor embodied in the evidence of Bogan’s expert, Mr Hartley. 

27Mr Lubofsky contended that the evidence of Mr Pack, which proved crucial to the success of the counterclaim, was not to be found in the outline of evidence served in accordance with the court’s directions relative to this witness. 

28I am unable to say what was or was not included in Mr Pack’s witness outline because this document was not put into evidence.  I confess to uncertainty as to the purpose and effect of these documents.  They are customarily not put into evidence.  There is no direction to the effect that every material point to be adduced in viva voce evidence from a witness must be contained in such outline.

29Insofar as BBH contends that the evidence which led to the acceptance of Bogan’s counterclaim for crop loss ought to be regarded as the sole basis for the counterclaim’s success, this is an exaggeration. I reached my conclusion based on Mr Pack’s evidence, in combination with the expert opinion evidence given by BBH’s witness, Mr James Burke, to the effect “that units with lesser horsepower [as the substitute non-BBH headers did] … take longer to complete a harvest”. (See [2024] VCC 972, [134])

30As against Bogan, it must also be recalled that a distinct portion of its counterclaim, viz based on alleged misleading or deceptive conduct, was entirely unsuccessful.  BBH’s success as to crop losses was limited to 65 per cent of the amounts claimed.

31Again, at all times during trial, Bogan conceded that there was a net amount payable by it to BBH, which liability was unconditional.  At no stage did it pay that amount but rather sought to hedge any payments which it might make with a requirement that they be accepted in full and final settlement of its liability.

32The particularisation of Bogan’s counterclaim being in effect the costs of obtaining and paying for substitute harvesters was not ultimately part of the damages equation, presumably because it was a “wash”.  That is, had BBH done the entire second stage of the harvest, BBH would have charged at least as much as the substitute or “scratch team” did.  The key and essence of the counterclaim was at all times the alleged grain loss.  What remained uncertain and in dispute is what caused the grain loss.  Was it something that could be attributable to a breach of contract by BBH?  The initial pleaded cause was delay, but Mr Hartley’s expert report discredited this as an intermediate causal factor connecting the grain loss to BBH’s failure to return in full force to complete the harvest.  What emerged ultimately in the manner described above and at greater length in my reasons was that the connecting causal factor – the crucial link – was that the “scratch team” was underpowered and to meet the exigencies of time, had to proceed in a manner which created significant grain loss.  This was the purport of the evidence from one of the team, Mr Pack.  The basis for the counterclaim was at all times loss of grain, but the crucial causal link remained uncertain to the very end. 

33Mr Pack gave evidence only on the last day of the very lengthy trial.  This is a most extraordinary circumstance which justifies the Court in “otherwise ordering”.

34In the circumstances, therefore, I believe the appropriate order as to costs is that Bogan pay 50 per cent of BBH’s costs of the claim and counterclaim to be assessed in default of agreement upon a standard basis.