Break Fast Investments v Rigby Cooke (costs)
[2021] VSC 603
•21 September 2021
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
PROFESSIONAL LIABILITY LIST
S CI 2013 02758
| BREAK FAST INVESTMENTS PTY LTD (ACN 090 648 990) | Plaintiff |
| v | |
| RIGBY COOKE LAWYERS (A FIRM) (ABN 58 552 536 547) AND ANOR | Defendant |
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JUDGE: | MACAULAY J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | On the papers |
DATE OF RULING: | 21 September 2021 |
CASE MAY BE CITED AS: | Break Fast Investments v Rigby Cooke (costs) |
MEDIUM NEUTRAL CITATION: | [2021] VSC 603 |
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COSTS ─ Whether unsuccessful plaintiff should pay costs on indemnity basis after the delivery of a Calderbank letter ─ Where successful defendant had offered to bear own costs if plaintiff discontinued proceeding ─ Whether plaintiff’s rejection of the offer was unreasonable in all the circumstances ─ Court not persuaded plaintiff’s rejection of the offer was unreasonable ─ Application for indemnity costs refused ─ Hazeldene’s Chicken Farm v VWA (No 2) (2005) 13 VR 435 and Commissioner of State Revenue v Challenger Listed Investments Ltd (No 2) [2011] VSCA 398 applied.
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Representation: | Counsel | Solicitors |
| For the Plaintiff | Mr P Collinson QC with Ms E Dias | Sinisgalli Foster Legal |
| For the Defendant | Mr S Horgan QC with Ms G Berlic | Lander & Rogers |
HIS HONOUR:
Following the trial of this proceeding, on 2 July 2021 I made orders giving judgment for the first defendant, Rigby Cooke, the claim against the second defendant having previously been resolved. While there is no dispute that costs should follow the event and that the plaintiff, Break Fast, should pay Rigby Cooke’s costs, Rigby Cooke applied for an order for indemnity costs for the period following its delivery of a Calderbank letter on 4 May 2020 (‘the Calderbank letter’) containing an offer to resolve the proceeding which Break Fast (at least implicitly) rejected. Break Fast has opposed that application.
In Hazeldene’s Chicken Farm Proprietary Limited v Victorian WorkCover Authority (No 2)[1] (‘Hazeldene’s Chicken Farm v VWA (No 2)’) the Court of Appeal held that in exercising its discretion whether a party should pay costs on an indemnity basis following the rejection of a Calderbank offer the critical question is whether the rejection of the offer was unreasonable in the circumstances.[2] For reasons which follow, I am not persuaded that it was unreasonable for Break Fast to reject the offer that was contained in the Calderbank letter and, it follows, I will order that Break Fast pay Rigby Cooke’s costs of the proceeding on a standard basis only.
[1](2005) 13 VR 435.
[2]Hazeldene’s Chicken Farm v VWA (No 2) 441 [23].
By the terms of the Calderbank letter, Rigby Cooke offered to bear its own legal costs incurred to the date of the letter in exchange for Break Fast discontinuing the proceeding. Had the offer been accepted, the amount Break Fast paid for security for costs would also have been returned to it.
Rigby Cooke set out reasons why it considered that Break Fast would fail on each of the four causes of action which were contained in the version of the statement of claim current on that date. Each cause of action provided a different legal basis for Break Fast contending that it was entitled to compensation for having paid (or incurred a liability to pay) fees and costs associated with earlier litigation. Following the Calderbank letter, Break Fast amended its statement of claim to delete two of the causes of action but it retained the causes of action upon which it ultimately failed at trial, namely breach of fiduciary duty and knowing receipt of monies paid in breach of trust.
In Hazeldene’s Chicken Farm v VWA (No 2) the Court of Appeal identified six matters which a court considering a submission that the rejection of a Calderbank offer was unreasonable should ordinarily have regard to.[3] Those matters are well-known and I will not repeat them. In its submission before me Rigby Cooke addressed each of those six matters but, appropriately, emphasised that the issue always remained one of discretion which should be unfettered.
[3]Hazeldene’s Chicken Farm v VWA (No 2) 442 [25].
Rigby Cooke submitted that:
(a) the offer was made at a time when the trial of the proceeding was imminent (although the trial was subsequently delayed when the amendments to the statement of claim that I have mentioned before were made) and when Break Fast was in a position to make a well-informed assessment of its prospects of success;
(b) the time allowed to Break Fast to consider the offer was sufficient;
(c) the terms of the offer were expressed with clarity; and
(d) the offer foreshadowed an application for indemnity costs in the event that Break Fast rejected it.
None of those matters were in dispute before me.[4]
[4]Excepting, perhaps, that Break Fast pointed out that Rigby Cooke’s offer contained no proposal regarding the resolution of the contribution proceeding brought against Rigby Cooke by the second defendant in circumstances where the proceeding against the second defendant was not resolved.
The two contentious matters were the extent of the compromise that was offered and Break Fast’s prospects of success when assessed at the date of the offer.
As to the extent of the compromise that was offered, Rigby Cooke addressed the argument it expected to be raised against it, namely that an offer to discontinue a proceeding on the basis that the parties bear their own costs (commonly called a ‘walk away’ offer) was usually construed as a mere demand to capitulate and not a serious endeavour to resolve the proceeding.[5] Rigby Cooke stressed that such a statement could not be interpreted as an inviolable principle as to do so would fetter the discretion and that each case had to be assessed on its own facts and circumstances.
[5]Commissioner of State Revenue v Challenger Listed Investments Ltd (No 2) [2011] VSCA 398, [17].
Rigby Cooke argued that in this particular case, the sheer period of time over which the proceeding had been running (ie, since 2013) and the scale of the interlocutory process (four pleading amendments, substantial discovery and three trial date listings) meant that the circumstances were ‘exceptional’ and that the offer to avoid the future cost risk to Break Fast represented a genuine compromise and not merely a demand to capitulate.
As for Break Fast’s prospects of success, Rigby Cooke contended that by its Calderbank letter it had set out, in substance, the reasons why Break Fast would lose its causes of action. Rigby Cooke further contended that the reasons it had set out were in large part the same reasons that the Court gave for dismissing the claims.
I shall deal first with Break Fast’s prospects of success judged at the time of the offer and without using the benefit of hindsight (knowing the outcome).[6] The issues involved in the resolution of the claims were complex legally and factually as the reasons for judgment confirm. My conclusions reached on the breach of fiduciary duty case and the knowing receipt claim were reached after addressing serious and worthy arguments from both sides. Rigby Cooke argued that Break Fast was ‘always facing an insurmountable hurdle’ on the question of causation due to the difficulty of establishing what Break Fast would have done differently had it been independently advised. In my view this argument overstates the position. I made my decision based upon particular inferences that I drew from the facts. What the relevant facts were and what inferences should be drawn from them was not only contested but in my view reasonably contestable.
[6]Williams v Katis (Costs Ruling) [2014] VSC 471, [22]-[23].
Turning to the extent of the offer, I do not agree that the walk away offer in this case was anything more than an demand to capitulate. Assessed in the circumstances of this case, the offer was not a serious endeavour to resolve the proceeding or, put another way, it did not represent a genuine compromise of the proceeding assessed at that time. The proceeding was a claim for a sum in the order of $2.7m[7] together with some yet-to-be-assessed costs associated with the underlying litigation, plus interest. Despite the fact, as the parties now know, that Break Fast lost the case, Break Fast’s case was not then (nor was it at trial) a hopeless one nor was it brought in bad faith.
[7]At the time of the trial, the parties had agreed to a gross figure, taking account of various considerations, of $1.6m.
In the context of a case which was not hopeless and therefore had arguable merit and was potentially worth several millions of dollars, it is difficult to interpret an offer that involved no more than relieving the plaintiff of paying legal costs as amounting to a genuine compromise of the parties’ prospects of winning or losing the action when assessed at the time the offer was made. I do not regard the dimension of the litigation process leading up to the offer, and the consequential dimension of the likely cost liability, as constituting exceptional circumstances in this case such as to convert what would usually be regarded as a demand to capitulate into a genuine endeavour to compromise the proceeding.
As previously stated, I am not persuaded that it was unreasonable for Break Fast to have rejected the offer contained in the Calderbank letter. I will order that Break Fast pay Rigby Cooke’s costs of the proceeding on a standard basis.
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