Burn v Short and Short Management Pty Ltd (in liquidation)

[2013] NSWLC 15

Local Court

New South Wales

Medium Neutral Citation:	Burn v Short and Short Management Pty Ltd (in liquidation) [2013] NSWLC 15
Hearing dates:	Written submissions
Decision date:	20 September 2013
Jurisdiction:	Civil
Before:	Magistrate Greenwood
Decision:	Costs finding for the first defendant against the second defendant
Catchwords:	COSTS - indemnity costs - Calderbank letters - offers of compromise - Bullock and Sanderson orders
Legislation Cited:	Civil Procedure Act 2005 Local Court Act 2007 Uncollected Goods Act 1995 Uniform Civil Procedure Rules 2005
Cases Cited:	Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runoff Ltd (No 2) [2009] NSWCA 12 Bostik Australia Pty Ltd v Liddiard (No 2) [2009] NSWCA 304 Bullock v London General Omnibus Company [1907] 1 KB 264 Calderbank v Calderbank [1975] 3 All ER 333 Coombes v Roads and Traffic Authority [2007] NSWCA 70 Gould v Vaggelas (1985) 157 CLR 215 Griffith v Australian Broadcasting Corporation (No 2) [2011] NSWCA 145 Howitt v W Alexander & Sons Ltd [1948] SC 154 Jamal v Secretary Department of Health (1988) 14 NSWLR 252 James v Surf Road Nominees Pty Ltd (No 2) [2005] NSWCA 296 Jones v Bradley (No 2) [2003] NSWCA Laguillo v Haden Engineering Pty Ltd [1978] 1 NSWLR 306 MM Constructions (Aust) Pty Ltd v Port Stephens Council (No 7) [2012] NSWSC 250 Morgan v Johnson [1998] 44 NSWLR 578 Perpetual Trustees Victoria Limited v Cipri [2009] NSWSC 335 Regency Media Pty Ltd v AAV Australia Pty Ltd [2009] NSWCA 368 Roads and Traffic Authority of NSW v Dederer (2007) 234 CLR 330 Sanderson v Blyth Theatre Co [1903] 2 KB 533 Whitney v Dream Developments Pty Ltd [2013] NSWCA 188
Texts Cited:	Civil Trials Bench Book, Judicial Commission of NSW
Category:	Costs
Parties:	John Burn (plaintiff)
Representation:	Plaintiff: Mr G Casey, Garden & Montgomerie Solicitors 1st defendant: Ms M Rockliff, Rockliffs Solicitors 2nd defendant: No defence filed – not represented
File Number(s):	2011/146495

Judgment

Background

1. Judgment was delivered in the related substantive proceedings between the parties on 5 July 2013. The case concerned dismantled carnival equipment (the goods) left at Mr Burn's property in Canowindra. Mr Burn was the plaintiff, Mr Short the first defendant and Short Management Pty Ltd, in liquidation (the company), was the second defendant. The company did not appear in the proceedings.

1. After hearing, I made the following orders on 5 July 2013:

• the owner of the goods, the second defendant, is to pay damages in the sum of $100 plus interest from 1 October 2010,
• the second defendant is to pay the plaintiff's costs as agreed or assessed, and
• the registrar is to provide a copy of this decision to the liquidator of Short Management Pty Ltd, Mr Nigel Markey of Pilot Partners, Level 10, 1 Eagle Street Brisbane QLD 4000.

1. Mr Short then sought to make submissions as to a controlled money account and his costs. All parties were invited to make submissions on these issues and Mr Short and Mr Burn did so, but not the company.

Controlled money account

1. Rockliffs Solicitors (Rockliffs) holds a controlled money account in the name of Rockliffs and Garden & Montgomerie as trustees for Mr Burn and Mr Short. In his submissions, Mr Burn enclosed correspondence agreeing to the release of the moneys held in the above account to Mr Short, as sought by him. Consequently, no orders need be made in respect of the controlled money account.

The costs correspondence

1. The costs history of the matter concerning Mr Short is as follows:

(a)   On 9 May 2011 Rockliffs, acting for the company, wrote to Mr Burn seeking possession of the goods.

(b)   On 16 May 2011 Garden & Montgomerie Solicitors (Garden & Montgomerie) acknowledged the letter and advised legal proceedings had commenced. A statement of claim was served, naming Mr Short as the defendant.

(c)   On 16 May 2011 Rockliffs wrote to Garden & Montgomerie advising that the wrong party had been sued and offered for proceedings against Mr Short to be discontinued with no order as to costs. The offer was open for 21 days. Mr Short says this is the first Calderbank letter¹ and Mr Burn did not respond.

(d)   On 11 April 2013 Rockliffs sent a second Calderbank letter, open for 28 days and to which there was no response, offering that:

(i)   Mr Short pay Mr Burn $10,000, and

(ii)   Mr Short pay Mr Burn's costs in accordance with Practice Note Civ 1, the Civil Procedure Act 2005 and the Local Court Act 2007.

(e)   On 11 April 2013 Rockliffs served an Offer of Compromise on Garden & Montgomerie, open for 28 days and to which there was no response, offering to resolve the proceedings on the following terms:

(i)   Mr Short would pay Mr Burn $10,000, and

(ii)   Mr Short would pay Mr Burn's costs as agreed or assessed in accordance with Practice Note Civ 1, the Civil Procedure Act 2005 and the Local Court Act 2007.

Mr Short's submissions

1. Mr Short asserts that, as he was successful in defending the claim against him, he is entitled to a costs order against Mr Burn. Mr Short notes that costs follow the event (UCPR 42.1) and he claims the following in respect of a special costs order.

1. UCPR 42.15 should apply to the first Calderbank letter and Mr Burn should pay Mr Short's costs on a party-party basis up to 16 May 2011 and then on an indemnity basis from 17 May 2011. In the alternative, Mr Short relies on the second Calderbank letter and says Mr Burn should pay Mr Short's costs on a party-party basis up to 11 April 2013 and then on an indemnity basis from 12 April 2013.

1. Further in the alternative, Mr Short relies on the offer of compromise to make an indemnity costs order. He says that where an offer of compromise is not accepted and the outcome is no less favourable to the defendant than the terms of the offer, the defendant is entitled to costs on an ordinary basis up until the day of the offer and on an indemnity basis from the day after the offer was made (UCPR 42.15). That is, there is a presumption that an indemnity costs order will be made unless the court is satisfied otherwise.

1. Mr Short says the law is that when the relevant cost rule is engaged, a party is entitled to indemnity costs from a specified time, usually one day after an offer of compromise is made unless the court orders otherwise. There is no requirement that exceptional circumstances be established, but the discretion is to be exercised having regard to all the circumstances of the case.²

1. Mr Short says those circumstances are that the matter had a long history, including at least one interlocutory appeal to the Supreme Court and each party knew well the case they had to meet. Further, the offer was made in the shadow of the hearing and Mr Short's offer incorporated a real and genuine element of compromise³ by offering to pay Mr Burn $10,000 plus costs.

1. Given that the purpose of Calderbank letters and offers of compromise are to encourage the settlement of litigation to benefit both litigants and the public interest,⁴ Mr Short claims it was entirely appropriate for an offer to be made prior to the service of evidence, especially because of the number of affidavits already filed by both parties during interlocutory steps.

1. Mr Short said that Mr Burn was informed at the outset that the company owned the goods and it was therefore unreasonable for Mr Burn to reject the first Calderbank letter. In the alternative, Mr Short says that Mr Burn had all relevant information available to him at the time of the offer of compromise and second Calderbank letter.

Mr Burn's submissions

1. Mr Burn does not dispute the submissions as to the law around costs made by Mr Short, but he notes the discretionary nature of costs orders and says that no order as to costs should be made concerning the dispute between Mr Burn and Mr Short. In the alternative, Mr Burn says the company should pay Mr Short's costs.

1. Mr Burn says that the company was joined in the proceedings as soon as it was alleged in the pleadings that it was the owner of the goods. While a finding at hearing was that the words 'Short Management' suggested an organisation and not a natural person, Mr Burn says it is open to me to find that he was entitled to believe that it could have been an organisation run under an entity other than a company.

1. Mr Burn says that because of the company's financial position, he will not be able to recover any costs owed to him by the company. He says this is a factor I should take into account in any award of costs against him, particularly as he received only nominal damages.

1. Noting that UCPR 42.1 allows costs apportionment in appropriate cases, Mr Burn says that this is an appropriate case because of the improper conduct of Mr Short during the proceedings. Mr Burn says that the Calderbank letters and offer of compromise were not valid.

Is Mr Short entitled to costs?⁵

The court has a broad discretion to award costs. This power is subject to the rules and the principle of proportionality.⁶ In exercising a judicial discretion, there is a requirement of doing justice to the parties in each particular case, the court having regard to the particular circumstances, including the evidence adduced, the parties' conduct and the ultimate result.⁷

1. While costs are in the discretion of the court, UCPR 42 creates a presumption that the costs will follow the event.⁸ In this case, Mr Burn sued Mr Short and the company in contract and trespass. A central issue was who owned the goods. The company was found to own the goods and be liable to Mr Burn in trespass to land. Mr Short was successful in defending the case against him on all issues. As a starting point he is entitled to recover costs under UCPR 42.1.

Are the Calderbank letters and offer of compromise compliant?

1. Mr Short says that Mr Burn's case against him was without merit. Mr Burn was advised in correspondence that he had sued the incorrect party and that the proper defendant was the company. Mr Short says this position was confirmed in the decision of 5 July 2013.

1. Mr Short seeks an award of indemnity costs on the basis of the two Calderbank letters and his offer of compromise. It is not contested that he achieved a better outcome at hearing than was included in his offers. Mr Burn claims the Calderbank letters are not valid because they are made by only one defendant. No case law is cited to support this claim.

1. As to the offer of compromise, UCPR 20.26 requires that an offer of compromise be exclusive of costs, except where it states that it is a verdict for the defendant and the parties are to bear their own costs. Bathurst CJ has held that the term 'exclusive of costs' suggests that a compliant offer will not deal with costs at all.⁹ Mr Short's offer included the words:

'... exclusive of legal costs. Costs of the Local Court proceedings to be agreed or assessed, and in accordance with Practice Note Civ 1 issued pursuant to Section 15 of the Civil Procedure Act 2005 and to section 27 of the Local Court Act 2007.'

Noting the contradictory language, I find the discussion of costs makes the offer of compromise non-compliant.

Was non-acceptance of these offers reasonable?

1. Mr Short says that making a Calderbank offer gives a discretion pursuant to UCPR 42.1. The onus is on the party making the offer to satisfy the Court that it should exercise the discretion in its favour.¹⁰ A Calderbank offer will not justify an order for indemnity costs unless its rejection was unreasonable.¹¹ The determination is an evaluative judgment requiring a consideration of the facts and circumstance specific to the case.¹²

1. While Mr Short claims the parties well knew the case they had to answer by the time his offers were made, it is important to remember the claim was brought under the Uncollected Goods Act 1995 until 2013 when the Supreme Court granted leave for the filing of an amended statement of claim. It then became a contract and trespass case where ownership of the goods was a central issue.

1. There was ambiguity around this point. From evidence at the hearing, it was not disputed that Mr Short had given Mr Burn a business card when the goods were delivered in 2008. The card had written on it the words 'Short Management'. It was also never disputed that the terms 'Short Management Pty Limited' had ever been used in communication between the parties. While a finding at hearing was that the words 'Short Management' suggested an organisation and not a natural person, Mr Burn says it is open to me to find that it was not unreasonable for him to believe it could have been an organisation run on a basis that might have meant Mr Burn was personally liable. This was borne out at hearing when Mr Short gave evidence of his connection with a range of other entities connected with his carnival business activities.

1. Further, and very importantly, Mr Short was the sole director and secretary of the company until Nigel Markey of Pilot Partners was appointed liquidator on 8 February 2013. In February 2013 Mr Short filed an ASIC Form 507 Report as to the Affairs of the Company. The Form 507 does not list the goods as an asset of the company. These factors raised a prospect that Mr Short might be found to be the owner of the goods and it was not unreasonable that Mr Burn rejected the offers made by Mr Short. I find that Mr Short is not entitled to an award of indemnity costs.

Should there be apportionment of costs?

1. Noting that UCPR 42.1 allows costs apportionment in appropriate cases, Mr Burn says that this is an appropriate case because of improper conduct¹³ by Mr Short during the proceedings, in particular conduct that led to adverse credit findings.

1. The general approach is to order costs in accordance with the outcome of the proceedings as a whole, without attempting to differentiate between particular issues on which the party may not have succeeded. But the court may make a different order, particularly where the losing party succeeds on particular issues.¹⁴ Usually a court will only deprive the successful party of the costs relating to an issue on which it lost when that issue was clearly dominant or separable.¹⁵ But this was not the case here. Mr Short succeeded on the key point of ownership of the goods, with the contract and trespass issues then becoming matters for Mr burn to prove against the company.

Should the company pay Mr Short's costs?

1. Mr Burn notes that he received only nominal damages of $100 and, because of the significant amounts the company owes to unsecured creditors, including the Australian Taxation Office, Mr Burn will not be able to recover any money owed by the company. Mr Burn says that I should take these circumstances into account when I make any costs order in Mr Short's favour. Mr Burn also says Mr Short's personal conduct during the proceedings are circumstances that should also be taken into account when exercising my discretion as to costs.

1. In a case such as this where Mr Short succeeded against Mr Burn, but Mr Burn succeeded against the company, a court may, in its discretion, make special costs orders.¹⁶ A Bullock order requires the unsuccessful defendant(s) to pay the plaintiff, by way of reimbursement, any costs the plaintiff has paid to the successful defendant.¹⁷ A Sanderson order leaves the plaintiff out of the process by requiring the unsuccessful defendant to pay the costs of the successful defendant directly to them.¹⁸

1. Bullock or Sanderson orders should only be made where it was reasonable and proper to join the successful defendant.¹⁹ Second there must also have been something in the conduct of the other, unsuccessful, defendant that makes it appropriate to exercise the discretion.²⁰ On the first point, I have already determined it was reasonable for Mr Burn to continue his case against Mr Short. This is because of the late change in the nature of the case and uncertainty about the ownership of the goods arising from the nature of the second defendant (the company) as a legal entity and the contents of the ASIC form.

1. Turning to the second point, there was conduct on the part of the unsuccessful defendant that makes it appropriate to exercise my discretion that the company pay Mr Short's costs. That conduct was the director of the company inaccurately completing the ASIC form such that no show rides of any kind, including the goods, were listed as company assets. This is despite the fact that, about this time, an amended statement claim was served on the defendants, an interlocutory appeal having just been heard in the Supreme Court. The conduct of the company in inaccurately completing the ASIC form on 26 February 2013 was sufficient to make it fair to order that the company pay Mr Short's costs.²¹

1. Other factors are important in determining who should pay Mr Short's costs. First, a credit finding was made against Mr Short concerning his evidence about the information on the ASIC form, as follows:

Mr Short was asked why no show rides of any kind, including the goods, were listed in the plant and equipment inventory that comprises Annexure 1 of the report. He denied he had lied and first sought to blame his solicitor. Mr Short then said that another company might own the goods. When asked which company, he responded 'It could be a few that Short Management owns ... or JW Short owned' (sic). When asked for the name of the companies Mr Short said the owner could be JW Short Family Trust or JW Short Nominees Pty Ltd. When asked when any transfer took place Mr Short said he wasn't sure. Mr Short again tried to blame his solicitor for any inaccuracies in the inventory. I formed the view Mr Short was not telling the truth on this point. When caught out he tried to blame his solicitor or suggest there was another explanation without providing a definitive answer or credible explanation for the discrepancy.

1. Second, despite succeeding in his case against the company, Mr Burn is unlikely to be paid his damages or costs because of the company's significant debts to unsecured creditors. A Bullock order would see Mr Burn further out of pocket with no hope of the company reimbursing him for Mr Short's costs.

1. In light of the entire circumstances of the case, as discussed, including his own conduct during the hearing, I make a Sanderson order in respect of Mr Short's costs. While noting this will also likely deprive Mr Short of his costs it would nevertheless be unfair, for the reasons I have given, for a different order to be made.

Orders

1. I make the following orders:

• the second defendant is to pay the first defendant's costs, as agreed or assessed and
• the registrar is to provide a copy of this decision to the liquidator of Short Management Pty Ltd, Mr Nigel Markey of Pilot Partners, Level 10, 1 Eagle Street Brisbane QLD 4000.

Magistrate M Greenwood

Cowra Local Court

**********

References

Calderbank v Calderbank [1975] 3 All ER 333

2 Regency Media Pty Ltd v AAV Australia Pty Ltd [2009] NSWCA 368

3 MM Constructions (Aust) Pty Ltd v Port Stephens Council (No 7) [2012] NSWSC 250

4 Morgan v Johnson [1998] 44 NSWLR 578

5 I have relied heavily on the Judicial Commission's chapter on costs in its Civil Trials Bench Book

6 Civil Procedure Act 2005, s 60

7 Howitt v W Alexander & Sons Ltd [1948] SC 154 at 159 per Lord Russell

8 Laguillo v Haden Engineering Pty Ltd [1978] 1 NSWLR 306

9 Whitney v Dream Developments Pty Ltd [2013] NSWCA 188

10 Perpetual Trustees Victoria Limited v Cipri [2009] NSWSC 335

11 Jones v Bradley (No.2) [2003] NSWCA 258

12 Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runoff Ltd (No 2) [2009] NSWCA 12 at [19]

13 Jamal v Secretary, Department of Health (1988) 14 NSWLR 252 at 271

14 James v Surf Road Nominees Pty Ltd (No 2) [2005] NSWCA 296 at [31]-[36]

15 Griffith v Australian Broadcasting Corporation (No 2) [2011] NSWCA 145 at [16]

16 Gould v Vaggelas (1985) 157 CLR 215

17 Bullock v London General Omnibus Company [1907] 1 KB 264

18 Sanderson v Blyth Theatre Co [1903] 2 KB 533

19 Roads and Traffic Authority of NSW v Dederer (2007) 234 CLR 330 at [176]-[193], [296]-[299]:.

20 Coombes v Roads and Traffic Authority [2007] NSWCA 70 at [9]

21 Bostik Australia Pty Ltd v Liddiard (No 2) [2009] NSWCA 304 at [29]

Decision last updated: 20 November 2013