Business Service Brokers Pty Ltd v Beveridge

[2016] VCC 1267

IN THE COUNTY COURT OF VICTORIA AT MELBOURNE

COMMERCIAL  DIVISION

Revised Not Restricted  Suitable for Publication

Case No. CI-14-04574

BUSINESS SERVICE BROKERS PTY LTD  Plaintiff

KIM BEVERIDGE  Defendant

JUDGE:  HIS HONOUR JUDGE MURPHY

WHERE HELD:  Melbourne DATE OF HEARING:  15 August 2016

DATE OF JUDGMENT:          19 August 2016

MEDIUM NEUTRAL CITATION:

[2016] VCC
1267

REASONS FOR JUDGMENT ON COSTS

Subject:                 Judgement on Costs – Commercial.

Catchwords:       Where a party “unreasonably fails to accept” an offer of compromise.

Legislation Cited:County Court Civil Procedure Rules 2008 (Vic).

Cases Cited: Hazeldene’s Chicken Farm Pty Ltd v VWA (No 2) [2005] VSCA 298; Mackie Group Pty Ltd v Reading Properties Pty Ltd (No 2) [2010] VSC 205; Smith v Jovanoska [2013] VSC 714; Eshuys v St Barbara Ltd [2011] VSC 150; and Ultra Thoroughbred Racing Pty Ltd v Those Certain Underwriters [2011] VSC 636 Maitland Hospital v Fisher (No 2) (1992)

27 NSWLR 721.

Judgment:            Plaintiff to pay the defendant’s costs on an indemnity basis.

APPEARANCES:	Counsel	Solicitors
ForthePlaintiff	J. Rudd	Telco7 Legal Pty Ltd
Forthe Defendant	J. L. Evans	Madgwicks
COUNTY COURT OF VICTORIA 250 William Street, Melbourne

HIS HONOUR

Introduction

1.    After a trial between 11 – 13 April 2016, on 10 June 2016 I delivered reasons for judgment wherein I dismissed the plaintiff’s claim against the defendant. The defendant now seeks a special costs order on the basis of two offers of compromise made by him, and an earlier pre-litigation offer. The relevant correspondence and offers are set out in an affidavit sworn by James Graham on 12 August 2016.

2.    The defendant sought costs on three bases: first on 14 October 2014 he had made an offer of compromise wherein he offered to settle the case on the basis of a payment to the plaintiff of $8000 together with legal costs on a party/party basis (the first offer).

3.    The second basis upon which he sought a special order was that on 26 May 2015, after the mediation and the plaintiff reducing its quantum to $34,945, he served an offer of compromise to resolve the proceeding and counterclaim on the basis that each party walk away from the proceeding bearing their own costs (the second offer).

4.    The third basis for a special order was that by way of a Calderbank letter delivered on

15 August 2014, before the institution of proceedings, the defendant offered the plaintiff the sum of $8123 to resolve the matter.

5.    As the plaintiff did not better the two offers of compromise the defendant sought to bring himself within the terms of order 26.08(4) to seek indemnity costs. In relation to the August offer the defendant sought the exercise of discretion under order 26.08(1).

6.    Under order 26.08(4) a special order can be made where the “plaintiff unreasonably fails to accept” an offer. The parties accepted that in Hazeldene’s Chicken Farm Pty Ltd v VWA (No 2) [2005] VSCA 298 at [25] the Court of Appeal had set out a non- exhaustive list of relevant matters. The parties also referred to Mackie Group Pty Ltd v Reading Properties Pty Ltd (No 2) [2010] VSC 205, Smith v Jovanoska [2013] VSC 714, Eshuys v St Barbara Ltd [2011] VSC 150, and Ultra Thoroughbred Racing Pty Ltd v Those Certain Underwriters [2011] VSC 636. There are a plethora of other cases dealing with offers of compromise and Calderbank offers.

7.    The defendant carries the burden of establishing that a special costs order ought be made and that the plaintiff can be said to have acted unreasonably in failing to accept any of the offers. A conclusion as to whether the rejection of an offer was unreasonable usually requires some enquiry as to the relevant factors, at the time the offer was made, because rejection of a reasonable offer will not necessarily amount to an unreasonable rejection of that offer.

8.    The matter should be approached on the basis that courts have regarded it as the most desirable that parties seek to compromise their claims thus minimising potential antagonism, uncertainties and risks and avoiding legal costs. This course is always desirable so that it limits the demands on courts thereby conserving court resources and reducing public expense. Accordingly the courts have in part approached the allocation of costs in a way which encourages and provides incentive to parties to appropriately settle their disputes.

The plaintiff’s argument

9.    In relation to the first offer the plaintiff argued that given the stage at which the offer was made it was not in a position to properly assess the strength of the defendant’s case. It was submitted that the defendant had not filed a defence, and that relevant documents from Telstra that were subsequently obtained by the defendant pursuant to a subpoena in around July 2015 were not available. Further there had been no mediation, and the plaintiff had not been in a position to explore issues relating to whether the defendant had travel insurance.

10. A further argument of the plaintiff was that at the time of the consideration of the first offer the basis upon which the decision was ultimately reached against the plaintiff, namely that the fraud involved call forwarding, had not been pleaded and thus could not be taken into account in the assessment by the plaintiff. It was a finding of fact that

required an ultimate determination.

The defendant’s response

11. The bulk of the matters that the defendant ultimately raised in its defence were set out in the solicitor’s letter dated 14 October 2014 which accompanied the offer of compromise. This letter has to be read in conjunction with the August letter that contained the pre-litigation offer. In the latter letter the defendant noted that the circumstances in which the charges were accrued were “highly unusual and not contemplated” by either party when the contract was entered into. Further the defendant had made a calculation showing that continuous use of the phone for 20 hours would amount to $3216. At that stage and indeed at the time of the first offer the plaintiff’s claim was $191,456.

12. In the letter dated 14 October 2014 the defendant set out what he understood was the basis of the fraud namely that the number of calls and chargeable minutes represented simultaneous calls being made on the SIM card. The letter at [12] asserted that if the plaintiff intended to pass on service charges of that magnitude or lesser amounts of

$32,000, or $5000, or even $1000, then the plaintiff ought to have advised the defendant. The letter also referred to the monthly credit limit, the IMR bond and the fact that the phone had a pass code for access. At [26] the letter queried how much the plaintiff had incurred in respect of the fraudulent transactions. It indicated that the first offer had been calculated having regard to 20 hours of calls at $2.68 per minute, putting a cost at less than $3000. It noted that the offer significantly exceeds the maximum liability that the defendant could reasonably have foreseen in the event that the phone was stolen. The letter also refers to the fact that the plaintiff would be relying on breaches of the Australian Consumer Law.

Consideration

13. The plaintiff was proceeding against the defendant on a contract of adhesion in a consumer transaction where it was fully in a position to evaluate the circumstances of the fraud. The plaintiff was an experienced telecommunications carrier. It had sought to protect its position under the contract by an additional security bond when the defendant accessed IMR. It was in contractual relations with Telstra and as early as 21 May 2014 must have known how the fraud was perpetrated as it took action in relation to its customers using IMR. I am satisfied that it fully understood the nature of the fraud at the time it issued the proceedings against the defendant. I do not accept that the plaintiff required access to documents from Telstra in order to evaluate the defence at the time of the first offer. At that stage it had resolved its dispute with Telstra and Telstra had reduced its inter-carrier claim to the $34,945 which was the amount that the plaintiff ultimately claimed against the defendant when it amended its statement of claim in May 2015.

14. The fact that the first offer was made before a defence was delivered referring to the “call forwarding risk” did not prevent the plaintiff from evaluating the offer. The defendant had stated in the August letter that the fraud was outside the contemplation of both parties. As submitted, it was obvious from the multiple simultaneous calls in the call logs that were in the possession of the plaintiff that the fraud required manipulation of the call forwarding function. The fact that this was only fully articulated in the defence does not assist the plaintiff, as it was implicit from the contents of the 14 October letter.

15. The plaintiff also relied on the ultimate conclusion in the judgment that the fraud had been perpetrated by simultaneous multiple calls due to the activation of call forwarding. In evaluating the offer the plaintiff put that it could not consider this until the ultimate decision.

16. I am unable to accept this. As the plaintiff was in a contractual relationship with Telstra I am satisfied that it would have been able to explore with its own supplier the circumstances of the fraud. In any event the defendant had stated in the 14 October

letter that the phone had a pass lock on it, and thus this was an additional factor that could be evaluated without the need for the ultimate conclusion in the judgment that the fraud was perpetrated using the call forwarding function of the SIM card rather than misuse of the handset.

17. It follows from these matters that I am satisfied that at the time of the making of the first offer the plaintiff was in a position to fully evaluate the strength of the defence. This was a consumer transaction and it was common ground that the fraud was not within the contemplation of either of the parties, and that the plaintiff was proceeding under a contract of adhesion subject to the Telecommunications (International Mobile Roaming) Industry Standard 2013 which is directed to consumer use of mobile

phones. From  this,  a claim for an amount which on any view was outside the reasonable contemplation of a telephone consumer ought to have been assessed by the plaintiff as having limited prospects of success.

18. Alternatively, the plaintiff ought to have considered, without the benefit of hindsight, that in circumstances where the defendant proposed to raise a defence under the Australian Consumer Law, it would have faced a prospect of the Court ultimately fashioning, after a fact and law intensive proceeding, a remedy that equitably shared the loss that neither party contemplated at the time of the entry into the contract. This is the basis upon which the August letter offer was made.

19. At the time of the first offer, on the material before me, the plaintiff had not provided any counter offer to the defendant’s offer of $8123 made in the August letter. The defendant submitted that the extent to which the first offer was a compromise should be assessed against the plaintiff’s reduced quantum of $34,945. I agree.

20. The plaintiff disputed that there was any significant or genuine element of compromise in the first offer on the basis that it made an erroneous calculation as to the maximum liability for call charges over a 20 hour period at $3600 when the maximum rate would

have given a possible total liability of over $7000. On that basis an offer of $8000 plus costs reflected little compromise, being under 25% of the plaintiff’s claim.

21. I am unable to accept that submission. In October 2014 the real quantum of the plaintiff’s claim was now within the jurisdiction of the Magistrates’ Court, although this had not been the subject of any amendment to the statement of claim. In assessing its position the plaintiff would need to have weighed the risk that it would not succeed fully in pursuing the defendant for the same amount reached at settlement in its dispute with Telstra. It also may not have been in a position to recover all its legal costs in litigation that went to judgment. By the first offer the defendant was effectively offering the plaintiff what he perceived as his worst case scenario, without any litigation risk.

22. Notwithstanding that the defendant had not filed a defence, nor provided discovery, the first offer ought to have given the plaintiff pause for thought. As was said in Maitland

Hospital v Fisher (No 2) (1992) 27 NSWLR 721 at 724 “Litigation is inescapably

chancy. The purpose of the rule is to put a premium on realistic assessment of cases.”

Conclusion

23. for the reasons just discussed I am satisfied that the plaintiff unreasonably refused to accept the first offer. It had been offered in circumstances where it was in a position to evaluate the defence offer of a genuine compromise of the proceeding at an early stage. It ought to have been in a position to assess its prospects of succeeding in the claim based on its payment to Telstra as limited.

24. There were no discretionary reasons raised as to why the rules set out in order 26.08(4) ought not apply.

25. In these circumstances it is unnecessary for me to consider an order for costs based upon the August 2014 letter.

26. If I am wrong in my conclusion that the defendant has bought himself within the terms of order 26.08(4) then I would have found that the defendant could rely upon the second offer.

27. By that stage the defendant had filed his defence and the matter had been the subject of a mediation. Discovery had not been completed however. The plaintiff submitted that the Telstra documents were only obtained subsequent to that offer which made it difficult to evaluate. For the reasons set out above I do not accept that. I further note that the plaintiff itself had disputed that the defendant was entitled to access documents from Telstra. I do not accept the plaintiff’s argument that it needed access to matters relating to the employment contract of the defendant and/or his travel insurance in order to evaluate the second offer. It strikes me that these are irrelevant to the dispute between the parties which involves the plaintiff’s own contract. The plaintiff remained in a position, particularly after the mediation, to evaluate the strength of its claim.

28. It was also put that the walk away second offer was not a genuine compromise. There is an element of compromise in that offer given that at that stage the plaintiff had reduced its claim to $34,945, which was within the jurisdiction of the Magistrates Court. Even had the plaintiff succeeded in its reduced claim it would have faced, as argued by the defendant, an offsetting reduction in any successful costs order on the basis that it had been brought in the wrong court, or alternatively as argued in the defendant’s letter dated 26 May 2015, he had incurred significant costs in defending the plaintiff’s original claim before it’s quantum was reduced.

29. In addition, as submitted by the defendant, the plaintiff faced a possibility of a further discretionary costs order in the event that the defendant succeeded in arguing that the prosecution of the original claim, which was subsequently identified in the judgment as seeking to recover super profits and to engaging in unconscionable conduct contrary to the Australian Consumer Law.

30. There is merit in these arguments, particularly given that the offer was made when the proceeding was almost ready for trial and thus significant costs that would in the usual course be recoverable only on a solicitor client basis would have been incurred by the plaintiff thenceforth.

31. On this basis I reject the submission of the plaintiff that the second offer amounted to a total capitulation, and find it did contain an element of genuine compromise.

32. For these reasons, had it been necessary to do so, I would have found that the plaintiff had unreasonably failed to accept the second offer and thus brought himself within the terms of order 26.08(4) for a special order.

Order

33. I propose to make the order set out in the minute proposed by the defendant dated 4 August 2016.

34. In relation to the costs of this application, notwithstanding the defendant’s threat to seek a special order, and subject to any further submission by the parties, I would order that they be paid by the plaintiff on a standard basis, to be taxed in default of agreement.