Central Cleaning Supplies (Aust) Pty Ltd v Elkerton (No 3)
[2016] VSC 431
•26 July 2016
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S CI 2013 03530
IN THE MATTER of Swan Services Pty Ltd (in liquidation) (ACN 000 699 990)
| CENTRAL CLEANING SUPPLIES (AUST) PTY LTD (ACN 112 644 587) | Plaintiff |
| v | |
| ANTHONY WAYNE ELKERTON (in his capacity as liquidator of Swan Services Pty Ltd (in liquidation) ACN 000 699 990) | Defendant |
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JUDGE: | Daly AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 14 June 2016 |
DATE OF JUDGMENT: | 26 July 2016 |
CASE MAY BE CITED AS: | Central Cleaning Supplies (Aust) Pty Ltd v Elkerton (No 3) |
MEDIUM NEUTRAL CITATION: | [2016] VSC 431 |
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COSTS – Trial of remitted questions – Successful defendant ordinarily entitled to its costs – Costs to be awarded on the basis of success in the litigation, not with regard to matters unconnected with litigation – Apportionment of costs by issue – Apportionment allowed.
COSTS – Multiple Calderbank offers – Whether unreasonable to refuse any or all of the successful defendant’s Calderbank offers.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr D McAloon | Tisher Liner FC Law |
| For the Defendant | Mr D Luxton | Tress Cox Lawyers |
HER HONOUR:
On 25 May 2016, I delivered my reasons for judgment on three questions remitted to the Trial Division by the Court of Appeal, as follows:
(a)which goods were actually supplied by [Central] to [Swan] during the period 9 November 2012 to 5 April 2013 (‘Goods’);
(b)which of those goods have not been paid for by [Swan] (‘the relevant goods’);
and
(c)the value of the relevant goods
(‘remitted questions’).[1]
[1]The defined terms used in this ruling mirror those used in the primary judgment on the remitted questions: see [2016] VSC 164.
The key issues in the trial of the remitted questions were:
(a) what goods had been paid for by Swan, which required a determination of whether Central’s contention that it was entitled to appropriate payments made by Swan to whichever invoices it chose was correct; and
(b) in the case of goods which had not been paid for by Swan, and have not been located or recovered by either party, whether the Court should order that the liquidator compensate Central for the invoice price of those goods.
The remitted questions were formulated by the Court of Appeal following a successful appeal by Central against the finding of Ferguson J (as she then was) in relation to whether Central had valid retention of title claims (‘ROT claims’) over the relevant goods (‘preliminary question’).
In relation to the first issue, I found that Central was not entitled to reallocate payments made to it by Swan in whichever manner it chose, so as to enable it to claim four items had not been paid for by Swan. I did so on the basis that, first, there was a ‘running account’ between Central and Swan, and the presumption in Clayton’s case[2] applies, and, in any event, there had been a direction made by Swan to Central that payments be applied to Central’s oldest invoices first. The consequence of this finding is that certain equipment held by Central pending the outcome of this proceeding, with a total invoice price of $30,800, will need to be returned to the liquidator, with Central being able to retain a single vacuum cleaner.
[2]Devaynes v Noble; Clayton’s Case [1814-23] All ER Rep 1.
In relation to the second issue, it was common ground that goods which had been purchased by Swan for Swan to carry out its cleaning operations at the Rundle Place shopping centre in Adelaide (‘Rundle Place goods’), which were not recovered or able to be located by the liquidator, had not been paid for by Swan. Central claimed that the liquidator was liable to account for the Rundle Place goods. However, I dismissed this claim, on the basis that Central had failed to articulate the legal basis for its assertion that it was entitled to compensation from the liquidator for the value of the Rundle Place goods, although the evidence did throw up some potential causes of action, as well as some possible defences.
Accordingly, notwithstanding Central’s successful outcome in the Court of Appeal, where Central successfully contended that it held valid ROT claims over equipment supplied by Central and not paid for by Swan, the proceeding has arguably yielded no positive commercial outcome for Central.
Turning to the question of costs (which includes the costs of the preliminary question), Central submits that the appropriate order is as follows:
(a) the liquidator pay Central’s costs of the proceeding in the period up to and including 1 July 2015 (being the day before the Court of Appeal made orders regarding the remitted questions);
(b) there be no order as to the costs of the proceeding thereafter; and
(c) the liquidator’s costs of the proceeding be his costs in the winding up of Swan.
The liquidator seeks his costs of the proceeding. Further, he seeks that Central pay his costs of the proceeding on an indemnity basis from either 13 January 2014, 11 August 2015, or 3 December 2015, being the dates that the liquidator served the second to fourth of four Calderbank letters upon Central.
The first Calderbank letter (which is not relied upon by the liquidator in support of any submission that costs ought to be payable from that date) was sent on 22 July 2013, less than two weeks after the issue of the proceeding. In that letter, the solicitors for the liquidator restated their position with respect to the validity of Central’s ROT claims, and offered to pay Central the sum of $5,000 in full and final satisfaction of Central’s claim, on the condition that Central enter into a deed acknowledging that title to any goods supplied by Central to Swan vested in Swan.
The second Calderbank letter was sent on 13 January 2014, some weeks before the hearing of the preliminary questions. In this letter, the solicitors for the liquidator:
(a) restated their position with respect to the validity of Central’s ROT claims;
(b) asserted that, even if Central was entitled to its ROT claims, this claim only related to four items of equipment (‘the four items’);
(c) asserted that Central’s claim to three of the four items referred to above was weakened by reason of its conduct in appropriating payments to invoices in contravention of the rule in Clayton’s case;[3]
[3]Ibid.
(d) asserted that the liquidator had the basis for bringing a potential preference claim against Swan, for either $509,705, or, if a running account defence by Central was maintained, for the sum of $146,531.57; and
(e) offered on behalf of the liquidator to resolve the proceeding and the preference claim on the basis that:
(i) the net proceeds of sale of the four items be split equally between the parties;
(ii) Central pay sixty per cent of the liquidator’s legal costs of the proceeding; and
(iii) the liquidator agreed not to pursue any preference claim.
On 13 February 2014, the solicitors for Central responded, in summary, as follows:
(a) they asserted that Central would be successful in maintaining the validity of its ROT claims;
(b) any preference claim made by the liquidator would have no prospects of success; and
(c) Central offered to resolve the proceeding on the basis that Central retain the four items, each party bear their own costs of the proceeding, and the liquidator agree not to pursue a preference claim against Central.
The first and second Calderbank letters were before Ferguson J on 2 May 2014, at a hearing to determine the costs of the proceeding following her decision to grant judgment in favour of the liquidator. Ferguson J rejected the liquidator’s submission that it was unreasonable for Central to reject the offer made in the first Calderbank letter. However, she found that it was unreasonable for Central to reject the offer in the second Calderbank letter. In her reasons, her Honour stated as follows:[4]
By the time the second offer, however, the position had changed in some respects. There was an agreed statement of facts, outlines of submissions had been exchanged, the issues were more clearly defined and the Liquidators had indicated that there were only four items of equipment held by Swan Services that had been supplied by Central Cleaning but for which payment had not been made. According to Central Cleaning, the collective value of all of the equipment that it had supplied after 30 January 2012 was approximately $116,000. Of that amount, the four items of equipment that the Liquidators had identified as still being on hand were priced by Central Cleaning at approximately $28,000.
Central Cleaning submitted that it had not acted unreasonably because it did not reject the second offer out of hand. Rather, it made a counteroffer. It seems to me that the counteroffer would have required the Liquidators to capitulate rather than to compromise. The only benefit to the Liquidators would have been that they would have avoided the possibility of an adverse costs order. In those circumstances, in my opinion, it is no answer for Central Cleaning to say that it was not unreasonable for it to refuse the Liquidator’s second offer because it made a counteroffer.
Central Cleaning also submitted that the legislation having not been the subject of much consideration by the courts, it should not be penalised for being a reluctant pioneer in this new area of the law. It also urged the Court to take into account the view of Habersberger J in BHP Billiton Olympic Dam Corporation Pty Ltd v Stueler Industriewereke GmbH (No 3) that ‘the Court should not too readily embrace submissions that it was inevitable that the proceedings would fail.’ I accept those sage words of caution. Nevertheless, in this case, although the legislation in question had still not been the subject of much judicial analysis, I do not think that that made it reasonable for Central Cleaning to reject the offer. By the stage of the second offer it was apparent that the initial question to be determined by the Court would be one of contract and incorporation of terms into contracts. The law in that regard is settled. I do not accept that that does not mean that Central Cleaning’s case was so hopeless that it was inevitably bound to fail. But the limited value of the equipment at the heart of the dispute, the likely quantum of costs and the potential uncertainties about the legal position in respect of the Personal Property Securities Act 2009 (Cth) if Central Cleaning had succeeded on the contract point, makes it all the more unreasonable not to have accepted the second Calderbank offer. Unlike the first offer, if the second offer had been accepted, Central Cleaning would not have been exposed to a preference claim. The offer was one of real compromise, sharing between the parties the proceeds of the equipment, releasing Central Cleaning from a potential preference claim and reimbursing the Liquidators for less than their full costs. This offer was also clear in its terms, remained open for acceptance for a reasonable time and stated that the letter would be relied upon in seeking indemnity costs if the offer was not accepted.
[4]Unreported, 2 May 2015 [10]-[12].
Of course, after that decision, the situation changed, when Central’s appeal to the Court of Appeal regarding the preliminary question was successful. However, notwithstanding that Central was successful in the appeal, the Court of Appeal ordered that the liquidator pay Central’s costs of the appeal on a standard basis, but ordered that the costs of the hearing and determination of the preliminary question be reserved to the judge hearing the trial of the remitted questions. In doing so, the Court of Appeal accepted the submissions made on behalf of the liquidator that the costs of the preliminary question ought to be reserved depending upon the outcome of the trial of the remitted questions, and the Calderbank offers served by both parties might be relevant to the ultimate determination of the question of costs.
On 27 July 2015, the solicitors for Central sent a Calderbank letter to the solicitors for the liquidator with the following offer:
(a) the liquidator pay Central’s cost of the proceeding at first instance (that is, excluding the costs of the appeal) on a standard basis; and
(b) Central retain the four items.
In this letter, the solicitors for Central rejected the liquidator’s contention that his exposure was limited to one vacuum cleaner, and sought a response to their queries as to what the liquidator did to secure the relevant goods after his appointment as administrator.
On 11 August 2015, the solicitors for the liquidator sent the third Calderbank letter. The third Calderbank letter:
(a) rejected the offer made on behalf of Central in its letter of 27 July 2015;
(b) repeated their assertions regarding the manner in which Central had appropriated payments made by Swan;
(c) asserted that by reason of the above, Central’s claim was limited to one single vacuum cleaner;
(d) noted that the liquidator had responded to the matters raised in Mr Dunuwille’s affidavit concerning the Rundle Place goods in his affidavit sworn on 6 February 2014, and noted the liquidator’s concern that Central had collected the Rundle Place goods in the week following the appointment of the administrators; and
(e) offered to compromise the proceeding on the basis that Central retain the four items, and the parties walk away bearing their own costs of the proceeding at first instance.
This offer was rejected by Central in a letter from its solicitors dated 13 August 2015.
On 26 November 2015, the solicitors for Central wrote to the solicitors for the liquidator restating the offer made in their letter of 27 July 2015.
On 3 December 2015, just short of two weeks prior to hearing of the trial of the remitted questions, the solicitors for the liquidator wrote a detailed letter to the solicitors for Central. In that letter, the solicitors for the liquidator:
(a) asserted that the Rundle Place goods had never been in the possession of the liquidator;
(b) referred to the difficulties facing Central in establishing what goods had been sold by the liquidator and what ‘proceeds’ the liquidator was required to pay Central;
(c) asserted that Central had articulated no basis for the allegation that the liquidator was liable to account for the value of the Rundle Place goods;
(d) repeated its assertion that the four items had been largely paid for if the amounts paid by Swan had been allocated to the oldest invoice first;
(e) noted that Central continued to maintain a claim for the invoice value of the goods, not their realisable value; and
(f) at paragraph 6 of the letter, the solicitors for the liquidator stated as follows:
… if our client’s liability is limited to the four items which our client took actual possession of, then your client only has a claim in relation to the Rocket XP Vac Back 1300W which would have a realisable value in the vicinity of about $67.25. if our client’s liability is found to extend to account for the goods at Rundle Place, which we believe is highly unlikely, then your client would only have an additional claim in relation to the Rundle Place items which would have a realisable value in the vicinity of about $15,749.01. Your client would also have to return three of the four items to our client.
The letter concluded with the following offer to resolve the proceeding:
(a) Central retain the four items; and
(b) the liquidator pay Central the sum of $16,000, inclusive of costs.
The offer remained open until 8 December 2015, six days before the scheduled commencement of the trial of the remitted questions.
On 9 December 2015, the solicitors for Central replied, rejecting the liquidator’s offer, and resubmitting the offer made by Central on 26 November 2016. The email stated, among other things:
We are of the view that the arguments advanced in that correspondence set out a position that is highly unlikely to be adopted by the Court and that there is little reasonable likelihood of your client not being ordered to pay our client’s costs in these proceedings.
There are three issues before me in the dispute between the parties concerning costs: first, which party has been substantially successful in the proceeding, such that that party is entitled to, at least prima facie, their costs of the proceeding; secondly, whether there should be some apportionment of costs on an ‘issue’ basis; and finally, whether it was unreasonable for Central to refuse to accept any or all of the Calderbank offers made by the liquidator.
In relation to the relative success of the parties in the proceeding, counsel for the liquidator submitted that the liquidator was overwhelmingly successful in the proceeding, in that, based upon my findings, Central was only entitled to possession of a single vacuum cleaner, with an invoice price of $269.01.
Counsel for Central submitted that, notwithstanding the ultimate result, Central has been substantially successful in the conduct of the proceeding. First, the primary relief sought by Central in the proceeding was the reversal of the liquidator’s decision to refuse Central’s ROT claims. Central was entirely successful in relation to this issue, which was commercially beneficial for Central for reasons other than supporting its claim to the possession of the goods which were the subject of this proceeding, because the finding of the Court of Appeal conferred upon Central the status of a secured creditor in the liquidation of Swan. Given the refusal of the liquidator to recognise Central’s ROT claims, that issue could only be determined by a Court, and Central has obtained the relief sought by Central in paragraphs 1 and 2 of its originating process. Secondly, my finding that there was a running account between Central and Swan bolsters Central’s defence in the preference claim which has recently been issued in the Federal Court of Australia. In this proceeding, the liquidator claims $509,628. My finding that there was a ‘running account’ between Central and Swan will reduce the liquidator’s claim to $115,888. Further, the liquidator incurred costs in asserting and pursuing what ultimately proved to be a futile allegation that Central had recovered the Rundle Place goods, and evidence was led during the course of the trial of the remitted questions which will be helpful to Central in any future claim against the liquidator in relation to the Rundle Place goods.
Counsel for the liquidator submitted that ‘success’ in the litigation should be determined in accordance with the outcome of the litigation, and that a successful party should not be deprived of its costs on the grounds unconnected with the litigation. The liquidator’s preference claim is not an issue in this litigation. The relief sought in this proceeding was the recovery of the goods, or compensation. That a finding that Central was successful in obtaining a finding that it was a secured creditor might have some benefit in collateral litigation, or evidence might have been adduced which would assist it in prosecuting future claims, is irrelevant to the determination of the question of costs in this proceeding.
In relation to the question of apportionment of costs on an ‘issue’ basis, counsel for Central contended that it is difficult to do so with any degree of precision, and thus costs ought to be apportioned on a temporal basis, with Central being awarded its costs up to and including 1 July 2015, being the date that the Court of Appeal made orders with respect to the remitted questions (noting that the costs of the appeal to the Court of Appeal are the subject of a separate order by the Court of Appeal), on the basis that the proceeding up to that stage was primarily concerned with the preliminary question, and that each party bear their own costs thereafter.
Counsel for the liquidator submitted that given the substantial success of his defence to the proceeding and the service of the Calderbank letters, there was no basis for apportionment on an ‘issue’ basis. Alternatively, if there was to be an apportionment of costs, a temporal apportionment is not appropriate, because the costs associated with the determination of the preliminary question were limited, the preliminary question largely being a question of construction based upon the contractual documents and a statement of agreed facts.
As for the Calderbank offers, the only question which arises is whether, at the time that each of the offers in the second to fourth Calderbank letters were made, it was unreasonable for Central to refuse the offers. No issue arises as to whether the Calderbank letters comply with what might be described as the ‘formalities’: each of the Calderbank letters were very clear in their terms, each of them specified that the offers were made in accordance with the principles in Calderbank v Calderbank,[5] foreshadowed an application for indemnity costs in the event that the offers were refused, and each were open for a reasonable period of time. While the last offer was only open for six days, this was reasonable in the context of the looming trial date, and in the context of the parties having been engaged in litigation for two and a half years, thus being well versed in the issues in the proceeding. And, while the matter is not determinative, the Calderbank letters set out cogently and fulsomely why Central ought to accept the offers.
[5][1976] Fam Law 93.
Counsel for the liquidator submitted that it was unreasonable for Central to accept either of the second, third and fourth Calderbank offers. By the time of the second Calderbank offer (13 January 2014) the trial was pending, and the parties had exchanged extensive affidavit evidence, the inability of the liquidator to locate and deliver up the Rundle Place goods had been identified as an issue between the parties, the failure of Central to apply payments to Swan’s oldest invoices first had been identified by the liquidator, and a mediation had been held. The liquidator’s offer not to pursue a possible preference claim conferred a real commercial advantage upon Central. In his written outline of submissions, counsel for the liquidator submitted that:
In view of these circumstances, the limited value of the equipment at the heart of the dispute, the inability to locate items, and the likely quantum of costs, it was entirely unreasonable for the Plaintiff not to have accepted the second Calderbank offer.
The same submission was repeated in relation to the third Calderbank offer. By that time (11 August 2015) further affidavit evidence had been filed, and the Court of Appeal had handed down the judgment on the preliminary question. The evidence in the further affidavit evidence relied upon by Central, being Mr Dunuwille’s affidavit, was found at trial to have been ‘overstated’, and the offer was one of real compromise.
By the time of the fourth Calderbank offer, Central had filed a Further Amended Originating Process, which for the first time sought an order that the liquidator account to Central for the value of the Rundle Place goods, and the last tranche of affidavit material had been filed. The offer was clearly one of real compromise.
Counsel for Central noted that the onus is upon the offeror to establish that it was unreasonable for the offeree not to accept the offer.[6] In the case of the second Calderbank offer, there was no basis for Central to pay sixty per cent of the liquidator’s costs, and the liquidator ultimately failed on the preliminary question. The status of the Rundle Place items was not clear at that time, indeed, there was a ‘flurry of activity’ on the part of the liquidator trying to track down the Rundle Place goods in February 2014, after the second Calderbank offer. It certainly was not clear by then that the Rundle Place goods could not be located and returned to Central.
[6]BHP Billiton Olympic Dam Corporation Pty Ltd v Steuler Industriewereke GmbH (No 3) [2012] VSC 414.
As for the third Calderbank offer, no mention was made of the potential preference claim, and there was no recognition of Central’s success on the preliminary question.
In reply, counsel for the liquidator submitted that the submissions advanced on the part of Central did not provide any adequate explanation as to why it was reasonable for Central to refuse any or all of the second, third, or fourth Calderbank offers.
The relevant principles governing the discretion to award costs were summarised by Robson J in GT Corporation Pty Ltd v Amare Safety Pty Ltd (No 3),[7] and reproduced in the liquidator’s written submissions, as follows (omitting citations):
[7][2008] VSC 296 [59].
1.The award of costs is in the discretion of the Court or Judge: s 24 Supreme Court Act 1986.
2.The discretion must be exercised judicially: Donald Campbell & Co v Pollak; Cretazzo v Lombardi.
3.The discretion cannot be exercised arbitrarily or capriciously and it cannot be exercised on grounds unconnected with the litigation: Cretazzo v Lombardi; or the circumstances leading up to the litigation: Oshlack v Richmond City Council.
4.Costs are compensatory in the sense that they are awarded to indemnify the successful party against the expense to which he or she has been put by reason of the legal proceedings. The order is not made to punish the unsuccessful party: Latoudis v Casey.
5.As a general rule, costs should follow the event, and a successful party should obtain all of the costs of the action even though it failed to establish some of the alternative heads of its claim: Ritter v Godfrey; McFadzean v CFMBEU.
6.Rule 63.04(1) permits the court, in its discretion, to make an order not only as to a distinct question or issue in the pleading sense, but also to any part of the proceeding: Woolf v Burmon; Cretazzo v Lombardi.
7.The court may, in its discretion, decline to order costs in favour of a successful party, or may order the successful party to pay the costs of the unsuccessful party, where the plaintiff failed to establish discrete heads of claim or failed to establish issues which it pursued in its claim, although ultimately succeeding on the basis of another discrete head of claim: McFadzean v CFMBEU.
8.It is not necessary that the issue concerned was raised unreasonably by the party: Rosniak v GIO. Although, a relevant consideration may include whether the issue was raised unreasonably: Mickelberg v Western Australia.
9.The court may, in its discretion, make an order that is a single order, fixing what proportion of a party’s costs should be paid by another party, thus obviating cross-orders or particular orders as to particular costs: Byrns v Davie; McFadzean v CFMBEU; Nolan v Nolan.
10.The caveat referred to by Jacobs J in Cretazzo v Lombardi may have less weight today than when it was decided: Primcom Pty Ltd v Sqarioto; Mickelberg v Western Australia; and Victoria v Master Builders Association of Victoria.
11.Although the quantum of damages recovered compared to that claimed may be a relevant consideration to the court in exercising its discretion, greater emphasis should be given to the failure or loss on discrete claims or issue and the time occupied in relation to them.
Also reproduced in the liquidator’s written submissions were the factors identified by the Court of Appeal in Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2),[8] as matters which ought to be taken into account in determining the reasonableness or otherwise of a party’s refusal to accept a Calderbank offer.
[8][2005] 13 VR 435 [31].
(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; and
(f)whether the offer foreshadowed an application for indemnity costs in the event of the offeree rejecting the offer.
Turning to the first issue, I accept, with some qualifications, the liquidator’s submissions that the liquidator was largely successful in this proceeding, given the actual commercial outcome of the proceeding. I agree with the submissions made on behalf of the liquidator that the Court’s discretion as to costs can only be exercised on the basis of grounds connected with the instant litigation. However, I consider that there is scope for apportionment on an issue basis, and that it is appropriate to make such an apportionment. In my view, Central should have its costs associated with the determination of the preliminary question at first instance. However, those costs should only include the costs actually incurred which were reasonably necessary for the purpose of determining the preliminary question, that is, the costs of the affidavit putting before the Court the documents which were the subject of the preliminary question (being the Application for Commercial Credit made by Swan, and the invoices issued by Central containing the ROT clause relied upon by Central), the preparation of the agreed Statement of Facts, and the costs of and incidental to the hearing on 19 February 2014. For the guidance of the Costs Court, my preliminary view is that Central ought to be entitled to reimbursement of the filing fee, the affidavit of Simon Abraham dated 10 July 2013, the affidavit of Phillip Carroll dated 29 July 2013, and the costs of and incidental to the hearing on 19 February 2014, including the preparation of an agreed statement of facts.
I accept that there must be something out of the ordinary to deny a successful defendant the entirety of its costs.[9] In the current case, it is relevant that the liquidator initially rejected the claim, not on the basis that the goods were not in their possession, or on the basis that Swan had paid for the goods, but the liquidator denied any entitlement on the part of Central to any goods, regardless of whether the goods had been located or were capable of being located, and whether or not the goods had been paid for by Swan. The latter question was only capable of resolution after some detailed analysis by both Central and the liquidator, and investigations regarding the location of the Rundle Place goods continued into 2014. I agree that the relief obtained by Central in respect of the preliminary question was not illusory, or inutile. Another relevant, although of itself not determinative, factor in awarding some costs to Central is that the liquidator incurred costs in pursuing the allegation that Central had collected the Rundle Place goods and some other goods from sites previously operated by Swan, an allegation which was not ultimately pressed at trial. While this issue is unrelated to the determination of the preliminary question, it is a relevant circumstance to take into account in reaching a conclusion that the liquidators ought not to be entitled to all of his costs of the proceeding.
[9]see Verna Trading v New India Assurance Co Ltd (1991) 1 VR 129, 154; ACCC v Australian Safeway Stores Pty Ltd (No 3) [2002] ATPR 41-901 [55].
The final issue which arises is whether it was reasonable for Central to reject any or all of the offers contained in the second to fourth Calderbank letters. In my view, it was clearly unreasonable for Central to reject the offer made on 3 December 2015. The offer was made shortly prior to trial, and represented a genuine compromise, enabling Central to retain the four items, and to receive a cash payment of $16,000. The letter of 3 December 2015 provided a comprehensive analysis of the weaknesses of Central’s position in the litigation, which were matters on which I found entirely in favour of the liquidator.
I also agree that it was unreasonable for Central to reject the offer contained in the third Calderbank letter. While Central had obtained what I accept was an outcome of some commercial significance by reason of the findings of the Court of Appeal in relation to the preliminary question, by August 2015, it ought to have been evident that Central’s prospects of either retaining all of the four items (by reason of the rule in Clayton’s case),[10] or locating the Rundle Place items, were slim. The invoice value of the four items of Rundle Place was modest, in the context of Supreme Court litigation, and their realisable value, as at August 2015, two and a half years after Central had sold the four items and the Rundle Place goods to Swan, was even more so. In that context, an offer on the part of the liquidator to the effect that the parties walk away, leaving Central with the four items and the commercial benefit of the Court of Appeal‘s finding that Central was a secured creditor of Swan also amounted to a real compromise on the part of the liquidator. For Central to press on in such circumstances was unreasonable.
[10]Devaynes v Noble; Clayton’s Case [1814-23] All ER Rep 1.
However, I do not accept that Central’s refusal of the offer in the second Calderbank letter was so unreasonable so as to warrant making an order for indemnity costs in favour of the liquidator. The liquidator was, at that time, continuing to maintain the position that Central had no valid ROT claim, a position which ultimately did not find favour with the Court of Appeal. As at January 2014, while the liquidator in his affidavit of 8 October 2013 had given evidence that he had not recovered any goods identified by Central other than the four items, his investigations were not complete. While the offer in the second Calderbank letter may have been reasonably viewed as real compromise in the context of the success of the liquidator on the preliminary question at first instance, Central’s position on the preliminary question was ultimately vindicated.
Accordingly, the proper disposition of the question of costs is as follows:
(a) the liquidator pay Central’s costs of and incidental to the determination of the preliminary question, such costs to be limited to those costs which were reasonably necessary to be incurred for the purpose of the hearing and determination of the preliminary question;
(b) Central otherwise pay the liquidator’s costs of the proceeding, on a standard basis up to and including 11 August 2015, and on an indemnity basis thereafter; and
(c) if it is necessary to make such an order, the costs of the liquidator, insofar as they are not recoverable from Central pursuant to these orders or of the orders made by the Court of Appeal dated 2 July 2015, be his costs in the liquidation of Swan.
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