Chamakala v 7-Eleven (Order)
[2009] VCC 1797
•4 August 2009
| IN THE COUNTY COURT OF VICTORIA | Revised |
(Not) Restricted
AT MELBOURNE
CIVIL DIVISION
APPLICATIONS
Case No. CI-08-00727
| Thomas Liukose Chamakala and | Plaintiff |
| JMJ Traders Pty Ltd | |
| v | |
| 7-Eleven Stores Pty Ltd | Defendant |
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| JUDGE: | JENKINS |
| WHERE HELD: | Melbourne |
| DATE OF HEARING: | 27 March 2009 |
| WRITTEN SUBMISSIONS | 30 April, 12 May & 21 May 2009 |
| DATE OF RULING: | 4 August 2009 |
| CASE MAY BE CITED AS: | Chamakala v 7-Eleven (Order) |
| MEDIUM NEUTRAL CITATION: | [2009] VCC 1797 |
| REASONS FOR RULING |
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Catchwords: Application by Defendant for Indemnity Costs; Judgement entered for Defendant; three prior offers to compromise; consideration of Calderbank offer and Order 26 Offer of Compromise; Reasonableness of Plaintiffs rejection of offers; Two out of four Plaintiffs accept second offer; two Plaintiffs discontinue their proceeding.
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| APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | ||
| For the Defendant |
DRAFT
TABLE OF CONTENTS
Background..........................................................................................................................2
Offers of Compromise.........................................................................................................2
The first offer ....................................................................................................................2
The second offer ..............................................................................................................2
The third offer ...................................................................................................................3
Cost Orders Sought.............................................................................................................3
Legal Principles governing the award of costs.................................................................4
Findings..............................................................................................................................10
Orders.................................................................................................................................12
DRAFT
HER HONOUR:
Background
1 On 27 March 2009 I delivered my reasons for decision following a four day trial of all issues. Judgement having been entered in favour of the Defendant, the question of the basis upon which costs should be payable by the Plaintiffs was deferred pending further oral and written submissions.
2 The proceeding was initially commenced in the Supreme Court by Statement of Claim dated 25 July 2006 by, Thomas Chamakala [also known as Chamakalayil], Varghese Pynadeth, his brother Polachan Pynadath and their incorporated a company JMJ Traders Pty Ltd. Only Thomas Chamakala and JMJ Traders ultimately prosecuted their claim.
Offers of Compromise
The first offer
3 On 3 October 2006 the Defendant made a written offer of settlement pursuant to the principles stated in Calderbank v Calderbank[1] expressed to be open until 13 October 2006 to the effect that the Plaintiffs discontinue the proceeding and each party bear their own costs. At the time when this first offer was made, pleadings had closed This offer was not accepted by the Plaintiffs, who did not provide a written response.
The second offer
[1] [1975] 3 All ER 333
4 On 18 March 2008 the Defendant made an Offer of Compromise[2] to the effect that the proceeding be dismissed in full with no order as to costs and each party bearing its own costs of the proceeding. This offer was accepted by the first and second named Plaintiffs only, namely Varghese Pynadath and Polachan Pynadath.
[2] In accordance with Order 26 County Court Rules of Procedure in Civil Proceedings 1999
5 At the time when this second offer was made, pleadings had closed; discovery
DRAFTand inspection had taken place; and there had been a Mediation.
6 On 22 May 2008 His Honour Judge Anderson granted leave to the first and second named Plaintiffs to wholly discontinue the proceeding against the Defendant and further ordered as to the contribution for costs as between the Plaintiffs in the event of an order for costs against the Plaintiffs. In that event His Honour ordered that:
1) the first plaintiff, the second plaintiff, the third plaintiff and the fourth plaintiff shall be jointly and severally liable for payment of the Defendant's costs incurred up to and including the date that the first plaintiff and the second plaintiff discontinued the proceeding against the Defendant; 2) the third plaintiff and fourth plaintiff shall be jointly and severally liable for payment of the Defendant's costs incurred after the date that the first plaintiff and second plaintiff discontinued the proceeding against the Defendant. The third offer
7 On 1 October 2008 the Defendant made a written offer of settlement to the remaining third and fourth named Plaintiffs whereby the Defendant offered to settle the proceeding with a payment of $10,000 inclusive of costs. This offer was rejected by the third and fourth named Plaintiffs on 8 October 2008.
Cost Orders Sought
8 On the question of costs: the Defendant made a written submission dated 30 April 2009; the first and second named Plaintiffs made a written submission dated 12 May 2009; and the third and fourth named plaintiff’s made a written submission dated 21 May 2009. I have had regard to each of these submissions which I will not repeat in any detail.
9 The first and second named Plaintiffs submit to the effect that:
1)
the Directors of JMJ Traders resolved on 29 July 2007 to the effect that that the third named plaintiff and his wife would proceed alone with the court proceeding and assume all liabilities and benefits;
DRAFT
2) they had attempted to withdraw from the proceeding in June 2007 while it was still a matter before the Supreme Court;
3) they accepted the Defendant's offer to settle dated 18 March 2008 by letter dated 19 March 2008;
4) they filed a notice of discontinuance with the court dated May 2008;
5) they felt obliged to submit to the orders flowing from their application to discontinue from the proceeding once transferred to the County Court; and
6) in the circumstances they made every reasonable effort to indicate their willingness to accept the offer of the Defendant and/or withdraw from the proceeding.
10 The third and fourth named Plaintiffs submit to the effect that the rejection of each of the offers was not unreasonable in the circumstances and the usual costs order should be made, namely that the Plaintiffs pay costs on a party and party basis.
11 The Defendant submits that the Plaintiffs have not achieved a better result after trial than any of the offers made by the Defendant. Furthermore the Defendant submits that it was not reasonable to reject any of those offers. . Accordingly, the Defendant seeks an Order for costs against the Plaintiffs, on an indemnity basis from 13 October 2006 or alternatively from 18 March 2008 or alternatively from 8 October 2008.
Legal Principles governing the award of costs
12 Generally, costs follow the event, so that an unsuccessful party is usually required to pay the costs of a successful party. The Court has a wide power and discretion to award costs[3], including provision for taxation of costs on a party and party basis, on a solicitor and client basis, on an indemnity basis, or on such other basis as the Court directs[4]. The general rule, for more than 100 years[5], has been that costs are paid on a party and party basis[6].
DRAFT
[6] See County Court Rules of Procedure in Civil Proceedings, rule 63A.31
13 Awarding costs involves exercising an unfettered discretion, which must be exercised judicially[7]. Orders for costs on an indemnity basis was considered by Sheppherd J In Colgate Palmolive Co v Cussons Pty Ltd[8] where His Honour noted that the growing number of applications for indemnity costs reflected. . . that in the course of the last 20 or 30 years the incomplete
indemnity provided by party and party costs has satisfied less and less of the actual costs.”[7] See, for example, M T Associates Pty Ltd v Aqua-Max Pty Ltd & Anor (No 3) [2000] VSC 163, per Gillard J.,
[8] (1993) 46 FCR 225
14 Sheppherd J also expressed caution about exercising judicial discretion to award costs on an indemnity basis:
“…the Court ought not usually make an order for the payment of costs on some basis other than the party and party basis. The circumstances of the case must be such as to warrant the Court in departing from the usual course…The question must always be whether the particular facts and circumstances of the case in question warrant the making of an order for payment of costs other than on a party and party basis.”[9]
[9] (1993) 46 FCR 225 @ 233-234; refer also Spencer v Dowling [1997] 2 VR 127 @ 164 where Callaway J A
15 I note that in their written submission the Defendant has sought a Certificate for Counsel for pre trial preparation which is contemplated in the brief fee.[10]I consider that the brief fee contemplates at least 6 hours of preparation, and perhaps more.
[10] Magna Alloys & Research Pty Ltd v Coffee and others (No 2)1982 VR 97, Fullagar J especially at pp109-
16 In this case the issue of costs is raised in the context of a form of Calderbank offer having been made by the Defendant. This generally refers to an offer in writing, usually by letter, that is expressed to be without prejudice as to the question of costs and which indicates that the letter will be relied upon on the question of costs. This form of offer was then followed by an Offer of Compromise pursuant to the Order 26 of the County Court Rules of Civil Procedure, which relevantly provides as follows:
DRAFT
PART 2—OFFER OF COMPROMISE
26.02 Application
(1) The plaintiff and the defendant may in respect of any claim in a proceeding serve on one another an offer of compromise on the terms specified in the offer.
(2) An offer of compromise in respect of a claim may be on terms that take into
account any other claim between the plaintiff and the defendant made in the proceeding.
(3) An offer of compromise shall—
(a) be in writing and prepared in accordance with Rules 27.02 to 27.04; and
(b) contain a statement to the effect that it is served in accordance with this Order.
26.03 Time for making, accepting etc. offer
(1) An offer of compromise may be served at any time before verdict or judgment in respect of the claim to which it relates.
(2) A party may serve more than one offer of compromise.
(3) An offer of compromise may be expressed to be limited as to the time the offer is open to be
accepted after service on the party to whom it is made, but the time expressed shall not be
less than 14 days after such service.
(3.1) A party on whom an offer of compromise is served shall within three days after service serve a written acknowledgment of service on the party serving the offer.
(4) A party on whom an offer of compromise is served may accept the offer by serving notice of
acceptance in writing on the party who made the offer before—
(a)
the expiration of the time specified in accordance with paragraph (3) or, if no time is specified, the expiration of 14 days after service of the offer; or
(b) verdict or judgment in respect of the claim to which the offer relates—
whichever event is the sooner.
(5) An offer of compromise shall not be withdrawn during the time it is open to be accepted, unless the Court otherwise orders.
(6) [omitted].
(7) Upon the acceptance of an offer of compromise in accordance with paragraph (4), unless the Court otherwise orders, the defendant shall pay the costs of the plaintiff in respect of the claim up to and including the day the offer was served.
(8) If an offer of compromise contains a term which purports to negative or limit the operation of
paragraph (7), that term shall be of no effect for any purpose under this Part.
26.03.1 Time for payment [omitted] 26.04 Effect of offer
An offer of compromise made in accordance with this Part shall be taken to be an offer of compromise made without prejudice, unless the offer otherwise provides.
26.05 Disclosure of offer to Court
(1) No statement of the fact that an offer of compromise has been made shall be contained in any
pleading or affidavit.
(2) Where an offer of compromise has not been accepted, then, except as provided by
Rule 26.08(6), no communication with respect to the offer shall be made to the Court on the trial of the proceeding until after all questions of liability and the relief to be granted have been determined.
(3) Paragraphs (1) and (2) shall not apply where an offer of compromise provides that the offer is
not made without prejudice.
26.06 Party under disability [omitted]
26.07 Failure to comply with accepted offer [omitted]
26.08 Costs consequences of failure to accept
DRAFT
(1) This Rule applies to an offer of compromise which has not been accepted at the time of verdict or judgment.
(2) Where an offer of compromise is made by a plaintiff and not accepted by the defendant, and
the plaintiff obtains a judgment on the claim to which the offer relates no less favourable to the
plaintiff than the terms of the offer, then, unless the Court otherwise orders, the plaintiff shallbe entitled—
(a) if the claim of the plaintiff is for damages for or arising out of death or bodily injury, to an order against the defendant for the plaintiff's costs in respect of the claim, taxed on an indemnity basis; (b) in the case of any other claim of the plaintiff, to an order against the defendant for the plaintiff's costs in respect of the claim up to and including the day the offer was served, taxed on a party and party basis, and for the plaintiff's costs thereafter taxed on an indemnity basis.
(3) Where an offer of compromise is made by a defendant and not accepted by the plaintiff, and the plaintiff obtains a judgment on the claim to which the offer relates not more favourable to the plaintiff than the terms of the offer, then, unless the Court otherwise orders—
(a)
the plaintiff shall be entitled to an order against the defendant for the plaintiff's costs in respect of the claim up to and including the day the offer was served taxed on a party and party basis; and
(b)
the defendant shall be entitled to an order against the plaintiff for the defendant's costs in respect of the claim thereafter taxed on a party and party basis.
(4), (5),(6), (7), (8) [omitted]
17 Williams on Civil Procedure in Victoria provides the following useful overview:
In the case of an offer of compromise served under O.26 the presumption as to the disposition of costs that arises if r. 26.08 applies is not easily displaced… on the other hand, there is greater discretion in determining whether indemnity costs should be awarded if an offer of settlement was made by letter in the Calderbank form. A Calderbank offer is a significant factor in favour of indemnity costs but does not dictate them or require them as a matter of routine. Factors relevant to the exercise of discretion include the clarity with which the terms of the offer were expressed, the stage of the proceeding at which the offer was made, the time allowed for the offeree to consider the offer, the reasonableness of the offeree in rejecting the offer… whether the offer stated that indemnity costs would be sought if the offer were rejected and the content of any response of the offeree to the offer… in exercising its discretion, the court should consider the circumstances existing at the time the offer was made and in judging the conduct of the
offeree, avoid the perils of hindsight [11]
DRAFT
[11] Williams Civil Procedure Vol 1 26.01.75
18 Rule 26.08(3) provides that if the defendant makes the offer and the plaintiff obtains judgement but does not better the offer, the defendant is entitled to party/party costs after the date of service of the offer. While, the rule is silent as to what the consequences will be if the defendant makes an offer and if the plaintiff fails altogether, as in this case, it has been held that in such event the court may in the exercise of discretion award costs to the defendant on a more generous basis then party and party from the time the offer was served.[12] In Foster v Galea where Byrne J was faced with a similar circumstance to the present case, His Honour noted:[13]
…there is no requirement that the offer satisfy the formal requirements of a
Calderbank offer that it be expressed to be without prejudice save as to costs. The significance of this expression is not that it confers upon the offer some special effect at the end of the trial[14] but, rather, that the usual privilege attaching to without prejudice offers at trial falls away when questions as to costs are to be determined. If an offer falls outside the O 26 regime, it is available for use by the parties unless it was made in terms or in circumstances which confer upon it the common law privilege, either generally or of the Calderbank type. Moreover, with respect to its effect upon the incidence of costs, it leaves the fairly mechanical regime of Rule 26.08 and enters the more flexible one of discretion as to costs.
[12] Foster v Galea (No. 2) [2008] VSC 331
[13] @ para 7
[14] Compare an offer of compromise which is given special effect by Rule 26.08.
19 In the leading case of Hazeldene’s Chicken Farm Pty Ltd v Victorian Workcover Authority (No. 2)[15] it was held that the mere fact that the result achieved was less than the offer made does not shift the burden to the offeree to prove reasonableness. The Court of Appeal further noted that it was neither necessary nor desirable to lay down any fixed rule that the maker of a Calderbank offer should not be entitled to indemnity costs unless the offer sets out, with reasonable specificity, the basis for the offeror's contention that
DRAFT
[15] [2005] VSCA 298
the offeree should accept the compromise. The mere refusal of a Calderbank offer does not of itself warrant an order for indemnity costs; the offeror needs to show the conduct of the offeree was unreasonable.
20 The Court then identified certain factors which were relevant to the exercise of the Court’s discretion where it is necessary to consider whether the rejection of a Calderbank offer was unreasonable, namely:
(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; (f) whether the offer foreshadowed an application for indemnity costs in the event of the offeree’s rejecting it.[16] [16] (2005) 13 VR 435 at 442 [25].
21 In Foster’s case Byrne J further noted that it is for the Trial Judge, upon consideration of the factors identified in Hazeldene, to give to each such weight, if any, as seems appropriate.
22 Byrne J also considered the difficulty which may be faced by a Defendant offeror who... is very often not in a position to demonstrate that the response
of the offeree was or was not unreasonable. Whether this is so may depend upon the legal advice given to the offeree and to evidentiary uncertainties known only to that party. The offeror cannot know these matters without
piercing the veil of professional privilege. It is not a question of whether the Plaintiffs case was so hopeless that it might be struck out as an abuse of process. Even where a plaintiff may have an arguable claim, there must be a process which will provide an incentive for a party to address the offer in a serious way so that the court is not obliged to determine a case which reasonable parties ought to have resolved by settlement. [17]
DRAFT
[17] Foster’s case @ para 12
Findings
23 In relation to the first offer, I am satisfied that the period of 10 days allowed to the Plaintiffs was a reasonable time. Furthermore, there was no imperative for the Defendant to comply with the time limit prescribed by Order 26. I also note that the Plaintiff’s neither protested at the short notice nor saw fit to respond to the offer.
24 However, I also accept that this offer was made at an early stage and before the parties had had the opportunity to make discovery or attempt a mediated settlement. Accordingly, in my view it was not unreasonable for the Plaintiffs to fail to accept the offer at this stage.
25 The second offer is distinguished by two significant circumstances:
First, the proceeding was at a stage ready for trial; and
Secondly, the first and second named Plaintiffs accepted the offer by return mail.
26 In these circumstances, the Plaintiffs were well positioned to assess their prospects. Furthermore, they had already been put on notice from the first offer that the Defendant did not concede any merit in the Plaintiffs’ claims.
27 In my view there was no necessity for the Defendant to elaborate upon its rejection of the Plaintiffs’ claims. Indeed in its defence the Defendant made appropriate admissions and otherwise clearly identified the four bases upon which it resisted the Plaintiffs claims, namely that: the Defendant did not make any representation which was false or misleading; it did not seek to induce the Plaintiffs or any of them to rely upon a misrepresentation to their detriment; there was no causal link between anything done or said by the Defendant and the decision of the Plaintiffs to sell their franchise; and the Plaintiffs did not make any loss upon such sale.
28 The Plaintiffs were always faced with a significant evidentiary burden in
DRAFTrelation to each of the above issues. In the circumstances it is not surprising
that the Defendant did not further anticipate the Plaintiffs’ case.29 It is a quite an unusual circumstance where the first and second named Plaintiffs, whose evidence was central to the claims of the third and fourth named Plaintiffs, not only accepted the second offer but also subsequently withdrew from the proceeding, having earlier indicated their intention to do so.
30 In my view the terms of the second offer were clear and unambiguous and made at a stage which would have avoided substantial trial costs. In circumstances where one party takes the view that the other party’s case is clearly hopeless, a compromise which seeks only for each party to bear their own costs, can amount to a genuine and significant offer, particularly where two Plaintiffs have indicated their intention to withdraw from the proceedings.
31 Accordingly, in all the circumstances, the rejection of the second offer by the third and fourth named Plaintiffs was unreasonable and it is appropriate that they bear a costs burden more onerous than the normal costs burden from the date that the first and second named Plaintiffs accepted the second offer.
32 In relation to the third offer, the same considerations apply as for the second offer except that the Defendant has now offered an additional consideration of $10,000. The offer was also made at a time which would have avoided substantial trial costs. In my view it is appropriate that the third and fourth Plaintiffs bear costs on an indemnity basis from the date of their rejection of this offer.
33 In the case of each offer the Plaintiffs were clearly on notice that the Defendant would be seeking costs on an indemnity basis.
DRAFT
Orders
34 That the Defendant’s costs of and incidental to the proceeding, including any reserve costs, be paid as follows:
a) By Thomas Chamakala [also known as Chamakalayil], Varghese Pynadeth, Polachan Pynadath and JMJ Traders Pty Ltd, jointly and severally, on a party and party basis on Scale D up to and including 19 March 2008; b) By Thomas Chamakala and JMJ Traders Pty Ltd, jointly and severally, on a solicitor and own client basis, from 20 March 2008 until 7 October 2008 inclusive; c) By Thomas Chamakala and JMJ Traders Pty Ltd, jointly and severally, on an indemnity basis, from 8 October 2008; d) Certify for Counsel’s brief fee at trial for 5.5 days at the rate of $4,500 per day; and e) Certify for Counsel’s conference fees for 7 hours at the rate of $450 per hour; and f) Certify for the costs of transcript.
pars 31-32
discussed the reasons for awards of indemnity costs.
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