Commonwealth Bank of Australia v Codovo Developments Pty Limited (No. 2)
[2016] VSC 327
•10 June 2016
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
S CI 2015 03867
| COMMONWEALTH BANK OF AUSTRALIA T/AS BANK OF WESTERN AUSTRALIA (ABN 48 123 123 124) | Plaintiff |
| v | |
| CODOVO DEVELOPMENTS PTY LTD (ACN 122 084 477) & ORS | Defendants |
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JUDGE: | ALMOND J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | Determined on the papers |
DATE OF JUDGMENT: | 10 June 2016 |
CASE MAY BE CITED AS: | Commonwealth Bank of Australia v Codovo Developments Pty Limited & Ors (No. 2) |
MEDIUM NEUTRAL CITATION: | [2016] VSC 327 |
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COSTS – Offer of compromise under the Magistrates Court Rules – Proceeding transferred to the Supreme Court of Victoria – Summary judgment application partially successful.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | C. Möller | Corrs Chambers Westgarth |
| For the Defendants | C. A. Connor | Wisewould Mahony |
HIS HONOUR:
On 1 April 2016, I delivered reasons for judgment in this proceeding in a summary judgment application brought by the plaintiff, Commonwealth Bank of Australia trading as Bank of Western Australia (‘the bank’).[1]
[1]Commonwealth Bank of Australia v Codovo Developments Pty Limited & Ors [2016] VSC 122.
Summary judgment was ordered in favour of the bank for its debt claim against the defendants Codovo Developments Pty Ltd, Church & Palmer Wines Pty Ltd, Carlo Volpato and Julie Volpato.[2] The bank’s application for summary judgment on the defendants’ counterclaim was refused.
[2]At the commencement of the proceeding there were six defendants. The plaintiff has settled with the fifth and sixth defendants. The remaining defendants are the first, second, third and fourth defendants (collectively, ‘the defendants’).
The parties informed the Court that they were content for costs and ancillary orders to be determined by the Court ‘on the papers’ and by their counsel provided written submissions.[3]
[3]Plaintiff’s written submissions filed 13 May 2016 (‘Plaintiff’s submissions’); Defendants’ written submissions filed 16 May 2016 (‘Defendants’ submissions’).
The bank relies on the affidavit of its solicitor, Haley Aprile, sworn 12 May 2016 (‘Aprile affidavit’) and says that costs, including the costs of its summons for summary judgment, should be reserved; alternatively there should be no order as to costs.
The defendants rely on the affidavit of their solicitor, Matthew Deller, sworn 5 May 2016 (‘Deller affidavit’), and the affidavit of Carlo Volpato sworn 28 April 2016 (‘Volpato affidavit’). In essence, the defendants say that owing to the filing and service of an offer of compromise, the bank should pay part of their costs.
Both parties refer to the affidavit of Robert Ralston, Manager, Group Credit Structuring, Risk Management, sworn 24 November 2016 (‘Ralston affidavit’).
Background
The procedural history of this matter is not in dispute. However, the parties disagree on the consequences of that history for current purposes.
The proceeding originated in the Magistrates’ Court of Victoria as a debt claim by the bank for the sum of $13,640.97 plus interest and costs.[4]
[4]Exhibit MD1 Deller affidavit.
On 21 November 2014, the defendants filed a defence in the Magistrates’ Court which, among other things, disputed the jurisdiction of that Court.[5]
[5]Exhibit HAA1 Aprile affidavit.
On 15 January 2015, the defendants served the bank with a ‘Rules of Court Offer of Settlement Before Action’ under the Supreme Court Civil Rules 2006 (SA).[6] The unchallenged evidence of the bank is that the claim described therein is, in substance, the same as the claim outlined in the defendants’ counterclaim filed in this proceeding.[7]
[6]Exhibit HAA2 Aprile affidavit (‘Offer of Settlement Before Action’). Out of an abundance of caution, the Court has not been provided with a copy of this document.
[7]Paragraphs 7 and 8 Aprile affidavit.
On 19 March 2015, the defendants served an offer of compromise in the following terms:
OFFER OF COMPROMISE
The First, Second, Third and Fourth defendants OFFER pursuant to Order 26 to settle the action for the sum of $13,640.97 together with interest from 1 October 2014 and costs to be taxed or agreed. This Offer of Compromise is not to be taken to be an Offer of Compromise made without prejudice. [8]
[8]Paragraph 6 Deller affidavit.
The Offer of Compromise was not accepted by the bank.
On the same day (19 March 2015), the bank filed an application to transfer the proceeding to this Court.[9] The transfer application was opposed by the defendants, who foreshadowed an intention to file a claim in the District Court of South Australia for exceeding $1 million.[10]
[9]Paragraphs 9 and 10 Aprile affidavit; Paragraph 12 Plaintiff’s submissions.
[10]Paragraph 13 and Exhibit HAA4 Aprile affidavit.
On 23 July 2015, the proceeding was transferred to this Court as an ‘individual transfer’ pursuant to Part 3 of the Courts (Case Transfer) Act 1991 (Vic).[11]
[11]Paragraph 7 Defendants’ submissions; Paragraph 13 Plaintiff’s submissions; Paragraph 16 Aprile affidavit.
On 9 October 2015, the parties appeared before the Court for first directions. At that time orders were made for, among other things, the filing of pleadings, including the defendants’ counterclaim.
Relevant legislation and principles
Under the Rules of Court, this Court has wide general powers with respect to making orders for costs.[12]
[12]Rule 63 Supreme Court (General Civil Procedure) Rules 2015 (Vic).
A proceeding transferred under the Courts (Case Transfer) Act 1991 (Vic) is subject to the procedural rules and practices of the transferee court. Unless the transferee court otherwise orders, costs be paid to a party in respect of the conduct of the proceeding in the transferor court in the period before the transfer will be calculated on the transferor court scale but afterwards on the transferee court scale.[13]
[13]Section 22 Courts (Case Transfer) Act 1991 (Vic).
The Magistrates’ Court General Civil Procedure Rules 2010 (Vic) relevantly provide:
PART 2—OFFER OF COMPROMISE
26.02 Application
…
(3) An offer of compromise must—
…
(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 an order in respect of the claim to which it relates.
…
(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 must not be less than 7 days after such service.
(4)A party on whom an offer of compromise is served must within 3 days after service serve a written acknowledgment of service on the party serving the offer.
(5)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 7 days after service of the offer; or
(b)an order in respect of the claim to which the offer relates—
whichever event is the sooner.
(6)An offer of compromise must not be withdrawn during the time it is open to be accepted, unless the Court otherwise orders.
…
26.05 Disclosure of offer to Court
…
(2)Where an offer of compromise has not been accepted, then, except as provided by Rule 26.08(6), communication with respect to the offer must not be made to the Court on the hearing of the proceeding until after all questions of liability and the relief to be granted have been determined.
(3)Paragraphs (1) and (2) do not apply where an offer of compromise provides that the offer is not made without prejudice.
…
26.08 Costs consequences of failure to accept
(1)This Rule applies to an offer of compromise which has not been accepted at the time of an order on the claim to which the offer relates.
…
(3)If an offer of compromise is made by a defendant and not accepted by the plaintiff, and the plaintiff obtains an order on the claim to which the offer relates not more favourable than the terms of the offer, then, unless the Court otherwise orders—
(a)the plaintiff is entitled to an order against the defendant for the plaintiff's costs in respect of the claim before 11.00 a.m. on the second business day after the offer was served, fixed on the appropriate scale in Appendix A; and
(b) the defendant is entitled to an order against the plaintiff for the defendant's costs in respect of the claim thereafter fixed on the appropriate scale in Appendix A, as if the costs prescribed by that scale were increased by 25%.
Plaintiff’s position
The bank submits that:
(a) both parties had some success in relation to the bank’s summary judgment application;
(b) the proceeding will continue, although only in relation to the defendants’ counterclaim;[14] and
(c) the background to the proceeding and the relative complexity of any costs order mean it is appropriate for the Court to exercise its discretion under Rule 63.04 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) and order that costs be reserved.[15] In relation to complexity, counsel for the bank referred to the facility agreement and guarantees between the defendants and the bank whereby the defendants agreed to indemnify the bank for relevant costs.[16]
[14]Paragraphs 4 and 15 Plaintiff’s submissions.
[15]Paragraphs 5, 16, 17 and 18 Plaintiff’s submissions.
[16]Paragraph 17 Plaintiff’s submissions; Exhibit RR1 Ralston affidavit. The Court notes that the defendants submitted that there is no pleaded basis for indemnity costs in the Magistrates’ Court statement of claim – Paragraph 20 Defendant’s submissions.
In the alternative, counsel for the bank submits that there should be no order as to costs.[17]
[17]Paragraph 15 Plaintiff’s submissions.
In relation to the Offer of Compromise, the bank says that:
(a) it was served prior to the transfer of the proceeding to this Court;
(b) it was expressed to relate only to the bank’s claim;
(c) it was made at a time when the defendants had put the bank on notice that a significant claim would be made in South Australia;
(d) the defendants conveniently ignore the other offer they made, namely, the Offer of Settlement Before Action;
(e) it is unreasonable for the defendants now to rely on an offer made in respect of only one aspect of their case (i.e. concerning the bank’s claim) and to ignore wholly the consequences of their foreshadowed claim, which they have now brought in this Court by counterclaim;
(f) Rule 26.08 of the Magistrates’ Court (General Civil Procedure) Rules 2010 (Vic) and Rule 26.08 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) both provide that the Court retains discretion as to costs where an offer of compromise has been served; and
(g) in this case, there were ‘special circumstances’ which would permit the Court to depart from the usual operation of the rules concerning offers of compromise.[18]
[18]Paragraphs 20, 21 and 22 Plaintiff’s submissions.
Defendants’ position
The defendants accept that they should pay the bank’s costs in respect of the bank’s claim up until 11.00 am on the second business day after the Offer of Compromise was served pursuant to Rule 26.08(3) of the Magistrates’ Court General Civil Procedure Rules 2010 (Vic) but submit that the bank should pay their costs in respect of the claim thereafter.
The defendants submit that:
(a) the Offer of Compromise served by the defendants on the bank was not accepted within the relevant time;
(b) the judgment obtained by the bank on 1 April 2016 on its debt claim was prima facie of greater value than the amount referred to in the Offer of Compromise, but this was due to the accrual of interest. Disregarding interest that relates to the period after the day the Offer of Compromise was served,[19] the judgment was in fact not more favourable than the defendants’ offer made in the Offer of Compromise;[20] and
(c) The bank’s application for summary judgment did not have any real prospects of success.[21]
[19]Pursuant to r 26.08(5) of the Magistrates’ Court (General Civil Procedure) Rules.
[20]Paragraph 15 Defendants’ submissions; Exhibit RR7, Ralston affidavit.
[21]Paragraphs 3, 4 and 5 Defendants’ submissions.
Disposition
The Offer of Compromise was made at the time the defendants had put the bank on notice that a significant claim would be made in South Australia and had made an Offer of Settlement Before Action in connection with that foreshadowed claim, however, this did not preclude the bank from compromising the debt claim. It appears to me that the bank made a considered decision to take the initiative and transfer the proceeding to this Court rather than to compromise the Magistrates’ Court proceeding and have the foreshadowed claim issued and litigated elsewhere. That involved a considered risk that the bank might have to bear the cost consequences of failing to accept the Offer of Compromise. In my view, it is not unreasonable for the defendants to make an offer in respect of the debt claim separately from their foreshadowed claim now brought by counterclaim. There is no suggestion that the offers made with respect to the foreshadowed proceeding and the debt claim were interdependent. Accordingly, the costs consequences under the Magistrates’ Court General Civil Procedure Rules 2010 (Vic) should, in my view, apply.
I accept the plaintiff’s submissions with respect to the bank’s application for summary judgment on the defendants’ counterclaim. The prospects of success for this application were not so low as to warrant an order that the bank should bear the costs of this application, at least at this stage. Accordingly, I consider these costs should be reserved.
I have made orders reflecting these reasons after considering the form of orders proposed by each party.
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