Cooper & Anor. v Pretty Nominees Pty Ltd & ORS. (No 2) - [2013] SADC 101

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
COOPER & ANOR. v PRETTY NOMINEES PTY LTD & ORS. (No 2)
[2013] SADC 101
Judgment of His Honour Judge Slattery
2 August 2013
PROCEDURE - COSTS
The defendant seeks indemnity costs against the plaintiff following a trial in which the plaintiff’s claim was dismissed.
Plaintiff’s primary claim as liquidator of a company in liquidation was in respect of an uncommercial transaction and voidable transaction. The defendant claims there was no transaction or there was no debtor-creditor relationship between it and the relevant corporation.
Prior to the trial of the action, the defendant made a series of offers to the plaintiffs in correspondence. Some of the letters of offer were marked “without prejudice”, some letters contained offers of settlement but were not marked “without prejudice” and one was marked “without prejudice” but did not contain an offer of settlement. A final letter of offer of February 2012 referred to and reiterated an earlier letter of offer that was marked without prejudice. The February 2012 letter was marked “without prejudice” but also included a paragraph that it was to be treated as a “Calderbank” offer.
The defendant sought to read into evidence all of the correspondence and the plaintiff objected to all of the correspondence being received into evidence before the Court.
Held: by the operation of s67C Evidence Act 1929 the letters of offer marked “without prejudice” and that portion of the letter containing an offer of settlement though not marked “without prejudice” would not be received into evidence in the application. The letter marked “without prejudice” but containing no offer of settlement would be admitted into evidence. The letter of February 2012 would be admitted into evidence for the purpose of deciding the defendant’s claim for indemnity costs.
The defendant claimed indemnity costs because of an alleged imprudent refusal by the plaintiff to accept the defendant’s offer made in February 2012.
Held: application refused. The respective legal positions of the parties did not finalise until the close of pleadings that occurred at the end of the trial. The legal position asserted by the defendant, at the time that the relevant “without prejudice” offer reiterated within the February 2012 offer was made, was to an extent arguably inconsistent with the final position put by the defendant at trial and on which the defendant succeeded. The parties each failed to take proper cognisance of, or to appreciate the significance of, an agreement reached between the relevant parties on 24 May 2007 that terminated any possible argument that the plaintiff may have had to maintain an interest in the fund, the subject of the claim. There was no imprudent refusal by the plaintiff of an offer by the defendant.
Order: the defendant have its costs of the trial on a party and party basis.
District Court (Civil) Rules 2006 Rules 107, 107(4), 264(5)(b) ; Corporations Act 2001 s588FA, s588FB, s588FF ; Evidence Act 1929 s67C , referred to.
Davies & Davies v Nyland & O’Neil 10 SASR 76; Colgate-Palmolive Company and Anor. v Cussons Pty Ltd (1983) 46 FCR 225, applied.

COOPER & ANOR. v PRETTY NOMINEES PTY LTD & ORS. (No 2)
[2013] SADC 101

I delivered judgment in this matter on 31 May 2013.[1] I dismissed the plaintiff’s claim.
[1] [2013] SADC 75
Following the delivery of my judgment, the defendant has made an application for indemnity costs pursuant to Rule 264(5)(b) of the District Court Rules. That rule reads as follows:-
“264—Basis for awarding costs
(5)     In exercising its general discretion as to costs, the Court may—
(a)     …
(b)award costs on the basis of an indemnity (that is, on the basis that the party will be fully reimbursed for costs incurred by the party in the conduct of the litigation except to the extent that the party liable for the costs shows them to have been unreasonably incurred); or
(c)     …
(d)     …”
In argument, the defendant sought to read in support an affidavit sworn by Matthew John Hawke dated 14 June 2013 (FDN20). The plaintiff objected to portions of the content of the affidavit of Mr Hawke being read in evidence. The portions in the affidavit objected to were paragraph 8 and Exhibit NJH6, paragraph 10 and Exhibit NJH7 and paragraph 12 and Exhibit NJH8.
In order to decide the preliminary question of the admission of this material into evidence (or not) it is necessary to make a limited review of the background material in this matter.
Background of the claim
The plaintiff’s primary claim was in respect of a voidable transaction, namely an unfair preference received by the defendant. Alternatively, the plaintiff claims that a payment made to the defendant was a voidable transaction because it was allegedly an un-commercial transaction.[2] The defendant denied the claim and in essence contended that any money received by it was not received in the context of a transaction and was merely a restitution to it, as an entity beneficially entitled, of an asset in which it maintained its beneficial interest.
[2] S588FB Corporations Act, s588FF Corporations Act.
Within the trial hearing, there was significant factual controversies and it was not until the final day of the hearing of the trial[3] that the parties’ pleadings were finalised. This was despite the fact that the action had by then been on foot for some 2 ½ years.
7It appears that the statement of claim in the action was issued on 6 August 2010. Prior to that time there had been communication between Mr Cooper as joint liquidator of the plaintiff concerning the alleged unfair preference. Mr Cooper first made contact with the defendant by letter dated 16 March 2010 and there was a response to that letter by the defendant’s solicitors by letter dated 22 April 2010. In that letter, the defendant asserted that there was never a debtor-creditor relationship between the relevant corporation and the defendant.
8At the time that the plaintiff issued the proceedings, through his solicitors he sought an offer of settlement from the defendant.[4]
9On 21 December 2010 the defendant through its solicitors made an offer to the plaintiff to settle the dispute before filing a defence on the basis that each party bear own costs.[5] That offer was rejected by the plaintiff.[6]
[3] The trial was heard between 6 August 2012 and 10 August 2012.
[4] Letter Norman Waterhouse Solicitors to Cowell Clarke Solicitors dated 25 October 2010, Exhibit MJH3 to the affidavit of Matthew John Hawke.
[5] Affidavit of Matthew John Hawke 14 June 2013 paragraph 6 and Exhibit MJH4 to that affidavit.
[6] Affidavit of Matthew John Hawke sworn 14 June 2013 paragraph 7 and Exhibit MJH5 to that affidavit.
The affidavit material: admission to evidence
In order to fully explain the basis of my decision, it is necessary to set out the “offending” material as complained of by Mr Dal Cin, counsel for the plaintiff.
In paragraph 8 of his affidavit, Mr Hawke says as follows:-
“By letter dated 14 January 2011, Cowell Clarke wrote on behalf of the defendant to Norman Waterhouse noting that the plaintiffs had not put forward any further information in support of their claim and offering to settle the dispute for a payment of $8,000 to the plaintiff. That offer was not accepted. Exhibited hereto and marked MJH6 is a copy of the letter dated 14 January 2013.”
Exhibit MJH6 to the affidavit of Mr Hawke is a letter from Cowell Clarke Commercial Lawyers to Norman Waterhouse solicitors of 14 January 2011. It concerns this action. It is marked without prejudice. It recites some of the history of the matter that I have already set out above in summary and says in the fifth paragraph as follows:-
“Taking all of these matters into account my client offers to pay in full settlement of your client’s claim the sum of $8,000.”
The offer was made with a denial of liability.
The letter went on to recite that the offer remained open for a limited period of time, and that if it was not accepted the defence would be filed and there would be no further offers. The last paragraph of the letter reads as follows:-
“As you would expect, this letter will be tendered to the Court on any application by my client for indemnity costs on any successful application by my client to have your client’s claim dismissed.”
The argument of the plaintiff was that the communication is marked “without prejudice” and that the privilege attaching to the letter enures for the benefit of both the plaintiff and the defendant. That being so, and acknowledging (as is the case) that the privilege belongs to the plaintiff and the defendant and it has not being waived by the plaintiff, then the communication may not be received by the Court in evidence in this application.
Mr Dal Cin relied upon the content of s67C of the Evidence Act. That section reads as follows:-
“67C—Exclusion of evidence of settlement negotiations
(1)     Subject to this section, evidence of a communication made in connection with an attempt to negotiate the settlement of a civil dispute, or of a document prepared in connection with such an attempt, is not admissible in any civil or criminal proceedings.
(2)     Such evidence is, however, admissible if—
(a)     the parties to the dispute consent; or
(b)the substance of the evidence has been disclosed with the express or implied consent of the parties to the dispute; or
(c)    the substance of the evidence has been partly disclosed with the express or implied consent of the parties to the dispute, and full disclosure of the evidence is reasonably necessary to—
(i)     enable a proper understanding of the other evidence that has already been adduced; or
(ii)    avoid unfairness to any of the parties to the dispute; or
(d)    the communication or document included a statement to the effect that it was not to be treated as confidential; or
(e)    the proceeding in which the evidence is to be adduced is a proceeding to enforce an agreement for the settlement of the dispute or a proceeding in which the making of such an agreement is in issue; or
(f)    the evidence tends to contradict or to qualify evidence that has already been admitted about the course of an attempt to settle the dispute; or
(g)    the making of the communication, or the preparation of the document, affects the rights of a party to the dispute; or
(h)    the communication was made, or the document was prepared, in furtherance of—
(i)    the commission of a fraud or an offence; or
(ii)    the doing of an act that renders a person liable to a civil penalty; or
(iii)     the abuse of a statutory power.
(3)     Subsection (1) does not apply to parts of a document that do not concern attempts to negotiate a settlement of a dispute, if it would not be misleading to adduce evidence of only those parts of the document.”
It was not put in contest that the communication (Exhibit MJH6 to the Hawke affidavit) was a communication made in connection with an attempt to negotiate the settlement of a civil dispute or that the letter was a document prepared in connection with such an attempt. It was also not in dispute that not all of the parties to the dispute consented to the admission or that any of the other paragraphs of subsection s67C(2) were satisfied (that is, the evidence did not become admissible under s67C(2) of the Evidence Act). It was also common ground that s67C(3) had no application in these circumstances.
In those circumstances I exclude any consideration of paragraph 8 and Exhibit MJH6 to the extent that the inclusion of any part of that paragraph or that Exhibit offends s67C of the Evidence Act. I have given consideration to the question whether the offending portions of the document may be excised however, it is unnecessary to consider that issue further because the gravamen of the letter was the settlement of the action. The balance of the letter is largely meaningless if the offending portions are excised.
On this matter, Mr Dal Cin put a second submission. This was that the letter was to be tendered to the Court on any application by the defendant for indemnity costs on any successful application by the defendant to have the plaintiff’s claim dismissed. Mr Dal Cin correctly pointed to the fact that there was no such application. In that respect, and in reply, Mr Britten-Jones submitted that the taking of the matter to trial was to be viewed as a “successful application by the defendant to have the plaintiff’s claim dismissed.” I accept Mr Dal Cin’s submission and I am unable to accept the submission of Mr Britten-Jones. As a matter of common sense, on a proper consideration of all of the facts of the matter, a trial of the action could not be seen in the same context as an application to have a claim dismissed. The latter matter would normally arise where one party would assert that, for example, on no view of the law or the facts could the plaintiff’s claim succeed. No such application was made.
Therefore, for the purposes of this matter, I will not receive into evidence and I remove from my considerations paragraph 8 and Exhibit MJH6 of the Hawke affidavit.
Paragraph 10 of the affidavit of Mr Hawke reads as follows:-
“In the 2 March 2011 letter the defendant offered to not enforce any costs order or entitlement to costs if the claim was abandoned and discontinued within 14 days. Exhibited hereto and marked MJH7 is a copy of the letter dated 2 March 2011.”
Exhibit MJH7 is a letter from Cowell Clarke to Norman Waterhouse within the run of correspondence between the parties concerning the action. The letter delivered the second defence and discussed the substantive features of that second defence in three paragraphs. Relevantly, the letter said:-
“Accordingly, we urge your client to abandon and discontinue his claim. If you client abandons and discontinues his claim within 14 days then our client agrees not to enforce any cost order or entitlement to costs otherwise arising.”
Under the terms of the District Court Rules (Rule 107 and in particular Rule 107(4)) the party against whom an action is discontinued is entitled to costs arising from the action up to the time of receiving the notice of the discontinuance. This is subject to any contrary order of the Court or any contrary agreement of the parties. In the absence of this offer and in the event that the plaintiff had accepted the invitation of the defendant and discontinued the claim, then an order for costs would automatically have been made against him. Thus, properly considered, this letter is a letter of offer communicated by the defendant to the plaintiff.
Therefore, the letter of 2 March 2011 may be seen, properly assessed, as an offer of settlement of a civil dispute and is plainly a document prepared in connection with such an attempt. To that extent, that portion of the letter is covered under s67C(1) of the Evidence Act and that portion of the letter is not admissible in these proceedings.
I will therefore not receive into evidence and I will not take into account paragraph 10 of the Hawke affidavit to the extent that those documents offend s67C(1) of the Evidence Act, Exhibit MJH7. In my view, it is possible to redact and ignore that material and leave the balance of the documents intact.
Mr Dal Cin also objected to the receipt of paragraph 12 of the affidavit of Mr Hawke and Exhibit MJH8. Paragraph 12 concerned two matters. The first was an advice from Mr Livesey QC about his assessment of the prospects of success of the plaintiff’s claim based upon a number of assumptions that he was asked to make and which are set out in a written advice to the defendant’s solicitors. This written advice was on-forwarded to the plaintiff’s solicitors with a letter dated 21 July 2011. That letter is Exhibit MJH8 to the affidavit of Mr Hawke. It encloses Mr Livesey’s advice. The letter is marked without prejudice. It reads as follows:-
“Dear Mr McGrath
NICHOLAS DAVID COOPER AND ADREJS JANIS STRAZDINS AS JOINT LIQUIDATORS OF PARI AUSTRALIA PTY LTD (IN LIQUIDATION) (FORMERLY TRADING AS ROVA CONTRACTS) ACN 116 359 061 V PRETTY NOMINEES PTY LTD ACN 007 724 110 – DISTRICT COURT OF SOUTH AUSTRALIA NO. 1531 OF 2010
I refer to previous correspondence.
I have received an advice from senior counsel in relation to the strengths of your client’s claim. The advice concurs entirely with our view that your clients’ claim will not succeed.
I maintain my concern regarding the costs that have been incurred in this matter and that will continue to increase unnecessarily if the matter proceeds to trial.
In particular I am concerned with the costs given the relatively small quantum and the highly speculative nature of your clients’ preference claim.
I propose that I meet with you and your client late next week to discuss the advice received from senior counsel with a view to reaching a resolution to this matter.
Please contact me to confirm your clients’ instructions in relation to the proposed meeting.
Yours faithfully
COWELL CLARKE
Per
JON CLARKE”
On my reading of the letter, it does not contain a communication made in connection with an attempt to negotiate the settlement of a civil dispute or constitute a document prepared in connection with such an attempt. It proposes a meeting, having disclosed the content of the advice of Mr Livesey QC. It asks for acknowledgement of the possibility of a proposed meeting.
In that respect, I refuse the application of the plaintiff to exclude paragraph 12 and Exhibit MJH8. This letter falls within the rubric of common errors that arise in relation to this type of communication[7].
[7] See in particular the judgment of Justice Zelling in Davies & Davies v Nyland & O’Neil 10 SASR 76 which is instructive in relation to these matters.
Notwithstanding those matters, Mr Dal Cin correctly identified that the letter of 21 July 2011 (and all preceding correspondence) and the memorandum of advice of Mr Livesey QC do not mention one of the essential factual features in the matter, namely the negotiations that occurred on 24 May 2007, the sequelae of such negotiations and the issue of whether what was agreed on 24 May 2007 constituted an amendment of any previous agreements, was an agreement that superseded the parties’ previous agreements or was some hybrid of those two positions.
The position is therefore reached that by letter of 21 February 2012, the defendant through its solicitors informed the plaintiff that it restated the offer that it had made in a without prejudice letter of 14 January 2011, and would not entertain any counter-offers and would not make any further offers to settle the matter. The letter went on to state the following: “…this letter is written without prejudice save as to costs…” The letter was also marked “without prejudice”.
For the sake of completeness, the letter of 14 January 2011 has already been dealt with by me. It sets out an offer of the defendant to pay to the plaintiff the sum of $8,000 in full and final settlement of the claim.
It is a little difficult to resolve the status of this letter. It contains the usual “Calderbank” style statement at the end of the letter but it is also marked without prejudice. It is signed by Mr Jon Clarke, senior partner – dispute resolution of the firm Cowell Clarke commercial lawyers.
In the view that I have formed in this matter, the letter of 21 February 2012 was not of sufficient significance to affect the resolution of this application one way or the other. I will explain those reasons below. In the context of this matter, I will allow the letter of 21 February 2012 to be read but only in the context that there is also a very strong argument that s67C(1) would exclude its admission but, for the purposes of these reasons I do not need to resolve that matter further. I therefore turn to the substantive application.
The substantive application

Mr Dal Cin read the affidavit of Damien Jarred McGrath sworn 19 June 2013 (FDN21) without objection from Mr Britten-Jones.
In his submissions, Mr Britten-Jones directed the Court’s attention to the way in which the action developed, the identification as early as possible by the defendant of the deficiencies in the plaintiff’s claim, the opinion given by Mr Livesey based upon the assumptions that I have earlier referred to and the inherent weakness in the trust case put on behalf of the plaintiffs. The essential thrust of his submissions was that it should have been apparent from very early in the proceedings that there was no return of company funds which was an essential feature of a “transaction” under the relevant provisions of the Corporations Act. Therefore, on the argument of the defendant, there was an imprudent refusal by the plaintiff in their failing to accept the offer of settlement put by the defendant. The defendant contended that one only had to look at the letter of offer (Exhibit MJH9) of 21 February 2012 to identify that a failure by the plaintiff to accept the offer of $8,000 was imprudent. That was only emphasised when one considered the final outcome namely the dismissal of the claim. This was because both parties had all the material before them on which they could make a decision about how the matter should proceed. The only conclusion open (according to the defendant) was that the payments made to the defendant were made out of funds in which the defendant already retained a beneficial interest so that the plaintiff failed at the most fundamental level for s588FA of the Corporations Act.
The submissions in response made on behalf of the plaintiff reviewed paragraph 44 and following of the plaintiff’s written submissions. These relied on the well settled principles enunciated by Justice Sheppard in Colgate-Palmolive Company and Anor. v Cussons Pty Ltd (1983) 46 FCR 225 and in particular at 232-234. Specific reference was made to paragraph numbered 5 on page 233 of the report which reads as follows:-
“5. Notwithstanding the fact that that is so, it is useful to note some of the circumstances which have been thought to warrant the exercise of the discretion. I instance the making of allegations of fraud knowing them to be false and the making of irrelevant allegations of fraud (both referred to by Woodward J in Fountain and also by Gummow J in Thors v Weekes (1989) 92 ALR 131 at 152; evidence of particular misconduct that causes loss of time to the Court and to other parties (French J in Tetijo); the fact that the proceedings were commenced or continued for some ulterior motive (Davies J in Ragata) or in wilful disregard of known facts or clearly established law (Woodward J in Fountain and French J in I-Corp (supra)). The making of allegations which ought never to have been made or the undue prolongation of a case by groundless contentions (Davies J in Ragata); an imprudent refusal of an offer to compromise (eg Messiter v Hutchinson (1987) 10 NSWLR 525; Maitland Hospital v Fisher (No 2) (1992) 27 NSWLR 721 at 724 (Court of Appeal); Crisp v Keng (unreported, Court of Appeal, NSW, Kirby P, Priestley JA, Cripps JA, No 40744/1992, 27 September 1993) and an award of costs on an indemnity basis against a contemnor (eg Megarry V-C in EM! Records (supr)). Other categories of cases are to be found in the reports. Yet others to arise in the future will have different features about them which may justify an order for costs on the indemnity basis. 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.”
One of the considerations there mentioned is an imprudent refusal to accept an offer of settlement. The defendant’s response was that at the very least, it must be said that the plaintiff had an arguable case on a debtor-creditor relationship claim. There existed a claim for liquidated damages that had been made by the defendant and this could be immediately pointed to as part of the overall mosaic of facts upon which it may be suggested that there was a debtor-creditor relationship.
Second, the defendant solicitor’s letter of January 2011 arrived after the defendant had acknowledged a special purpose trust which was the opposite of the position that the defendant put at trial. In other words, arguendo, there must have been some prospect for the success of the claim put by the plaintiff.
Thus, the plaintiff viewing the offer needed to read that offer in the context of the defendant actually conceding a special purpose trust to pay subcontractors. Inferentially, on the plaintiff’s case, this reduced the strength of the defendant’s submission in relation to what should have or must have been apparent to the plaintiff from very early on in the proceedings.
Mr Dal Cin reemphasised that the claim of the plaintiff failed because of the effect of the May agreement.[8] Mr Dal Cin submitted that in my judgment I correctly characterised the position to be that the 24 May 2007 agreement was a standalone and separate agreement. It operated separately from the 22 February 2007 agreement. Although I am not able to completely agree with that submission and a reading of my judgment in this matter will disclose the basis for my decision and thus my disagreement, it is pertinent that neither Mr Livesey QC, nor the defendant’s solicitors at any time made reference to the 24 May 2007 agreement in the context of the matters which they considered as relevant to these proceedings. Thus, on the plaintiff’s argument, the consideration of the matter starts from the contention on which the plaintiff is relying for the purposes of this case namely that the defendant had conceded the very relationship relied upon by the plaintiff.
[8] It is to be recalled that the plaintiff’s primary position was that the 24 May 2007 agreement was a mere reaffirmation of the 22 February 2007 agreement. I was unable to accept this proposition.
I questioned Mr Dal Cin about the status of the 22 February 2007 agreement. Although slightly inconsistent with his earlier submission, Mr Dal Cin argued (and as he said Mr Livesey QC actually or inferentially acknowledged) that there was a potential for the liquidator to have a claim on one view of the operation of the 22 February 2007 agreement. That is notwithstanding that I disagreed with his previously expressed views in relation to the operation of the 22 February 2007 agreement. It also must be emphasised that it was not until partway through the trial that the parties may have realised the effect and importance of the 24 May 2007 agreement.
On the basis of the material as I have set out above, the plaintiff has not conducted the litigation in a way that warrants an indemnity costs order. There are a number of fundamental reasons for me forming this view. The first is it appeared to me that no party identified the importance of the 24 May 2007 agreement and the meeting and conversations associated with it in the overall context of the claim until some point during the trial. It was after that realisation that the parties finalised their pleadings. That position apparently pertains more to the defendant than the plaintiff. From the outset, Mr Dal Cin for the plaintiff put in argument that the 24 May 2007 agreement merely reaffirmed the 22 February 2007 agreement. I rejected this position in my judgment.
There was certainly an arguable case that if the 22 February 2007 agreement was maintained, then the plaintiff may have obtained some interest in the funds placed in the solicitor’s trust account. I put this as no more than arguable and in the end, I rejected that view but it was not unreasonable to have formed and maintained that view having regard to the wording of that agreement. That position was compounded by the agreement of 13 April 2007 which in turn led to the arrangements settled on 24 May 2007. The position between the parties was, to a large extent, fluid and so it would have been very difficult for the liquidator to have formed a final view of the matter based upon the range of possibilities that confronted him. Also, as I have described in the judgment, there were a number of applicable equitable principles that although they may be assumed to have been settled, depended upon the relevant factual circumstances for their application. It would not have been until a trial of the matter and the “teasing out” of those factual matters in evidence that a final decision could have been made about the merits of the proceedings. Until that time, the parties were justified in maintaining the relevant stances that they had previously pursued.
Further, in the application of the relevant principles and the authorities referred to by the defendant, I am not satisfied that there has been an unreasonable rejection of an offer of settlement. I accept the submissions of the plaintiff that the offer of settlement would not have discharged costs incurred to date and would have been seen in that context. Also, that is a matter for judgment and I do not think that I should interpolate my judgment for the judgment of the liquidator in those circumstances, bearing in mind that the liquidator is an officer of the Court charged with particular duties and responsibilities.
In those circumstances, the order for costs that I am prepared to make is that the plaintiff pay the defendant his costs of and incidental to the proceedings on a party and party basis. I so Order.