Crowe Horwath (Aust) Pty Ltd v Loone (No 4)
[2017] VSC 656
•30 October 2017
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
EMPLOYMENT AND INDUSTRIAL LIST
S CI 2016 02982
| CROWE HORWATH (AUST) PTY LTD (ACN 006 466 351) | Plaintiff and Defendant by Counterclaim |
| v | |
| ANTHONY LOONE | Defendant and Plaintiff by Counterclaim |
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JUDGE: | McDonald J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | On the papers |
DATE OF JUDGMENT: | 30 October 2017 |
CASE MAY BE CITED AS: | Crowe Horwath (Aust) Pty Ltd v Loone (No 4) |
MEDIUM NEUTRAL CITATION: | [2017] VSC 656 First Revision 30 October 2017 |
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COSTS — Whether party granted an interlocutory injunction but unsuccessful at trial should receive costs of interlocutory application — Whether defendant to counterclaim acted unreasonably in rejecting Calderbank offers — Whether interest should be calculated from date of filing counterclaim — Supreme Court Act s 60(1).
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HIS HONOUR:
On 15 September 2017 the court delivered judgment in respect of the quantum of damages to which Mr Loone is entitled following the court’s earlier finding that Crowe Horwath (Aust) Pty Ltd (‘CHA’) repudiated his contract of employment.[1] The court held that Mr Loone is entitled to damages in the sum of $423,445. This judgment deals with questions of costs and interest.
[1][2017] VSC 548.
As to the question of costs there are two issues for determination:
(i) Whether Mr Loone is entitled to costs in respect of the interlocutory hearing in September 2016, notwithstanding that CHA succeeded in obtaining an interlocutory injunction; and
(ii) Whether Mr Loone is entitled to costs orders on an indemnity basis by reason of CHA’s failure to accept various Calderbank offers made since the commencement of the proceedings.
Costs in respect of the interlocutory hearing
As to the first issue, I have decided that notwithstanding CHA’s success in obtaining an interlocutory injunction on 26 September 2016, Mr Loone is entitled to an order that CHA pay his costs in respect of those proceedings.
On 26 September 2016 the court ordered that the costs of the interlocutory application should be reserved. In granting interlocutory relief, the court was satisfied that there was a serious question to be tried that the restraint clause in Mr Loone’s contract of employment was valid and enforceable. The court also concluded, based on the arguments presented on behalf of Mr Loone, that there were difficulties confronting his contention that CHA had repudiated his contract of employment. In support of this contention, Mr Loone’s counsel argued that Mr Loone had entered into an oral agreement with CHA that any accounting business which was acquired by CHA would be brought into the calculation of bonus payments for Principals, including Mr Loone working in CHA’s Launceston office. I concluded that this argument was prima facie inconsistent with an entire agreement clause in clause 7.5 of Mr Loone’s contract of employment.[2]
[2][2016] VSC 582 [24].
Ultimately, Mr Loone has succeeded in establishing that CHA did repudiate his contract. Consequently, although the restraint provisions in his contract were valid, they were rendered unenforceable. The court’s conclusion that CHA repudiated the contract was based upon detailed findings of fact following a heavily contested five day trial. The repudiation finding was based on a number of arguments which were flagged in written contentions filed in advance of the interlocutory hearing on 27 September 2016, but which were not pressed on that day.
The fact that CHA obtained an interlocutory injunction is not determinative of who should be liable to pay the costs of the interlocutory proceedings.[3] Ultimately, Mr Loone succeeded in establishing that CHA repudiated his contract with the consequence that the restraint was unenforceable. Having succeeded on this key issue, Mr Loone established an entitlement to damages for breach of contract. Costs should follow the event. Consequently, Mr Loone is entitled to costs in respect of the interlocutory application. The remaining question however, is whether those costs should be on a standard or indemnity basis.
[3]Independent Fuels Australia Pty Ltd v Jamieson (No 2) [2002] VSC 45, [10].
Whether Mr Loone is entitled to costs on an indemnity basis
Mr Loone seeks his costs in the proceeding on an indemnity basis from 2 September 2016, being the date of Mr Loone’s first Calderbank letter.[4] Under the first Calderbank letter Mr Loone offered to agree to a restraint in the terms of clause 3.1 of his Employment Agreement until 31 January 2017, save that ‘clients’ as defined under clause 31.5 of the Employment Agreement, would be those persons identified as ‘direct dealing clients’. The Launceston geographical restraint in clause 3.1(c) would not apply and would allow Mr Loone to commence work in Launceston. Mr Loone’s family, property, trusts and other business were to be excluded from the list of direct dealing clients. Under the first Calderbank letter, Mr Loone also offered to pay CHA’s standard costs of the proceeding up to 2 September 2016.
[4]Affidavit of Kelsey Faye Ryan affirmed 2 October 2017, Exhibit KFR-2.
CHA did not accept the offer contained in the first Calderbank letter. Mr Loone submits that CHA acted unreasonably in rejecting the offer.[5] In support of this submission, Mr Loone contends that the judgments ultimately delivered in this proceeding on the question of liability and quantum have resulted in a more favourable outcome to Mr Loone than the offer contained in the first Calderbank letter.
[5]See Hazeldene’s Chicken Farm Pty Ltd v Victoria Workcover Authority (No 2) (2005) 13 VR 435, 441 [23].
I have concluded that CHA did not act unreasonably in refusing to accept the first Calderbank offer. Under the offer the operation of the restraint was limited to 31 January 2017. Thereafter, Mr Loone would not have been subject to any restrictions in setting up an accounting business in competition with CHA. The interlocutory injunction obtained by CHA on 26 September 2016, although couched in similar terms to the offer contained in the first Calderbank letter, operated until the hearing and determination of the trial. Judgment on liability was delivered on 4 April 2017.
By order of the Court of Appeal the injunction granted on 26 September 2016 was extended until the determination of CHA’s appeal from the judgment on liability. The net effect of that order, is that the interlocutory injunction operated for several months beyond the date of 31 January 2016 proposed in the first Calderbank letter. CHA at the time of rejecting that offer did not act unreasonably.
On 9 February 2017 Mr Loone served a second Calderbank letter.[6] Under the second Calderbank letter, Mr Loone offered to forego his claim for damages and interest under the counterclaim upon the discharge of the interlocutory undertakings given on 26 September 2016. Further, the letter proposed, without any admission as to liability by either party, that CHA agreed to relinquish the enforcement of the post-employment restraints contained in the 2012 employment agreement. Under the terms of the second Calderbank letter Mr Loone would have been free to commence work for the clients enjoined by the 26 September 2016 orders, from 10 February 2016.
[6]Affidavit of Kelsey Faye Ryan affirmed 2 October 2017, Exhibit KFR–2.
If CHA had accepted the terms of the second Calderbank letter it would have been relieved of the liability to pay damages which have now been assessed in the sum of $423,445. The question of whether CHA acted unreasonably in rejecting the second Calderbank letter is to be judged objectively by reference to the position as at 9 February 2017. At that time CHA had the benefit of the interlocutory orders made 26 September 2016 which operated until the hearing and determination of the trial which was scheduled to commence on 13 February 2017. Ultimately, CHA retained the benefit of the interlocutory injunctions for another five months, until the Court of Appeal delivered judgment on 7 July 2017.[7] It was not unreasonable for CHA to reject the offer contained in the second Calderbank letter and retain the benefit of the interlocutory injunction which had been granted in its favour on 26 September 2016. Further, in light of the findings in the interlocutory judgment, CHA was entitled to have a measure of confidence that it had good prospects of establishing the validity of the restraints which it sought to enforce. Further, CHA’s contention that the restraint was enforceable, even if the court concluded that CHA repudiated Mr Loone’s contract of employment was arguable. So much is readily apparent from the detailed consideration which this argument warranted both at first instance and in the judgment of the Court of Appeal.
[7]Crowe Horwath (Aust) Pty Ltd v Loone [2017] VSCA 181.
It is true that Mr Loone offered to forego his claim for damages which have now been assessed in the sum of $423,455. At the time the offer was rejected CHA had the benefit of an interlocutory injunction which was likely to run for at least another two months and which ultimately operated for another five months. Whilst Mr Loone offered to forego his damages claim the price for him doing so was for CHA to relinquish the benefit of an injunction obtained after a contested hearing. Further, at the time of rejecting the offer CHA were entitled to have a measure of confidence that it would succeed in defending Mr Loone’s claim that it repudiated his contract. First, any finding of repudiation turned upon contested factual matters as well as contested questions of construction of Mr Loone’s contract of employment. Second, the court’s interlocutory judgment expressed significant reservations regarding the basis upon which Mr Loone had contended at the interlocutory hearing that there was a serious question to be tried that CHA repudiated his contract.
Between 15 August 2017 and 25 August 2017 Mr Loone forwarded five further Calderbank letters. These Calderbank letters were directed to an attempt by Mr Loone to resolve the question of damages in the proceeding by offering to agree to damages being fixed in sums ranging from $400,000 on 15 August 2017 to $370,000 on 25 August 2017.
Mr Loone submits that the court’s judgment on quantum has resulted in a more favourable outcome to Mr Loone than that contained in any of the third to seventh Calderbank letters. He submits that CHA acted unreasonably in rejecting each of the offers. I accept the first of these propositions, but not the second.
The application of principles governing the assessment of damages in the present case are not so straight forward as to exclude room for legitimate debate. In particular, there was room for legitimate debate regarding the application of the ‘least burdensome principle’ to the assessment of damages in circumstances where, by reason of the introduction of the Family Office model in August 2017, it was arguable that Mr Loone’s contract of employment with CHA would have been terminated on the provision of six months’ notice had he still been an employee. Ultimately, the court concluded that the assessment of damages should proceed on the basis of a comparison between a hypothetical and actual state of affairs. The hypothetical state of affairs proceeded on the assumption that CHA would not have engaged the repudiatory conduct, namely the implementation of the Family Office model.[8] The application of this test resulted in a finding that Mr Loone was entitled to damages in the sum of $423,445.
[8]See Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64, 116 (Deane J).
Notwithstanding the fact that the sum ultimately awarded exceeds the sums in the further Calderbank letters served between 15 and 25 August 2017. I do not consider that CHA acted unreasonably in rejecting those offers.
Costs subsequent to judgment
The final issue which arises on the question of costs concerns liability with costs which have been incurred by the parties in the period subsequent to the court delivering judgment on the quantum of damages on 15 September 2017. Plainly, additional costs have been incurred by both Mr Loone and CHA in the preparation of submissions and affidavits in support of their respective positions on the question of who should be liable for the costs up to and including the delivery of judgment on 15 September 2017. I have determined that Mr Loone and CHA should each bear their own costs in respect of the affidavits and submissions which they have filed since 15 September 2017. Mr Loone has been unsuccessful in pursuit of his claim for indemnity costs. I do not consider that it is appropriate to require CHA to pay the costs incurred by Mr Loone in pursuit of his contention that CHA should pay his costs on an indemnity basis. The appropriate order is that each party should bear their own costs incurred subsequent to 15 September 2017.
Interest
As to the question of interest, the issue for determination is the date from which the interest should be calculated on the sum of $423,455. CHA submits that interest should be calculated from 7 November 2016, the date of filing of an amended defence and counterclaim which pleaded a claim by Mr Loone for damages for repudiation of contract. Mr Loone submits that interest should be calculated from 6 September 2016 being the date he filed amended short points of contention prior to the hearing of the interlocutory application on 26 September 2016.
Section 60(1) of the Supreme Court Act 1986 provides:
The court, on application in any proceeding for the recovery of debt or damages, must, unless good cause is shown to the contrary, give damages in the nature of interest at such rate not exceeding the rate at the time being fixed under section 2 of the Penalty Interest Rates Act 1983 as it thinks fit from the commencement of the proceeding to the date of judgment over and above the debt or damages awarded.
The current proceedings were commenced by writ filed by CHA on 28 July 2016. Section 60(1) of the Supreme Court Act confers power upon the court to order interest from that date.[9] However, neither party submitted that this would be an appropriate exercise of the court’s discretion. I accept Mr Loone’s submission that interest should be ordered from the point in time CHA was placed squarely on notice of Mr Loone’s contention that his contract of employment was terminated by reason of his acceptance of CHA’s repudiatory contract. This claim was pleaded at [4] to [5A] of the amended short points of contention filed by Mr Loone on 6 September 2016. I have determined that interest should be calculated from this date until 30 October 2017, being the date of this judgment. Interest from 6 September 2016 until 30 October 2017 is calculated in the sum of $47,599.
[9]
The judgment of the court is as follows:
1.The plaintiff and defendant by counterclaim pay the defendant and plaintiff by counterclaim the sum of $423,445 together with interest in the sum of $47,599.
2.Subject to paragraph 3 and any costs orders already made in the proceeding, the plaintiff/defendant by counterclaim is to pay the costs of the defendant/plaintiff by counterclaim on a standard basis to be taxed in default of agreement.
3.Each party is to bear their own costs incurred during the period subsequent to 15 September 2017.
Tankard v Chafer [2005] VSC 171 [77]; David Leahey (Aust) Pty Ltd v McPherson’s Ltd [1991] 2 VR 367,
380-2 (Tadgell J); Saunders v Nash [1991] 2 VR 63, 68.
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