Crown Melbourne Limited v Cosmopolitan Hotel (Vic) Pty Ltd and Anor ( No 2)
[2013] VSC 698
•13 December 2013
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMON LAW DIVISION
JUDICIAL REVIEW AND APPEALS LIST
S CI 2013 01128
| CROWN MELBOURNE LIMITED (ACN 006 973 262) | Applicant |
| v | |
| COSMOPOLITAN HOTEL (VIC) PTY LTD (ACN 115 145 198) | First Respondent |
| and | |
| FISH AND COMPANY (VIC) PTY LTD (ACN 115 145 134) (SUBJECT TO A DEED OF COMPANY ARRANGEMENT) | Second Respondent |
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JUDGE: | HARGRAVE J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | Not applicable – costs issue decided on the papers | |
DATE OF JUDGMENT: | 13 December 2013 | |
CASE MAY BE CITED AS: | Crown Melbourne Limited v Cosmopolitan Hotel (Vic) Pty Ltd & Anor ( No 2) | |
MEDIUM NEUTRAL CITATION: | [2013] VSC 698 | |
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COSTS - Whether indemnity costs should be ordered - Calderbank offer not unreasonably rejected – Application for indemnity costs refused.
APPEAL – Application for leave to appeal to Trial Division from decision of Victorian Civil and Administrative Tribunal – Whether offer of compromise regime under o 26 of the Supreme Court (General Civil Procedure) Rules 2005 applies – Held: o 26 inapplicable and purported offer of compromise equivalent to a Calderbank offer – Victorian Civil and Administrative Tribunal Act 1998 (Vic), s 148; Supreme Court (General Civil Procedure) Rules 2005, rr 26.08, 26.12.
COSTS – Whether non-party costs order should be made – Supreme Court Act 1986 (Vic), s 24.
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APPEARANCES: | Counsel | Solicitors |
| For the Applicant | Mr N Hopkins SC with Mr B Jellis | Minter Ellison |
| For the Respondents | Mr M Pearce SC with Mr R Hay | Mills Oakley |
TABLE OF CONTENTS
Is Crown entitled to indemnity costs?............................................................................................ 2
Should a non-party costs order be made against Mr Zampelis?............................................... 4
What costs order should be made on the tenants’ application for leave to appeal?.............. 7
What costs order should be made on Crown’s initial application for leave to appeal?........ 7
Should the tenants have an indemnity certificate?...................................................................... 8
HIS HONOUR:
On 18 November 2013, the Court published reasons for judgment.[1] The Court granted Crown leave to appeal, allowed the appeal and set aside the orders made against it in the Tribunal. In lieu of the Tribunal’s orders, it was ordered that the proceedings by the tenants in the Tribunal be dismissed. The tenants’ application for leave to appeal, in the nature of a proposed cross-appeal, was dismissed.
[1][2013] VSC 614.
These reasons concern costs. No party seeks any order for costs in respect of the costs in the Tribunal, because s 92 of the Retail Leases Act 2003 (Vic) provides that there will be no order for costs of retail tenancy disputes in the Tribunal except in circumstances which are not relevant here.
The parties have filed written submissions on costs and requested the Court to rule on the basis of those submissions without oral argument. The issues are whether the respondent tenants should pay Crown’s costs on an indemnity basis, whether a non-party costs order should be made against Mr Zampelis, whether the costs of the tenants’ application for leave to appeal should follow the event, whether Crown is entitled to costs in respect of an initial application for leave to appeal which was not proceeded with, and whether the tenants are entitled to an indemnity certificate under s 4 of the Appeal Costs Act 1998 (Vic).
Is Crown entitled to indemnity costs?
Crown seeks the costs of its application for leave to appeal and its appeal on an indemnity basis. It relies upon two Calderbank offers, one made before trial in the Tribunal, for $50,000; and one made after filing its application for leave to appeal, for $100,000.
Crown also relies on a formal ‘offer of compromise’ made on appeal, also for $100,000, and purportedly served under o 26 of the Rules.[2] Crown contends that r 26.08 applies to an application for leave to appeal to the Trial Division under s 148 of the Victorian Civil and Administrative Tribunal Act 1998 (Vic) (‘VCAT Act’).
[2]Supreme Court (General Civil Procedure) Rules 2005.
Rule 26.08 creates a presumption that a party rejecting an offer of compromise made in accordance with that rule should pay indemnity costs if that party obtains a less favourable result at trial than was offered. In my opinion, r 26.08 does not apply to applications for leave to appeal to the Trial Division from orders of the Tribunal. The words of r 26.08 are not capable of extending to such an application. It follows that the offer of compromise in this case has no status under the Rules and cannot give rise to a presumptive entitlement to indemnity costs. It adds nothing to the Calderbank offer made on appeal, as it was for the same amount. If there had been no Calderbank offer, I would have treated the purported offer of compromise as if it were a Calderbank offer.
I note that if a party obtains leave to appeal to the Court of Appeal from an order of the Tribunal under s 148 of the VCAT Act, and then serves a notice of appeal, an offer of compromise under r 26.12 may be served. But an offer of compromise under that rule does not give rise to any presumptive entitlement to indemnity costs if it is not bettered on appeal. Instead, r 26.12 provides only that the offer of compromise shall be taken into account by the Court of Appeal in exercising its discretion as to costs and may form the basis of an order that the unsuccessful party pay costs ‘taxed on a basis other than a party and party basis’.[3]
[3]Rule 26.12(3) and (4).
Crown contends that it is entitled to indemnity costs because it was unreasonable for the tenants to refuse the offers both at trial and on appeal.[4] I do not accept that the tenants unreasonably refused Crown’s offers. The offer before trial was for $50,000 in respect of large claims. Before the Tribunal, the tenants succeeded in obtaining orders for $467,505 and $1,143,167 respectively. The offers made after Crown’s application for leave to appeal were for $100,000 only, in the face of judgments for those amounts. In my opinion, having obtained the benefit of a fully reasoned decision in their favour in the Tribunal, it was not unreasonable for the tenants to reject an offer of that size. I am not persuaded that any of the other grounds which courts have typically taken into account in ordering indemnity costs have been established in this case[5] and none were pressed in this case in any event. I will order that the tenants pay Crown’s costs of its application for leave to appeal and of its appeal on a party and party basis until 1 April 2013 and on a standard basis thereafter.
Should a non-party costs order be made against Mr Zampelis?
[4]Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) (2005) 13 VR 435.
[5]For example, Colgate-Palmolive Company v Cussons Pty Ltd (1993) 46 FCR 225, [24].
Section 24 of the Supreme Court Act 1986 (Vic) empowers the Court to make a costs order against a non-party. The making of a non-party costs order is exceptional.[6] In Knight v FP Special Assets Ltd,[7] the High Court recognised a general class of case where courts may exercise the power to make a non-party costs order:
For our part, we consider it appropriate to recognise a general category of case in which an order for costs could be made against a non-party and which would encompass the case of a receiver of a company who is not a party to the litigation. That category of case consists of circumstances where the party to the litigation is an insolvent person or man of straw, where the non-party has played an active part in the conduct of the litigation and where the non-party, or some person on whose behalf he or she is acting, or by whom he or she has been appointed, has an interest in the subject of the litigation. Where the circumstances of a case fall within that category, an order for costs should be made against the non-party if the interests of justice require that it be made.[8]
[6]Kebaro Pty Ltd v Saunders [2003] FCAFC 5, [103].
[7](1992) 174 CLR 178.
[8]Ibid, 192-3 per Mason CJ and Deane J (emphasis added).
In that case, Dawson J said that the cases establish a ‘jurisdiction to award costs in appropriate cases against a person who is not a party to the proceedings where that person is the effective litigant standing behind an actual party’.[9]
[9]Ibid, 202.
As the above quoted passages from Knight show, the fact that a proceeding is being brought by a person who is the effective litigant, but who is standing behind an insolvent party to the litigation, opens the door to exercising a jurisdiction to make a non-party costs order - but does not require it. Each case depends upon its own facts and the interests of justice in the particular case.
Crown claims a non-party costs order against Mr Zampelis on the following grounds:
(1) Mr Zampelis is the sole director and shareholder of each of the tenants;
(2) the tenants are in administration and have no assets available to satisfy an order for costs;
(3) the deeds of company arrangement for the tenants each provide that the tenants will not continue to trade other than to pursue their claims against Crown, that Mr Zampelis was to have control of the tenants’ claims against Crown, and that only 20 per cent of the net proceeds of any judgment obtained against Crown would be paid to the administrators and distributed for the benefit of creditors under the deeds; and
(4) the remaining 80 per cent of the net proceeds are not available for distribution among creditors and, upon their claims being extinguished by operation of the deeds, presumably remain the property of the tenant companies for the benefit of their sole shareholder, Mr Zampelis.
Crown contends that this is a clear case where the jurisdiction to make a non-party costs order has been enlivened and that it should be made. Crown contends that Mr Zampelis was the central figure in factual allegations contested below and on appeal, has had full control of the proceedings in the Tribunal and on appeal on behalf of the tenants and, if the tenants had retained their success in the Tribunal, would have been indirectly entitled to 80 per cent of the net judgment proceeds. In circumstances where the tenants do not have the ability to meet any order for costs in Crown’s favour, Crown contends that justice requires that Mr Zampelis should pay the costs.
Mr Zampelis opposes any order that he pay costs. He relies upon cases where applications for non-party costs orders against company directors who stood to benefit from the company’s litigation, and effectively ran the case for the company, were refused.[10] While each of these cases is a decision on the facts of the individual case, they exemplify the exceptional nature of non-party costs orders.
[10]Reliance was placed upon FMP Constructions Pty Ltd v Council of the City of Blue Mountains [2005] NSWCA 340; Rushton (Qld) Pty Ltd v Rushton (NSW) Pty Ltd [2004] QSC 47; Permark International Pty Ltd v Amoveo Pty Ltd [2013] VSC 653; Manderson M & F Consulting v Incitec Pivot (No 3) [2011] VSC 441.
I am not satisfied that the circumstances of this case are so exceptional that a non-party costs order should be made against Mr Zampelis. I accept that the proceedings in the Tribunal were brought by insolvent applicants (the tenants) for the principal benefit of Mr Zampelis (as to 80 per cent of the net proceeds of any judgment recovered against Crown) and were conducted by and at the cost of Mr Zampelis personally. If the proceedings had been tried in this Court and the tenants had lost at trial, a non-party costs order may well have been made against Mr Zampelis; especially as he was the principal witness for the tenants. But this is not a case concerning the costs at first instance in a jurisdiction where costs are normally ordered. No costs orders were made in the Tribunal and no party seeks that costs orders now be made in the Tribunal proceedings.
The application for non-party costs concerns Crown’s costs of the application for leave to appeal and appeal. Even though the tenants applied for leave to appeal for the purpose of obtaining increased damages awards, and much time on appeal was taken with arguing those issues, the fact remains that the tenants were respondents to an application by Crown to appeal against a judgment which the tenants had obtained in their favour in the Tribunal. The tenants were entitled to oppose Crown’s application for leave to appeal from the Tribunal’s considered judgment and orders. They were represented by responsible senior and junior counsel and solicitors, and their conduct in connection with the applications for leave to appeal was entirely unexceptional. The application for a non-party costs order is refused.
What costs order should be made on the tenants’ application for leave to appeal?
The tenants’ application for leave to appeal was dismissed. They nevertheless contend that there should be no order as to the costs of their application, because the Court did not find it necessary to determine the issues they sought to raise. They contend also that their application for leave to appeal added little to the total hearing time.
In my opinion, the costs of the tenants’ application for leave to appeal should follow the event. The tenants were seeking to increase the amount of the damages awarded to them in the Tribunal. In the result, Crown’s appeal succeeded and the tenants have no entitlement to a damages award. Further, I do not accept that the tenants’ application added little to the total hearing time on appeal. To the contrary, a significant amount of time was taken in dealing with those issues.
The tenants must pay Crown’s costs of their application for leave to appeal.
What costs order should be made on Crown’s initial application for leave to appeal?
After the Tribunal delivered its principal reasons for judgment concerning liability, it made an order in the following terms:
The Tribunal having determined that the first respondent is liable to pay the applicant damages in an amount to be assessed, the Principal Registrar shall list a directions hearing …
The Tribunal’s order was the equivalent of a judgment for damages to be assessed. The envisaged directions hearing was to concern the method of assessment. At this time, there was no judgment which could be enforced, because no damages had been assessed. Nevertheless, Crown filed an initial application for leave to appeal out of caution, to ensure that it was not out of time. Although some procedural directions were made on this initial application, they were not complied with, no active step was thereafter taken and it would appear that no extra costs were incurred by the parties in relation to that application.
Following assessment of damages by the Tribunal, Crown commenced the application for leave to appeal which was granted in the Court’s principal reasons and allowed the appeal.
In these circumstances, the tenants contend that Crown’s initial application should be dismissed with costs, either because it was incompetent or should be taken to have been abandoned. I reject those submissions. In my opinion, it was competent for Crown to file an application for leave to appeal from a judgment for damages to be assessed, and the fact that the initial application was overtaken by a subsequent application following assessment of damages did not change that position. There is no evidence that the initial application caused any wasted costs. In all the circumstances, I will order that the initial application be dismissed with no order as to costs.
Should the tenants have an indemnity certificate?
The tenants will be granted an indemnity certificate under s 4 of the Appeal Costs Act 1998 in respect of their costs of Crown’s appeals and the costs ordered to be paid by them to Crown.
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