Definity Clinic v AMD Rifat (No 2)
[2021] VSC 378
•28 June 2021
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
PROPERTY LIST
S ECI 2018 02498
| DEFINITY CLINIC HOLDINGS PTY LTD (ACN 621 388 298) ATF DEFINITY CLINIC HOLDINGS TRUST | Plaintiff |
| v | |
| A.M.D RIFAT HOLDINGS PTY LTD (ACN 106 065 516) | Defendant |
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JUDGE: | MOORE J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | Written submissions filed on 15 June 2021 |
DATE OF RULING: | 28 June 2021 |
CASE MAY BE CITED AS: | Definity Clinic v AMD Rifat (No 2) |
MEDIUM NEUTRAL CITATION: | [2021] VSC 378 |
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COSTS – Contract litigation – Whether costs should follow the event – Costs of claim and counterclaim dealt with together – Where plaintiff raised irrelevant matters at trial – Where late abandonment of issues and litigation unnecessarily prolonged – Where matter should properly have commenced in County Court – Where Calderbank offer not unreasonably refused by defendant – Defendant pay pre-trial costs of plaintiff on standard basis – Defendant pay 60% of costs of plaintiff on standard basis from date of trial onwards – Interest awarded at statutory maximum from date of demand for payment – Supreme Court Act 1986, ss 24, 58(1) – Penalty Interest Rates Act 1983, s 2 – Milne v A-G (Tas) (1956) 95 CLR 460, applied – Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No. 2) (2005) 13 VR 435, applied – Lollis v Loulatzis (No 2) [2008] VSC 35, applied.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr D F McAloon | DW Fox Tucker Lawyers |
| For the Defendant | Mr T P Mitchell | Mills Oakley |
HIS HONOUR:
I delivered judgment in this proceeding on 1 June 2021.[1] This ruling concerns the final orders to be made to give effect to my judgment, and the costs of the proceeding.
[1]Definity Clinic v AMD Rifat [2021] VSC 325 (the judgment). The abbreviations used in the judgment are also used in this judgment.
The key issue in the proceeding was the determination of the proper construction of a clause of a contract for the sale and purchase of a property.[2] The clause made the contract conditional upon the vendor, AMD, obtaining ‘a medical permit for the premises for two (2) practioners [sic].’ Definity paid a $135,000 deposit after entering into the contract. Just over a year later, after the local council issued a permit that Definity alleged was not suitable for its purposes, Definity commenced this proceeding and sought the repayment of its deposit.
[2]‘Special condition 3.1’
At the commencement of the trial, the parties were agreed that there were seven issues for determination. Two of these issues were not pressed by Definity in its closing submissions. Because I upheld the construction of the clause advanced by Definity, I answered Issue 1 in the negative and the remaining questions did not arise for determination.[3] In the result, Definity is entitled to recover the deposit that it paid under the contract and AMD’s counterclaim fails.[4]
[3]See the issues for determination set out in Definity Clinic v AMD Rifat [2021] VSC 325, [10].
[4]Ibid [121]–[124].
It is uncontroversial that the following orders should be made:
1. There be judgment for the plaintiff on its claim.
2.The amount of $135,000 paid by the plaintiff as a deposit and held by Knight Frank as stakeholder is to be paid to the plaintiff.
3. The counterclaim is dismissed.
Interest
Definity sought an order for payment of interest in the following terms:
The defendant is to pay interest to the plaintiff calculated on the amount of $135,000 from 4 July 2018 at the rate fixed under s 2 of the Penalty Interest Rates Act 1983 (Vic).
AMD did not make any submissions in relation to interest.
Section 58(1) of the Supreme Court Act 1986 states that:
If in a proceeding a debt or sum certain is recovered, the Court must on application, unless good cause is shown to the contrary, allow interest to the creditor on the debt or sum at a rate not exceeding the rate for the time being fixed under section 2 of the Penalty Interest Rates Act 1983 or, in respect of any bill of exchange or promissory note, at 2% per annum more than that rate from the time when the debt or sum was payable (if payable by virtue of some written instrument and at a date or time certain) or, if payable otherwise, then from the time when demand of payment was made.
AMD has not demonstrated ‘good cause’ for not awarding interest from the date of demand for payment. Definity demanded payment of the deposit on 4 July 2018.
The settled practice in Victoria is that the statutory maximum rate of interest under s 2 of the Penalty Interest Rates Act 1983 is used, unless good cause to the contrary is shown.[5] Interest should be ordered from the date on which Definity demanded repayment. I will make an order in the terms proposed by Definity.
[5]Hodgson v Amcor (No 9) [2012] VSC 205, [36]. See also Hartley Poynton Ltd v Ali [2005] VSCA 53, [106].
Costs
The principal controversy between the parties is costs.
Definity seeks the following orders:
The defendant/plaintiff by counterclaim is to pay the costs of the plaintiff and the defendants to the counterclaim:
(a)such costs to be taxed, in the absence of agreement, on the standard basis in respect of costs incurred in the period up to and including 7 September 2020; and
(b)such costs to be taxed, in the absence of agreement, on the indemnity basis in respect of costs incurred in the period on and from 8 September 2020.
AMD seeks the following order:
Each party bear its own costs of the proceeding up to and including 16 March 2021, and thereafter, the defendant/plaintiff by counterclaim pay 60% of costs of the plaintiff and defendants to counterclaim on the standard basis.
Definity submitted that it succeeded in obtaining the relief that it sought and defeated the counterclaim, and costs should follow the event. It sought costs on a standard basis from the commencement of the proceeding until on 7 September 2020 and on an indemnity basis thereafter because, on that date, it made an offer of settlement to AMD on the following terms:
(i) all claims in the proceeding would be resolved;
(ii) Definity’s claim would be dismissed;
(iii) AMD pay Definity a total of $226,964.74, comprised of:
· $135,000 deposit; and
· $91,964.47 in legal costs.
Definity submitted that its offer was unreasonably refused by AMD because:
(a) The offer was sent at an advanced stage of the proceeding: it set out Definity’s position regarding special condition 3.1 which was accepted at trial and dispositive of the proceeding.
(b) AMD was given ample time to consider the offer (until 5 October 2020).
(c) The offer was a good one, in that:
(iv) it allowed AMD to avoid further legal expense;
(v) Definity did not press for penalty interest which would have amounted to $29,452.72; and
(vi) AMD would have paid a fixed amount in respect of Definity’s costs, being an amount said to be materially less than the amount ultimately payable in respect of those costs.
AMD submitted that the offer was not a compromise – it was an invitation to capitulate and pay the full claim and indemnity costs.[6] In assessing the reasonableness of rejecting a Calderbank offer, whether the party seeking to rely on the offer has ‘given something away’ is an important factor. A plaintiff with a strong claim may be in a position to make only a nominal offer, however it cannot be said to have given anything away.[7]
[6]Berrigan Shire Council v Ballerini (No 2) [2006] VSCA 65, [17], [20], [39].
[7]Hobartville Stud Pty Ltd v Union Insurance Co Ltd (1991) 25 NSWLR 358, 368.
AMD also submitted that, even if its arguments about discounting Definity’s costs do not succeed (dealt with below), the Court cannot be satisfied that Definity has beaten the offer, given the amount of costs sought. It was not open to AMD to accept the offer and tax the costs.
AMD argued that it also was not unreasonable to reject the offer having regard to the fact that, when it was made, lay evidence had not been filed and the amount sought was the full claim plus costs. Further, a key issue in the case was the construction of an ambiguous contractual term and Definity’s prospects of success when the offer was made had to be evaluated, noting that the successful construction of the special condition had not yet been advanced.
AMD submitted that, although the ordinary rule is that costs follow the event, the overriding principle is that the Court’s discretion in respect of costs is to be exercised judicially.
Although Definity succeeded in its claim, AMD submitted that, for the reasons which follow, Definity should not receive the ordinary measure of compensation for the costs incurred on its claim. However, AMD accepted that Definity was entitled to its costs of the counterclaim on a standard basis. Nevertheless, different orders on the claim and counterclaim should not be made because the issues on the claim and counterclaim were intertwined with the effect that it would be difficult for the Costs Court to make different orders in respect of each. The preferable approach, according to AMD, is for the Court to make a broad-axe assessment based on general impression. I generally accept this last submission.
AMD relied on three heads of ‘disentitling conduct’ as to why Definity should not receive the ordinary measure of compensation for the costs incurred on its claim.
First, AMD relied on what was said to be the late amendment by Definity of its case. It was submitted that the construction of special condition 3.1 on which Definity succeeded[8] emerged for the first time in its written opening filed on 16 March 2021 and that this was different to their pleaded case. AMD referred to the principle in Beoco Ltd v Alfa Laval Co Ltd[9] that:
As a general rule, where a plaintiff makes a late amendment as here, which substantially alters the case the defendant has to meet and without which the action will fail, the defendant is entitled to costs of the action down to the date of the amendment.
AMD argued that Definity would not have succeeded on a construction of special condition 3.1 that was consistent with its pleading.
[8]See [123] of the Reasons.
[9][1995] QB 137, 154.
I reject this argument. As AMD noted, the claim and counterclaim always turned on a single question of construction. AMD was always on notice of the substance of Definity’s position on the issue of construction. It is not unusual for a party in a proceeding about the construction of a contractual provision to refine and revise its posited construction upon opening of a trial. Having done so here, it cannot accurately be said that Definity substantially altered its case in a way which was relevantly prejudicial to AMD and which, of itself, would justify a departure from the usual rule that costs follow the event.
Secondly, AMD argued that Definity raised irrelevant matters in the conduct of its case. In its opening submissions, AMD argued that there was one key issue to be determined – whether the special condition was satisfied – and post-contractual conduct was irrelevant. By contrast, Definity pressed seven issues at trial, and abandoned, or did not have a basis to press, five of them in closing submissions. Once Definity abandoned claims such as repudiation and breach of implied terms, post-contractual conduct was irrelevant to the remaining issues. Significant time at trial was devoted to post-contractual conduct and other irrelevant matters. Definity accepted, in closing submissions, that post-contractual conduct was irrelevant to the remaining issues.
I accept this submission. A successful party should be deprived of its costs, or a portion of them, if the issues on which that party failed took up a significant part of the trial.[10] Late abandonment of issues may also result in a successful party being deprived of some of its costs.[11]
[10]Yazgi v Permanent Custodians Ltd (No 2) [2007] NSWCA 306, [24]; Elite Protective Personnel Pty Ltd v Salmon (No 2) [2007] NSWCA 373, [7].
[11]Elite Protective Personnel Pty Ltd v Salmon (No 2) [2007] NSWCA 373, [10].
AMD submitted that, upon assessing evidence and openings, at least half the trial duration was occupied with post-contractual events. The Court Book broadly supports this submission. Pages 78 to 384 concern events up to and including the contract. Pages 385 to 1029 largely, but not exclusively, deal with post-contractual events.
The parties’ openings and the evidence in this proceeding proceeded over four days. In my assessment, given the discrete nature of the construction task, the admissible evidence (and openings) relevant to that matter should comfortably have been adduced and heard and over two days. The fact that this did not occur is primarily the result of choices made by Definity in the conduct of its case. An unwarranted amount of time was spent in relation to evidence about post-contractual conduct which was inadmissible on the construction issue and claims that it abandoned. For these reasons, I consider there is a proper basis for that part of Definity’s costs referable to the hearing of the trial to which it would otherwise be entitled to be discounted by 30% to 40%.
It was next submitted by AMD as the third aspect of Definity’s conduct which disentitled it from receiving the ordinary measure of compensation that the proceeding should properly have been commenced in the County Court. In particular, it was emphasised that Definity did not press a damages claim, and led no evidence of loss. Its case was only about the return of the deposit.
The County Court Civil Procedure Rules 2018 allow for 80% of the Supreme Court scale amounts.[12] Had Definity recovered less than $100,000, costs would be assessed as in the County Court, less the additional costs incurred as a result of issuing in the Supreme Court.[13] This does not apply to Definity, as it is recovering an amount slightly more than $100,000.
[12]County Court costs scale: r 1.13 ‘Definitions’ of the County Court Civil Procedure Rules 2018.
[13]Supreme Court (General Civil Procedure) Rules 2015, rr 63.24, 63.25.
Nevertheless, I generally accept AMD’s submissions that, in circumstances where Definity did not seek any relief in equity or press a damages claim and where its claim was for the return of the deposit in the amount of $135,000, this proceeding should properly have been commenced in the County Court. I propose to take this factor into account by discounting Definity’s entitlement to the costs of the trial to the top end of the range referred to in [26] above.
Consideration and disposition
In Milne v A-G (Tas),[14] the High Court stated that ‘it is a general rule that a wholly successful [litigant] should receive his costs unless good reason is shown to the contrary.’[15] Except in respect of those aspects of Definity’s conduct to which I have referred which justify a reduction in the amount of the trial costs to which it might properly be entitled, there is otherwise no good reason why costs should not follow the event.
[14](1956) 95 CLR 460.
[15]Ibid 477.
The remaining controversy concerns the Calderbank offer made by Definity. Costs will ordinarily be determined on a standard basis. The Court has a discretion, however, to award costs on an indemnity basis, or such other basis as the Court may direct.[16] The unreasonable rejection of a Calderbank offer by a party is a relevant factor in determining whether to depart from the ordinary rule as to costs. In Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No. 2),[17] the Court of Appeal identified that the following factors would ordinarily be relevant in considering whether the rejection of a Calderbank offer was unreasonable:[18]
[16]Supreme Court (General Civil Procedure) Rules 2015, r 63.28.
[17](2005) 13 VR 435.
[18]Ibid 442, [25].
(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.
In having regard to these considerations, I am not satisfied that it was unreasonable for AMD to reject Definity’s offer. There are three issues of particular significance to the exercise of my discretion:
(a) The significance of the fact that the offer was admittedly made at an advanced stage of the proceeding is diminished because, as AMD submitted, the lay evidence had not been filed at the time it was made; that evidence had the potential to bear upon the correct construction of special condition 3.1. It is also the case that the construction of that clause which ultimately found favour at trial was not formulated by Definity until its outline of submission was filed some six months later. These matters are relevant to the assessment of AMD’s prospects of success as at the date of the offer.
(b) The extent of the compromise offered by Definity – forgoing the claim for penalty interest – while not fairly able to be described as a capitulation as AMD suggested, was very modest.
(c) The small extent of the compromise advanced by Definity in its offer, in conjunction with the large amount sought for costs, means that I am uncertain whether, in light of the discount which I consider should apply to Definity’s entitlement to its trial costs, it has in fact done better at trial than if the offer had been accepted.
On balance, I am not satisfied that it was unreasonable for AMD to reject Definity’s offer and as a consequence, in the exercise of my discretion as to costs, I will not depart from the ordinary rule that costs be determined on a standard basis.
I make the following orders:
1. There be judgment for the plaintiff on its claim.
2.The amount of $135,000 paid by the plaintiff as a deposit and held by Knight Frank as stakeholder is to be paid to the plaintiff.
3. The counterclaim is dismissed.
4.The defendant is to pay interest to the plaintiff calculated on the amount of $135,000 from 4 July 2018 at the rate fixed under s 2 of the Penalty Interest Rates Act 1983 (Vic).
5.The defendant/plaintiff by counterclaim pay the costs of the plaintiff and defendants to counterclaim on a standard basis up to and including 22 March 2021.
6.In relation to the period on and after 23 March 2021, the defendant/plaintiff by counterclaim pay 60% of the costs of the plaintiff and defendants to counterclaim on a standard basis.
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