Drennan v Lowery and Lowery

IN THE COUNTY COURT OF VICTORIA

(Un) Revised

(Not) Restricted

AT MELBOURNE

CIVIL DIVISION

Case No. CI-08-00359

DAVID DRENNAN	Plaintiff
V
RICHARD LOWERY	First Defendant
- and -
REBECCA LOWERY	Second Defendant

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JUDGE:	HER HONOUR JUDGE COHEN
WHERE HELD:	Melbourne
DATE OF HEARING:	13, 16 & 17 February 2009 (27 April 2009 as to Costs)
DATE OF JUDGMENT:	24 April 2009
DATE OF DECISION AS TO	11 May 2009
COSTS:
CASE MAY BE CITED AS:	Drennan v Lowery & Lowery
MEDIUM NEUTRAL CITATION:	[2009] VCC 0495

Decision as to Costs

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Catchwords: Costs – whether plaintiff should recover indemnity costs - “Calderbank offer” whether rejection of offer unreasonable in the circumstances.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr S Rubenstein	MacPherson & Kelley
For the Defendants	Mr M Galvin	Voitin Walker Davis
HER HONOUR:

The plaintiff has succeeded in his claim and there is no resistance to an order for costs of the proceeding in his favour against the defendants. However, the plaintiff seeks costs on an indemnity basis from 20 January 2009, and that part of the order is resisted.
By letter dated 24 December 2008, the plaintiff’s solicitors wrote to the defendants’ solicitors conveying an offer that the plaintiff would accept $220,000 inclusive of interests and costs in full settlement of his claim if paid within 60 days of the acceptance of the offer, and on the basis that “each party release the other party [from] all claims in relation to the facts the subject of this proceeding”. The offer was open to be accepted until 4pm on 19 January 2009. The letter specified that if the offer were not accepted the plaintiff would rely on the letter in support of an application for costs on an indemnity basis from the date of the letter in accordance with the principles applied in Calderbank v Calderbank and other cases.
The defendants’ solicitors responded by letter dated 19 January 2009 rejecting the plaintiff’s offer, and counter-offering. This letter asserted that the claim against Mr Lowery could not succeed and in the event that the claim against him were dismissed, costs on an indemnity basis would be sought on his behalf. In respect of the claim against Ms Lowery, it was asserted that in the event that her evidence was not accepted and an order were made against her, it would be incapable of being satisfied. The letter stated “Rebecca Lowery has no assets and is prepared to enter bankruptcy if an order is made against her.” It went on to make a much lower counter offer of a much lower sum, unspecific as to whether it included interest and costs, and to take no action against the plaintiff in respect of alleged breaches of his duties as a director of the company X-Cell Tech Pty Ltd, which action it was said there were instructions to issue prior to the hearing in the present matter if the counter-offer were not accepted. It was open for acceptance until 4pm on Friday, 23 January 2009. It was not accepted.
The plaintiff’s claim for indemnity costs is put primarily on the basis that having succeeded on his claim to an effective value of more than the offer of settlement, the plaintiff ought to be entitled under the principles in Calderbank v Calderbank and other cases since to costs on an indemnity basis. Alternatively, it is argued that at least so far as Ms Lowery is concerned, her lack of credibility as found in my reasons for judgment should activate the court’s discretion to order indemnity costs against her.
The defendants’ counsel argues that an order for costs only on a party/party basis is appropriate because:

(i) it was not unreasonable for the defendants to reject the plaintiff’s offer, it being so close to the full amount of the claim;
(ii) in considering whether rejection of the offer was unreasonable costs of the proceeding should not be brought into the evaluation of the offer. no consideration as to the costs of the action should be brought into play in assessing whether rejection of the offer was unreasonable because, as found by Kenny J in Fyna Foods v Cobannah (16 September 2004 at paragraph 10) an assessment ought to be made of whether the offer was a genuine offer of compromise. In that case the offer had been by one party to bear its own costs, and her Honour Kenny J also relied on another case in which there was an offer to have the proceeding dismissed with no order as to costs. Kenny J in Fyna Foods stated that she doubted that an offer to bear own costs amounted to a genuine offer of compromise.
(iii) any order for indemnity costs based on Ms Lowery’s credibility as a witness should not be held against Mr Lowery.

There is no doubt that issues of costs and the basis on which they are paid are part of the Judge’s discretion, and that that discretion must be exercised in accordance with appropriate principles. The question I must decide is whether rejection by the defendants of the plaintiff’s offer was unreasonable in the circumstances[1]. In exercising that discretion I must take into account all (but only) relevant circumstances in deciding whether the rejection of the plaintiff’s offer was unreasonable, and without approaching the decision as if prima facie by exceeding the offer the plaintiff would be entitled to indemnity costs[2].
[1] Hazeldene’s Chicken Farm Pty Ltd v VWA (No 2) [2005] VSCA 298, at para 23.
[2] Hazeldene’s Chickens – at para 19
Of six specific (but not exclusive) aspects of the circumstances to be considered[3], three are not in issue. There is no issue that the time allowed for acceptance of the offer was not unreasonable, the terms of the offer were expressed with clarity, and the terms of the offer foreshadowed an application for indemnity costs if rejected. The issues raised here are the stage at which the offer was received, the extent of the compromise offered, and the offeree’s prospects of success assessed at the date of the offer.
[3] Hazeldene’s Chickens – at para 25
At the time when the offer was made at the end of December 2008, the trial proceeding had a trial date fixed for 13 February 2009 and all interlocutory stages had been completed. Mediation had been held in approximately October 2008. All interlocutory steps were completed. The plaintiff’s claim at that stage was for either specific performance of an agreement by the defendants to buy his share in the company X-Cell Tech, or alternatively for damages which at that stage were alleged to total close to $230,000. From that sum an amount of $15,000 was subsequently notified as owing to the plaintiff as a shareholder on distribution from liquidation of the company, and the deduction of that sum from the total damages of $227,195.50 is how I reached an assessment of damages of $212,195.50. As the writ had been issued on 5 February 2008, interest on the amount of $212,195 by 24 December 2008 was approximately $20,000 in accordance with the Penalty Interest Rate Act 1983. Accordingly, by his offer to accept $220,000, the plaintiff was offering to forego between $10,000-$12,000 in interest, and absorbing all of his own costs.
While the defendants’ counsel submits that what was offered was not significantly less than the full claim, and that the cost should not be factored into the evaluation. The latter submission is based on Federal Court decisions, including a decision of Kenny J in Fyna Foods v Cobannah (16 September 2004 at paragraph 10) where an offer by one party to bear its own costs, was held to be similar to an offer to have the proceeding dismissed with no order as to costs. Kenny J in Fyna Foods stated that she doubted that an offer to bear own costs amounted to a genuine offer of compromise. In the present case I do not regard the situation as analogous as this was not an offer only as to costs – indeed it was to accept a sum of $220,000 which was well above any reasonable amount of costs alone. I am not convinced that this was not a genuine offer to compromise, as it was an offer to forego a not insignificant amount of money. However, the sum for which the plaintiff offered to settle was still seeking to recover the greatest proportion of the claim’s potential. It was not until after the offer was made that the plaintiff was notified that he would be paid $15,000 by the liquidator which was an amount he ultimately needed to deduct form his claim, so the offer on its face was for a little under the full amount of the claim, but not so much as could be expected to have caused the defendants to see it as a significant “discount”.
In my view, the letter in response from the defendants’ solicitors missed the real issues entirely. Mr Galvin submits that it shows why the defendants were not unreasonable in their response of rejecting the offer. I read it as a totally argumentative letter which raised the threat to issue alternate proceedings against Mr Drennan and asserted that Ms Lowery would be prepared to be bankrupted were a judgment to be ordered against her. The latter, namely, a willingness by her to be bankrupted, was either unlikely or rash, because at the time she was a director and shareholder of a company which had bought the business previously run by X-Cell Tech. I do not, however, interpret it as a lie, as urged by Mr Rubenstein for the plaintiff, but rather an example of argument in the course of negotiation.
The defendants’ counsel submits that at the time that the offer was made and, indeed, up to the hearing itself, the defendants had very little on which to assess how the evidence would fall and be evaluated. As is usual in this court, there were no witness statements or affidavits as to the circumstances which revealed what Mr Drennan would say. Further, much depended in this case on how the court assessed the credibility and reliability of the parties as witnesses. The content of Mr Drennan’s evidence – which overall I accepted – was not entirely revealed through the pleadings. Mr Drennan, Mr Lowery and Ms Lowery were all parties to most of the events and conversations which took place. I can infer that the defendants’ had given instructions to their lawyers as to the content of their own evidence. To the extent that I have found that their version was not credible – or more particularly that Mr Drennan’s was more reliable and probable in view of other corroborative evidence – they are unlikely to have informed their lawyers of it but their lawyers had available the other evidence which should have alerted them to at least some potential risks. Nevertheless, this was a case that depended substantially on the oral evidence of each party and how it was assessed.
I note that the plaintiff’s offer was put in the manner of a “Calderbank offer” and inclusive of interest and costs, and not by way of an Offer of Compromise under the Rules of Civil Procedure, which by Rule 26.08(2)(b) would have resulted in an order for indemnity costs from the time of the offer “unless the court otherwise ordered”.
I note that although the offer here was expressed to be on the basis that failure to accept it could give rise to a claim for indemnity costs from the date of the offer – in fact such costs are claimed from the date of the rejection of the offer, being the last date that it was open for acceptance. That means that it is more generous to the defendants then offered or would have been the likely result if the offer had been made under Order 26. In the end, however, that difference is probably not significant.
In weighing up all of these matters, I consider that the relatively small monetary discount being offered on the claim, in circumstances where the ultimate result depended heavily on how each witness’s evidence fell, and their credibility was perceived by me, leads me to the view that whilst it has proved unwise, the decision by the defendants to reject the plaintiff’s offer was not unreasonable in the circumstances.
Although as set out in my reasons for judgement I was unimpressed with Ms Lowery as a witness, I do not consider that her conduct was such that an order for indemnity costs should result.
Finally, although I am not satisfied that I should award indemnity costs from the date of rejection of the offer, I am satisfied that fees above scale should be certified for counsel having regard to the weight of the case’s dependence on presentation of oral evidence at trial and the responsibility that carried. I shall not allow as much preparation time as was sought – ie two days plus 8 hours of conferences – especially on a party/party basis, but I do consider that conferences with the client that were longer than usual were reasonable. I am also prepared to certify as reasonable a daily brief fee rather than refreshers at two thirds of initial brief fee.
I order that the defendants pay the plaintiff’s costs of this proceeding, including any reserved costs, on a party/party basis on Scale D. I certify for counsel’s fees of $2750 per day of trial, $900 for costs hearing of 27 April, and 5 hours of conferences at $275 per hour. I certify for the reasonable costs of preparing filing and serving the court book, the initial copy at scale and all other necessary copies at commercial copying rates as fixed by the Taxing Registrar.

[2009] VCC 495

24 April 2009