Foote v Barton Property Partnership No 1 (No 2)
[2017] ACTSC 136
•16 June 2017
SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
Case Title: | Foote v Barton Property Partnership No 1 (No 2) |
Citation: | [2017] ACTSC 136 |
Hearing Date: | 24 February 2017 |
Date of last submissions | 28 February 2017 |
DecisionDate: | 16 June 2017 |
Before: | Mossop J |
Decision: | There is no order as to the costs of the proceedings — see [72] |
Catchwords: | PROCEDURE — COSTS — partnership disputes — whether costs should follow the event — effect of offers of settlement — net amount only payable due to payment made by plaintiffs during pendency of proceedings — no order as to costs — turns on own facts |
Legislation Cited: | Leases (Commercial and Retail) Act 2001 (ACT) Partnership Act 1963 (ACT) |
Cases Cited: | Foote v Barton Property Partnership No 1 [2017] ACTSC 21 Foote v Barton Property Partnership No 2 [2014] ACTSC 330 Foote v Barton Property Partnership No 2 [2015] ACTCA 53 |
Parties: | Andrew John Foote (First Plaintiff) Stan (ACT) Pty Ltd (ACN 133 357 320) (Second Plaintiff) Barton Property Partnership No 1 (First Defendant) Capital Day Surgical Centre Partnership (Second Defendant) Barton Property Partnership No 2 (Third Defendant) Barton General Practice Partnership (Fourth Defendant) |
Representation: | Counsel Ms K Neville (Plaintiffs) Mr D Robens (Defendants) |
| Solicitors Mills Oakley (Plaintiff) Kamy Saeedi Law (Defendants) | |
File Number: | SC 176 of 2015 |
MOSSOP J:
Introduction
This decision relates to the costs of these proceedings. I gave my reasons in these proceedings on 10 February 2017: Foote v Barton Property Partnership No 1 [2017] ACTSC 21 (the principal judgment). Following the publication of those reasons I heard submissions in relation to various matters of quantification, particularly in relation to interest. I made final orders on 24 February 2017. The parties have now provided written submissions and additional evidence in relation to costs.
Although the proceedings involved separate judgments in relation four partnerships the net result of the proceedings was that the plaintiffs recovered against the defendants a total amount of $342,500.77.
The nature of the proceedings and my findings are set out in the principal judgment. I will use the abbreviations used in that judgment.
It is notorious that partnership disputes have the potential to be complex, involve claims and counterclaims and, if not resolved at an early stage, involve an expenditure of legal costs disproportionate to the amount ultimately at stake. It is for that reason that partnership deeds will often contain mandatory alternative methods for resolution of disputes. Notwithstanding that the deeds in the present case did contain such provisions, following the abortive attempt to use those processes which led to an earlier judgment of the Court: Foote & Anor v Barton Property Partnership No 2 [2014] ACTSC 330, neither party sought to insist upon the use of the provisions in the deeds in order to resolve their disputes. Neither party sought any order in these proceedings seeking to compel alternative dispute resolution. Had any party sought to insist upon the dispute resolution provisions of the deeds or some form of alternative dispute resolution they would have had good prospects of being successful. Both plaintiffs and defendants must be taken to have chosen, with the benefit of legal advice, to have proceeded to and continued with this litigation with full knowledge of the costs and risks involved.
The plaintiffs submitted that the assessment of costs should be considered as a binary dispute namely a dispute between the plaintiffs collectively and the defendants collectively rather than a series of disputes relating to the individual partnerships. The defendants adopted a similar approach. I consider that this approach is the appropriate one. Notwithstanding that it might have been possible for the parties to attempt to resolve the disputes with the individual partnerships separately, they appear to have corresponded with each other and conducted the case on the basis that there was a single dispute rather than a series of separate disputes. The only exception to this was the very short period between February and June 2015 which arose from the decision of Dr Foote and Stan to commence separate proceedings in separate courts in relation to the different partnerships.
Plaintiffs’ submissions
The plaintiffs submitted that costs should follow the event. They identify the event as the claim for payment from the partnerships as a result of their retirement from the four partnerships. Notwithstanding the counter claim made by two of the partnerships, the net result has been the recovery by the plaintiffs of a substantial amount. They submit that it is not a case in which it is possible to dissect out the costs of particular issues and as a result they seek the whole of their costs on a party and party basis. However, they recognise that in a case where a claim and counterclaim have both succeeded the court may make an order that the claimant receives the cost of the action except those costs relating to the counter claim. As a result, in the alternative, the plaintiffs seek an order that the defendants pay their costs on a party and party basis except the costs relating to the counter claim.
Defendants’ submissions
The position of the defendants is that the plaintiffs should be liable to pay the defendants’ costs on a solicitor and client basis. This is because an assessment of the conduct of the parties through the course of the dispute shows that the proceedings were brought about by the plaintiffs’ failure to act reasonably to negotiate the terms of their retirement from the partnerships and the plaintiffs’ subsequent refusal to accept liability for the costs of the delay caused to two of the partnerships in refinancing their liabilities. They submitted that it was Dr Foote’s insistence that he was entitled to Unit 88 rather than cash for his shares and his uncooperative position relating to the partnerships’ refinance which prohibited the parties from resolving the matter at an early stage. Further, the defendants submitted:
(a)BPP2 and BGP are entitled to their costs up until 7 March 2016 because prior to the amendment of the pleadings the claims were limited to a claim pursuant to clause 4 of the relevant deeds and would have failed;
(b)Dr Foote’s entitlement to payment was conceded once the Partnership Act 1963 (ACT) was pleaded;
(c)The plaintiffs should be denied an award of costs because it was Dr Foote’s persistent refusal to reach an agreement that prohibited a payout by consent;
(d)BPP1 and BPP2 were successful on their counterclaims relating to the costs of delay in refinancing their liabilities;
(e)The defendants also seek the costs arising from the plaintiffs’ various applications for summary judgment in the Magistrates Court and in this Court.
The defendants also made submissions based on the chronology of dealings between the parties in relation to settlement of the claims and counterclaims. They submitted that the offers made prior to and after the commencement of proceedings were more favourable than the outcome ultimately achieved and that a reasonable person in the plaintiffs’ circumstances would have accepted those offers.
Chronology
I set out below the events most significant for the assessment of costs. In doing so I will repeat some of the findings made in the principal judgment.
On 18 March 2014 Stan’s retirement as a partner in CDSC and BPP1 took effect.
On 7 April 2014 Dr Foote’s retirement as a partner in BPP2 and BGPP took effect.
On 11 April 2014 Mr Greg Stretton SC made a determination in relation to a dispute between Dr Foote, Stan and the four partnerships (the Stretton determination). This determination was intended to be one under the dispute resolution provisions of the various deeds. The determination included that Dr Foote was entitled to require BPP2 to sell Unit 88 to his superannuation fund on particular terms: see Foote v Barton Property Partnership No 2 [2014] ACTSC 330 at [52]. The insistence by Dr Foote on compliance with this determination, his attempts to enforce it and his resulting refusal to sign documentation that would permit BPP1 and BPP2 to refinance their loans with the Commonwealth Bank are described in the principal judgment at [23], [142]-[237].
On 16 April 2014 the solicitor for the defendants wrote to Dr Foote dealing with his exit from the partnerships. The letter addressed issues arising from Mr Stretton’s determination and various other loans. The letter made a request for additional financial records in relation to those other loans. It indicated that “[y]ou will be paid for your shares in all partnerships in accordance with the valuations that have been undertaken.” It also indicated that the financial records requested were required to determine the position in relation to one of the loans. It recorded that Dr Foote would need to make a payment for the outstanding rent for Unit 88 and interest on that amount.
On 28 April 2014 Dr Foote replied, referring to the Stretton determination and requesting a contract for the sale of the unit. He also addressed other issues raised in the letter.
On 1 May 2014 Mr Robens, the solicitor for the partnerships, wrote again in relation to the request for further documentation particularly in relation to a loan described as the Medfin Loan. The letter also denied that there was ever a final agreement reached in relation to the sale of the units that was the subject of the Stretton determination.
In May 2014 the partnerships declined to sell Unit 88 to Dr Foote and BPP2 gave notice to Dr Foote of the termination of his lease of the unit.
BPP2 commenced proceedings against Dr Foote in the Magistrates Court under the Leases (Commercial and Retail) Act 2001 (ACT) seeking to confirm termination of Dr Foote’s lease at Unit 88 and outstanding rent exceeding (at that time) $280,000. Those proceedings were transferred to the Supreme Court of the Australian Capital Territory (as proceedings SC 360 of 2014) to be heard along with proceedings in which Dr Foote sought to enforce the Stretton determination (SC 393 of 2014).
On 15 May 2014 Mr Robens wrote to Dr Foote referring to a notice of default under the lease of Unit 88. In relation to retirement from the partnerships the letter provided:
Despite our repeated requests you have not provided the required information to be able to determine with precision the payment that should be made on your retirement.
As the partnerships are each under an obligation to pay you your value share within a fixed time, the payments will need to be made based on the partnerships’ best records and adjusted later if further information is provided by you.
A spreadsheet setting out a reconciliation of the entitlements of the plaintiffs and defendants up to 31 May 2014 was annexed to this letter. The figures in that spreadsheet showed a total amount owing to the plaintiffs of $231,252.34. The letter identified the documentation that would need to be signed in relation to retirement from the partnerships. It also referred to the delay in refinancing caused by Dr Foote’s failure to sign the documentation and put him on notice of a claim for costs and damages that might be incurred.
On 20 May 2014 Ms McGowan wrote to Dr Foote providing a reconciliation of amounts owing in relation to Dr Foote as at 30 June 2014. The email provided:
Please find attached the calculation in dollar value of your Exit from the partnership. I have instructed our lawyers to finalise your Exit Deed so we are able to pay you in a timely manner.
The reconciliation showed figures which would lead to a net amount owing to the plaintiffs of $185,802.32.
On 20 May 2014 Dr Foote received an email from the defendant partnerships’ chief executive officer, Ms Jessy McGowan, entitled “Dr Foote calculation” and attaching a spreadsheet entitled “Reconciliation of moneys owed and owing for Dr. Foote as at 30 June 2014”. As its name suggested, the document described the amounts owed to or by Dr Foote or Stan to each of the partnerships. The figures on the spreadsheet indicated a net amount owing to the plaintiffs of $185,802.32.
From June 2014 the solicitor acting for the partnerships in relation to the refinancing, Ms Emmett of Chamberlains Law Firm, attempted to get Dr Foote to sign the documentation necessary to permit the refinancing of the Commonwealth Bank loans: see the principal judgment at [164]ff. There was, during this period, the suggestion by Mr Tierney, the solicitor acting for Dr Foote and Stan, of a settlement conference which is referred to at paragraph [170] of the principal judgment.
In the period 1 September 2014 to 16 February 2015 BPP1 and BPP2 incurred very significant additional liabilities to the Commonwealth Bank because of the refusal by the plaintiffs to execute the documentation required for refinancing the loans which those entities had from the bank. The amounts awarded in the principal judgment were $151,125.60 in relation to BPP1 and $216,009.30 in relation to BPP2, a total of $367,134.90. These amounts were less than the totals claimed (BPP1 $229,240.32, BPP2 $310,715.50) because damages were awarded only in relation to those periods where Dr Foote was the cause of the delay and not those periods where the delay was caused by the partnerships themselves.
On 23 October 2014 the Court heard Dr Foote’s proceedings seeking to enforce against BPP2 the determination of Mr Stretton. On 18 December 2014 the Court dismissed Dr Foote’s claim for orders enforcing Mr Stretton’s determination and on 19 December 2014 gave judgment in favour of the partnership in the sum of $334,388.57 which was the amount of unpaid rent: Foote v Barton Property Partnership No 2 [2014] ACTSC 330. Dr Foote lodged an appeal from that decision (proceedings ACTCA 2 of 2015) which was heard in August 2015 and dismissed on 26 October 2015: Foote v Barton Property Partnership No 2 [2015] ACTCA 53.
At the hearing on 19 December 2014 Mr Robens provided a spreadsheet to Mr Tierney. This was in a similar form to the reconciliation spreadsheets that had been earlier provided. The figures on the spreadsheet showed a net entitlement of the plaintiffs of $71,225.64. One of the principle reasons for the reduction from the net amount previously shown as owing to the plaintiffs in the spreadsheet referred to at [22] above was the accumulation of in excess of $84,000 in rent on Unit 88 since 1 July 2014. The spreadsheet made no allowance for damages arising from the delay in refinancing.
On 22 December 2014 Mr Orlov, counsel for Dr Foote and Stan, communicated a settlement offer to Mr Robens. It was accompanied by a spreadsheet showing how the amount offered was arrived at. The email communicated that if agreement was reached Dr Foote would sign the “transfers etc” on that day. The spreadsheet proposed a settlement by way of payment to Dr Foote and Stan of $460,000.
On 22 December 2014 Mr Robens communicated a without-prejudice offer to counsel for the plaintiff, Mr Orlov. It offered $155,000 to “your client in full and final settlement of all issues”. The email says that the offer is “a considerable shift from the payout schedule provided and should be seen to be reasonable as it takes into account the costs of the proceedings”. The reference to the payout schedule provided is likely to be a reference to the schedule provided as at 19 December 2014 which showed a net amount of $71,225.63 owing to Dr Foote and Stan. The reference to the costs of the proceedings is a reference to the costs of the proceedings that had just concluded which Dr Foote had been ordered on 19 December to pay on a party and party basis.
Mr Orlov responded later that afternoon in an email discussing particular items that were in dispute.
On 12 January 2015 Mr Tierney wrote to Mr Robens’ firm making a settlement offer of $505,839.14, an increase from the earlier offer conveyed in Mr Orlov’s email of 22 December 2014. The offer was explained by reference to a spreadsheet which was attached. The spreadsheet appears to be a reworked version of the one that had been attached to Mr Orlov’s earlier email. It appears to have taken into account as a liability of Dr Foote the amount owing as a result of the orders made on 19 December 2014 in relation to rent owed to BPP 2. It included an amount of $204,700 for the value of the fit out, furniture and equipment located in Unit 88. It also included as a liability of the plaintiffs an amount of $50,000 for the legal costs incurred by the partnerships in Magistrates Court and Supreme Court proceedings which were finalised in the Supreme Court on 19 December 2014.
On 13 January 2015 Mr Robens sent a without-prejudice communication annexing a spreadsheet which identified the position of the partnerships in relation to each aspect of Dr Foote’s claims or entitlements. The spreadsheet identified that many of the items referred to in the spreadsheets provided by the plaintiffs were agreed by the defendants and, where there was no agreement, it articulated in a readily understandable manner the reasons for the defendants’ differing position. The communication made an offer to pay $220,000 to Dr Foote in full and final settlement of all matters. The offer expired at 5 o’clock that day (some 2½ hours after it was made) and was contingent upon Dr Foote signing all required papers to remove him from the title of all units and remove himself from all banking facilities and loans held. Clearly the shortness of the period for which the offer was open is important in determining what significance can be given to the making of this offer.
On 14 January 2015 Mr Tierney communicated a without-prejudice offer to Mr Robens to settle for payment of $395,000 on the condition that Dr Foote could remain in his suite until 30 June 2015 but that the fit out of Unit 88 would remain in situ and become property of BPP2.
On 11 February proceedings were commenced in the Supreme Court by Dr Foote against BPP2 and BGPP seeking $294,320.32 from BPP2 and $81,373 from BGPP. These were proceedings SC 49 of 2015.
On 13 February 2015 Stan commenced proceedings against BPP1 in the Magistrates Court, proceedings CS 149 of 2015. The claim sought the amount of $30,061.73. On the same day Stan commenced proceedings in the Magistrates Court against CDSC seeking judgment in the sum of $134,510, proceedings CS 150 of 2015.
On 25 February 2015 Mr Robens sent a letter marked “Without prejudice except as to costs” to Mr Tierney. It made a walk-away offer conditioned upon reciprocal releases and indemnities being provided. It would have involved the discontinuance of Magistrates Court proceedings CS 149 of 2015 and CS 150 of 2015 and Supreme Court proceedings SC 49 of 2015 as well as Court of Appeal proceedings ACTCA 2 of 2015. The offer was open until 5 pm the following day, 26 February 2015. It articulated various reasons why the offer was said to be attractive. That included that Dr Foote was liable for the costs of the proceedings seeking to enforce the Stretton determination and also the asserted liability for $467,000 in penalty interest as a result of delays in the partnerships’ refinancing. It also referred to the liability for rent payable in accordance with the judgment given on 19 December 2014.
The proceedings in the Magistrates Court (CS 149 of 2015 and CS 150 of 2015) were consolidated by order of the Magistrates Court on 21 April 2015.
On 1 June 2015 the consolidated proceedings in the Magistrates Court were transferred to the Supreme Court and consolidated with SC 49 of 2015. They were then renumbered as SC 176 of 2015.
The partnership took steps to enforce the judgment that it had obtained against Dr Foote. With the assistance of members of his family, Dr Foote made payments totalling $347,315.01 on account of the amount of the judgment plus post-judgment interest. Those payments were made by letters dated 5 and 9 June 2015.
The plaintiff filed an application for summary judgment in the proceedings on 21 August 2015. When the application came on for hearing on 15 September 2015 that application and some earlier applications that had been made in the Magistrates Court were withdrawn and dismissed and costs reserved. That was largely because it was seen as more efficient to give the substantive proceedings an early hearing date rather than separately hear an application for summary judgment in relation to parts of the overall claim before proceeding to a final hearing.
On 18 November 2015 Mr Robens wrote to Ms Neville, who along with Mr Flint had acted for the plaintiffs since August 2015, a letter headed: “Without prejudice save as to costs”. The letter was an attempt to “resolve all outstanding issues between Dr Foote and the Partnerships”. It referred to the present proceedings (SC 176 of 2015) and the proceedings which were consolidated so as to become these proceedings — SC 49 of 2015 and CS 149 of 2015 — as well as the appeal proceedings ACTCA 2 of 2015. This letter made a further walk-away offer conditioned upon the provision of reciprocal releases and indemnities. The offer was open to be accepted at any time prior to 4 pm on Friday, 27 November 2015. The letter included tables which set out the respective claims of the parties. The amount shown as being claimed by Dr Foote was in the order of $834,000 plus interest. The amount claimed by the partnerships was $1.289 million plus interest. The total amount claimed as a result of damages arising from the Commonwealth Bank facilities were in excess of $550,000. The amount the subject of the judgment for unpaid rent was not included in the amounts claimed by the partnerships because that amount had already been paid.
On 2 March 2016 Mr Robens wrote to Mr Flint identifying objections to the proposed Further Amended Consolidated Statement of Claim. The letter recited the procedural history of the proceedings from February 2015 when Dr Foote commenced three sets of proceedings which were ultimately consolidated into the present proceedings.
The final hearing of the proceedings commenced on 7 March 2016. On the Friday before commencement of the trial the plaintiff had made an application to amend the pleadings. That application was successful and ultimately on 9 March 2016 a second further amended consolidated statement of claim was filed. The amendments made to the pleadings were substantial and principally involved reliance upon the provisions of the Partnership Act in addition to the provisions of the relevant deeds. The amendments to the pleadings necessitated filing of an amended defence and an amended reply. Notwithstanding that the hearing commenced on 7 March 2016 because of the issues surrounding the amendment of the pleadings it was only on 9 March that the first witness gave evidence.
Following the handing down of the principal judgment on 10 February 2017 the parties were heard in relation to the numerous calculation issues identified at [253] of the judgment. Ultimately only minor aspects of the calculations were contentious and the judgments that I ordered to be entered gave a net result in favour of the plaintiffs against the defendants of $342,500.77.
The differing approaches to costs
The submissions of the parties emphasised two different models for addressing the question of costs. The model promoted by the plaintiffs emphasised that a net amount has been awarded to the plaintiffs and that therefore they have been successful in the proceedings. As a consequence the plaintiffs contended that costs should follow the event. Such an approach emphasises that a plaintiff who is ultimately successful should, to the extent provided for by a costs order, be compensated for the costs incurred in making that recovery. The plaintiffs’ approach recognises that the entitlement for costs to follow the event may be qualified by settlement offers which might warrant a departure from that approach.
The model promoted by the defendants invited, in the circumstances of this case, a broader examination for the purposes of determining the appropriate costs order. The defendants invited an examination of what it was that has prevented a resolution of the entitlements of the parties and, in particular, draw attention to the insistence by Dr Foote upon the implementation of the Stretton determination and his refusal to sign documentation that would permit BPP1 and BPP2 to refinance their loans from the Commonwealth Bank. The defendants invited the court to conclude that it was this conduct and the damages to those partnerships for which Dr Foote and Stan have been found in the principal judgment to be liable that prevented the settlement of the claims between the parties. They also make submissions based upon the existence of settlement offers made by the defendants.
In my view it is necessary to have regard to both approaches when determining the question of costs.
Costs following the event not appropriate
Looked at upon the simplistic basis of whether the plaintiffs were successful in recovering money from the defendants, the plaintiffs have succeeded. They have obtained a net judgment of $342,500.77. Clearly none of the offers of settlement made by the defendants offered a greater amount than this sum. However to assess the outcome of the case on the basis of only this net figure is inappropriate for a number of reasons. These reasons indicate that it is not appropriate to consider only that there has been a net recovery by the plaintiffs. Rather it is necessary to consider, at a broader level, responsibility for the dispute and its attendant costs and the change in the positions of the parties during the course of the proceedings.
First, consideration only of the headline figure fails to take into account that this figure effectively corresponds to the amount which Dr Foote paid to BPP2 as a consequence of the orders made on 19 December 2014: see [38] above. The principal paid was $334,388.57 and the total amount paid was $347,315.01. Thus, the entitlement to recover any substantial amount was only generated by the payment made by Dr Foote after the commencement of proceedings. I will return to an examination of this issue in more detail later in these reasons.
Second, one of, if not the principal matters in contention between the parties was whether or not Dr Foote and Stan were liable for damages arising from their refusal to execute the documentation that would have permitted the refinance of the Commonwealth Bank loans. The principal judgment concluded that the total amount for which the plaintiffs were collectively liable was $367,134.90 (BPP2 was entitled to $216,009.30, BPP1 was entitled to $151,125.60). This was an issue which arose between September 2014 and February 2015. It was therefore not an issue at the time of Dr Foote’s and Stan’s resignation from the partnerships. However by the time of the settlement negotiations in December 2014 and February 2015 it was an issue of significance between the parties. It was the most substantial issue of controversy between the parties up until the end of the hearing and the single issue which took up most time at the hearing. This was an issue which was generated entirely by Dr Foote’s conduct following his and Stan’s resignation from the partnerships.
Third, it is necessary to have regard to the fact that, up until the commencement of the hearing, the pleaded claims made by the plaintiffs against BPP2 and BGPP were based solely on the terms of the respective partnership deeds and did not call in aid the Partnership Act. The claims based on the partnership deeds were unsuccessful: see principal judgment at [33]-[49]. Thus, while the partnerships had accepted liability to Dr Foote prior to the commencement of the proceedings, the response of the partnerships to the proceedings between February 2015 and March 2016 was coloured by the fact that the only claim was made on a basis which could not succeed.
Offers of settlement
In the period from April 2014 until January 2015 there was no real attempt by the plaintiffs to negotiate a financial settlement of the dispute. That was because Dr Foote was insisting upon a transfer of Unit 88 in accordance with the Stretton determination. Following the decision of the Court in December 2014 which rejected Dr Foote’s claim that the Stretton determination was enforceable, there was a period of settlement negotiations involving, in particular, the communications on 22 December, 12–14 January and 25 February 2015. These negotiations involved a detailed and rational consideration of the elements of the dispute between the parties. The position of the parties, formalised by the making of Calderbank offers by the plaintiff on 12 January 2015 and by the defendants on 25 February 2015, was that the plaintiffs were offering to settle for $505,839.14 and the defendants were offering to “walk-away”.
Following this period of attempts at settlement the evidence indicates surprisingly little by way of attempts to settle the proceedings, the only other formal offer being that made by the defendants on 18 November 2015.
The outcome achieved as a result of the proceedings was a judgment in favour of the plaintiffs of $342,500.77. That is an amount which is arrived at in the light of the fact that the full amount of the judgment for rent in favour of BPP2 had been paid in June 2015. It was therefore excluded from the liability of Dr Foote to BPP2 in arriving at the overall result. However during the settlement discussions between December 2014and February 2015 that amount had not been paid and hence was included in the liabilities of Dr Foote to BPP2. Therefore in order to make a comparison between the net judgment obtained as a result of the proceedings and the offers that were made between December 2014 and February 2015 it is necessary to take that payment into account. If the principal amount of the judgment for rent $334,388.57 is removed from the total ultimately awarded then the amount would be reduced to $8,112.20. In other words but for the payment by Dr Foote of the amount of that judgment and post-judgment interest in June 2015 the amount recovered in these proceedings would have been only a nominal amount.
However that approach fails to take into account the accrual of interest during the period from the settlement negotiations in early 2015. The calculations of interest are shown on Exhibit 1 tendered on 24 February 2017. While interest accrued on amounts owing to and by the plaintiffs which were ultimately accounted for in the judgment, there was a net increase in the amount owing to the plaintiff over the period from December 2014 to February 2017. If interest that accrued on amounts that ultimately formed part of the judgment is calculated only up to the date of the offer on 25 February 2015 (rather than the date of the judgment 24 February 2017) then the total owing to the plaintiff is approximately $304,000 rather than the approximately $342,000 awarded.
But for the accrual of interest and the payment of the amount owing for rent a net amount would have been payable by rather than payable to Dr Foote and Stan. When interest and the subsequent payment for rent are taken into account the offer made by the partnerships was more favourable than that achieved by Dr Foote and Stan. However it must be noted that the offers also included the waiver by the partnerships of the liability of the plaintiffs to pay costs pursuant to the orders made in the proceedings relating to Unit 88, namely the termination proceedings (SC 393 of 2014) and the proceedings by Dr Foote to enforce the Stretton determination (SC 360 of 2014). The amount allowed for the defendants’ costs in the offers made by the plaintiffs was $50,000. The defendants included an amount of $173,000 in the spreadsheet accompanying the offer of 13 January 2015 and indicated in the offer of 25 February 2015 that they anticipated that the party and party costs would be assessed at $85,000. Those costs liabilities are unaffected by the principal judgment. If they are taken into account then the position which the plaintiffs have achieved as a result of the principal judgment is at least $50,000 worse. In other words the whole of this litigious saga has achieved a result for the plaintiffs less favourable than what they were offered in the formal Calderbank offer on 25 February 2015.
It is notable that the formal offer of 25 February 2015 was itself substantially less favourable than the offer to pay to the plaintiffs $155,000 made on 22 December 2014 and the offer to pay the plaintiffs $220,000 made on 13 January 2015. However because these offers were not made as Calderbank offers they are only useful because they provide the background to the making of the Calderbank offer.
Notwithstanding the submissions made by the plaintiffs I consider that each of the offers made on 22 December 2014, 13 January 2015 and 25 February 2015 incorporated into the accounting the amount which Dr Foote had been required to pay for rent to BPP2. This is made clear by the terms of the letter of 13 January referring back to the payout schedule which incorporated liability for rent and the terms of the spreadsheet attached to the 13 January letter which incorporated rent into the net amount owing to BPP 2 by Dr Foote. In other words the offers made, if accepted, would have precluded the defendants from separately pursuing that amount.
As I have pointed out, a very significant aspect of the dispute which was litigated to finality at the trial was the liability of Dr Foote and Stan for damages arising from their conduct in refusing to sign documents that would permit the refinancing of the Commonwealth bank loans. The spreadsheets prepared in December 2014 and January 2015 for the purposes of settlement negotiations did not include amounts for that liability. However it is clear, in my view, that the plaintiffs, acting reasonably, ought to have taken into account their potential liability when considering the terms upon which to settle their dispute with the defendants. That is because:
(a)The correspondence between June and December referred to in the principal judgment at [164], [171], [172], [189], [191], [197], [198], [212], and [216] made it clear that the partnerships would seek damages from Dr Foote and Stan.
(b)The email of 22 December 2014 which contained the offer to pay $155,000 to the plaintiffs made specific reference to the incurring of $17,000 per week in finance costs and referred to a figure of $241,170 having been incurred to that point.
(c)The email of 13 January 2015 containing the offer to pay $220,000 to the plaintiffs annexed a spreadsheet which included reference to the facts underlying the claim for damages and once again identified a sum of $241,170 in damages for the period during which the partnerships were delayed in their attempts to refinance.
(d)The letter of 25 February 2015 addressed the damages arising from Dr Foote adopting “a tactical stance to exert pressure” by not signing the relevant documents. It referred to $467,000 in penalty interest having been paid as a result of the delays and “[i]f this matter proceeds then our clients will be seeking to be reimbursed for the additional interest that was incurred.”
Clearly, having regard to what I have said above I consider that each of the offers made by the defendants offered a result more favourable to the plaintiff than has been achieved as a result of the litigation. Of those offers I give most weight to the offer of 25 February 2015. The reason for that is that it is a formal Calderbank offer, its terms are sufficiently clear and, in contrast to the earlier offers, sufficient time was permitted to allow its consideration. While the earlier offer of 13 January 2015 was substantially more favourable to the plaintiffs it was not explicitly a Calderbank offer (being entitled without prejudice rather than without prejudice save as to costs), it only contemplated some 2½ hours for its consideration, it required the signing of papers that day to permit the refinancing to occur and it required the provision of vacant possession of Unit 88 by the next day. Notwithstanding that, in the light of the settlement discussions that had occurred, both parties would have a detailed understanding of their respective positions, I consider that not making clear that it was intended to operate as a Calderbank offer and giving only very limited time for acceptance means that it can be given little weight as an offer. However it does provide context for the subsequent offer and helps to understand the scope of the disputes that the parties were considering resolving. The same comments apply in relation to the offer made on 22 December 2014.
The last evidence of any offer made by the plaintiffs to settle the proceedings is as at 14 January 2015. There is no evidence that at any stage the plaintiffs made an offer that recognised even a risk of liability for damages or compensation for losses incurred by the partnerships as a result of Dr Foote’s refusal to cooperate with their efforts to refinance their liabilities.
Consideration and conclusion
Clearly by the time that Dr Foote and Stan’s resignations took effect there was little love lost between the parties. However it is clear that in April 2014 the partnerships were willing to pay out the net amounts required to be paid upon the plaintiffs’ resignations from the partnerships. That is made clear by the provision of the schedules showing his entitlements to 31 May 2014 and 30 June 2014. The response by Dr Foote was to insist upon the implementation of the Stretton determination. Having regard to the existence of a purported determination pursuant to the dispute resolution provisions of the partnership deeds it cannot be said that seeking compliance with that determination was unreasonable. However the conduct of Dr Foote in refusing to cooperate with the refinancing of the Commonwealth Bank loans because of his desire to insist upon the transfer in accordance with the Stretton determination was unreasonable. Had there been other than a blanket refusal to cooperate then it would have been possible for Dr Foote’s asserted interest in Unit 88 to have been protected. Having regard to the correspondence received from Ms Emmett and the approach that she took to the attempted refinancing, I find on the balance of probabilities that the refinancing would have been able to occur in a manner which did not prejudice Dr Foote’s asserted entitlement to have the continuing partners transfer to him Unit 88 in accordance with the requirements of the Stretton determination. By refusing to act reasonably and negotiate with the partnerships so as to permit refinancing to occur Dr Foote took a significant risk. The risk was that his position that the Stretton determination was enforceable would turn out to be wrong and he would, as a former partner, have been in breach of his obligations to the continuing partners. That risk materialised. Not only did that give rise to a substantial liability for damages but also, because the liability for those damages was denied by the plaintiffs, the existence of that issue was a substantial factor in prolonging the litigation. As I have pointed out, at no point did any offer of settlement from Dr Foote take account of this very substantial liability found to exist or recognise the risk of such a liability being imposed.
The attitude of the parties to each other was also manifested in the defendants’ insistence upon payment of the outstanding rent the subject of the orders made in December 2015 during the pendency of the present proceedings. As illustrated by the judgment in favour of the plaintiffs in the present proceedings, the insistence upon enforcement of the judgment had the effect of creating a liability on the part of the defendants to the plaintiffs. Thus the case was transformed from one in which, having regard to the ultimate outcome, very little was owed on either side to one in which there was a substantial liability from defendants to plaintiffs. The plaintiffs were only able to recover this amount by litigating. In the light of the outcome of proceedings, insistence upon payment of the judgment amount during the pendency of proceedings was unjustified. It transformed the case from one in which the plaintiffs’ claim for additional payment was unjustified into one which they were compelled to bring in order to recover their outstanding entitlements.
Overall the determination of the issue of costs is attended with a degree of unease because of the sense that the parties have rather too willingly condemned themselves and each other to a course of litigation in circumstances where a more dedicated effort to assess in detail the merits of their respective positions, undertake the required accounting exercises and make use of the potential for dispute resolution under the partnership deeds or alternative dispute resolution during the pendency of the litigation might have resolved the case at an earlier stage at a lesser cost.
Ultimately there are three factors that are of most significance.
First, the defendants made an offer of settlement which in substance was more favourable to the plaintiffs than they have achieved after a lengthy contested hearing. The offer was more favourable than the result achieved because it involved also a compromise of the rights of the defendants to enforce the costs order that they obtained in proceedings seeking to enforce the Stretton determination and the proceedings relating to the termination of Unit 88. I consider that the position adopted by the plaintiffs was unreasonable having regard to the fact that there was no response to this offer and never any offer which had regard to the value of the claim of the defendants for damages arising from the delay in refinancing. There is no explanation as to why there was no response or any evidence identifying any reason having regard to the state of proceedings between the parties that would have made it difficult or inappropriate for a considered offer of settlement to have been made. It is important to note that the Calderbank offer made on 25 February 2015 took place in the context of their having been the following earlier proposals for paying out the plaintiffs or settlement offers:
(a)15 May 2014 (calculated to 31 May 2014): $231,252.34
(b)20 May 2014 (calculated to 30 June 2014): $185,802.32
(c)17 December 2014 (provided 19 December 2014): $71,225.63
(d)22 December 2014: $155,000
(e)13 January 2015: $220,000
While I recognise that precisely what was encompassed by these offers varied, they provide the context in which the walk away offer was made. They also provide the context in which the offers made by the plaintiffs to settle for $460,000 made on 22 December 2014, $505,839.14 made on 12 January 2015 and $395,000 made on 14 January 2015 should be assessed.
Second, following the amendment of the claim by the filing of the second further amended consolidated statement of claim on 9 March 2016, the most substantial issue litigated between the parties was the conduct of Dr Foote in refusing to cooperate with the refinancing efforts and the causal relationship between that conduct and the losses incurred by BPP 1 and BPP 2. Very substantial portions of the cross examination of Dr Foote related to his conduct between April 2014 and February 2015 in relation to refinancing. Similarly very substantial portions of the extensive cross examination of Ms McGowan related to the causal link between Dr Foote’s conduct and the losses that the partnerships suffered.
I do not consider that it is significant for the purposes of the costs issue that the amounts awarded to the partnerships were less than the amounts claimed. BPP 1 claimed an amount of $229,240.32. It was awarded an amount of $151,125.60. BPP 2 claimed an amount of $310,715.50. It was awarded an amount of $216,009.30. Both of these are very substantial awards. I consider that they reflect substantial success on the part of the defendants. Some indication of that can be ascertained by reference to the fact that as at 22 December 2014 the amount identified for such damages for the purposes of settlement negotiations was a total of $241,170.
Third, because of the insistence by the partnerships upon payment of the outstanding judgment and the payment of that amount and post-judgment interest in June 2015 the case was transformed from one in which the entitlements of the parties were reasonably evenly balanced, to one in which there was a substantial net liability of the defendants to the plaintiffs. There is no evidence that following the making of that payment the effect of that payment was incorporated either into the formal accounts of the partnerships or otherwise taken into account for the purposes of any offer of settlement. Thus while the extent of liability of the plaintiffs arising from the delay in refinancing the Commonwealth Bank loans remained a substantial issue between the parties, having regard to the outcome of the case, it is one in which the plaintiffs have been required to litigate the matter to finality in order to recover a substantial amount from the defendants. It is during this post June-2015 period that the vast majority of the considerable legal costs involved in the case would have been incurred.
While the effect of a Calderbank offer will often be that the offeree is required to pay the costs of the offeror following the date for acceptance of the offer, this is not a case where that approach is appropriate. Rather there are factors pointing in both directions. On the one hand the unreasonable refusal of the offer of settlement made by the defendants in February 2015 and the failure to accept liability arising from the delay in refinancing. On the other hand is the defendants’ insistence upon payment of the outstanding judgment during the pendency of proceedings in circumstances where the plaintiff has been found overall to be entitled to an amount approximately equivalent to the amount of the judgment.
Overall I consider that the appropriate order in the circumstances is that there be no order as to the costs of the proceedings. This approach will not affect any existing costs orders. It is also the appropriate order in relation to the applications for summary judgment which were filed by the plaintiff but not, in substance, determined.
Orders
The order of the Court is:
1. There is no order as to the costs of the proceedings.
| I certify that the preceding seventy-two [72] numbered paragraphs are a true copy of the Reasons for Judgment of his Honour Justice Mossop. Associate: Date: |
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