Gagliardi v KP Hicks (No 2)
[2018] VCC 1280
•17 August 2018
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
Case No. CI-16-04656
| ROCCO FERNANDO GAGLIARDI | Plaintiff |
| v | |
| KP HICKS REAL ESTATE PTY LTD ACN 071 119 983 | Defendant |
---
JUDGE: | HER HONOUR JUDGE MARKS | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 7 August 2018 | |
DATE OF RULING: | 17 August 2018 | |
CASE MAY BE CITED AS: | Gagliardi v KP Hicks (No 2) | |
MEDIUM NEUTRAL CITATION: | [2018] VCC 1280 | |
REASONS FOR RULING
---
COSTS – CALDERBANK OFFER – Application for indemnity costs – Whether unreasonable for defendant to reject Calderbank offer made after mediation, one month before the trial was listed and one week before application to adjourn trial listed – Whether offer being kept open for 7 days with 14 day payment terms sufficient – Whether offer made inclusive of costs sufficiently clear or open to be made where plaintiff offered to accept less than amount it sued for – Indemnity costs ordered.
CASES CITED: Chint Australasia Pty Ltd v Cosmoluce Pty Ltd [2008] NSWSC 768; DSE (Holdings) Pty Ltd v InterTAN Inc [2004] FCA 1251; Elite Protective Personnel Pty Ltd & Anor v Salmon [2007] NSWCA 322; Groves v Matt O’Connor & Associates Pty Ltd (No 2) [2015] NSWSC 817; Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) [2005] 13 VR 435; Hewitt v Count Financial Ltd [2017] VCC 405; Jones v Trad (No 3) [2013] NSWCA 463; M.T. Associates Pty Ltd v Aqua-Max Pty Ltd & Anor (No. 3) [2000] VSC 163; Mainteck Services Pty Ltd v Stein Heurtey SA [2013] NSWSC 1165; Marriner & Ors v Australian Super Developments Pty Ltd [2016] VSCA 141; Nominal Defendant v Dighton (No 2) [2012] SASCFC 97; Roland Ofria v Robert William Cameron (No 2) [2008] NSWCA 242; Smallacombe & Others v Lockyer Investment Co Pty Ltd(1993) 114 ALR 568; Texxcon Pty Ltd v Austexx Corp Pty Ltd (No 2) [2013] VSC 343; White v Baycorp Advantage Business Information Services [2006] NSWSC 910; and Winky Pop Pty Ltd v Mobil Refining Australia Pty Ltd [2015] VSC 580.
---
APPEARANCES: | Counsel | Solicitors |
| For the plaintiff | Mr P Wallis | Aitken Partners |
| For the defendant | Mr J Paterson | K & L Gates |
Contents
Background
Costs orders sought
Result
Affidavits relied on
Calderbank offer
Law
The stage of the proceeding
Time offer open and payment due
Extent of the compromise offered
Prospects of success
Clarity of offer
Application foreshadowed appropriately?
Indemnity costs for other reasons?
Apportion costs?
Directions hearing costs
Costs hearing costs
HER HONOUR:
Background
On 29 May 2018, I delivered reasons for judgment in this proceeding: Gagliardi v KP Hicks [2018] VCC 745 (the principal judgment).
On 15 June 2018 I gave judgment for Rocky Gagliardi on his claim against KP Hicks Real Estate Pty Ltd for $141,866.60, plus interest of $21,567.65 (a total of $163,434.25), and dismissed the agency’s counterclaim against Rocky.
The parties have filed written submissions and had a further hearing as to the costs orders to be made. These reasons deal with those costs. They refer to matters detailed in the principal judgment, and use the same definitions.
Costs orders sought
Rocky wants the agency to pay his costs of the proceeding on a standard basis to 19 October 2017, and on an indemnity basis from 20 October 2017, principally as a result of a Calderbank offer made on 12 October 2017. Rocky also wants the agency to pay his costs of the agency’s counterclaim on an indemnity basis from its instigation.
The agency opposes orders for indemnity costs. It says the appropriate orders are:
(a) on Rocky’s claim, that:
(i)the agency pay 90% of Rocky’s costs on the standard basis;
(ii)Rocky pay 10% of the agency’s costs on the standard basis;
(iii)there be no order as to costs of and incidental to the directions hearing on 19 October 2017;
or alternatively to (i) – (iii) above:
(iv)the agency pay 80% of Rocky’s costs on the standard basis; and
(v)there be no order as to costs of and incidental to the directions hearing on 19 October 2017; and
(b)on the agency’s counterclaim, that the agency pay Rocky’s costs on the standard basis.
Result
I will order that the agency pay Rocky’s costs of the claim and counterclaim (to be assessed by the Costs Court in default of agreement):
·on the standard basis until 19 October 2017;
·on the indemnity basis from 20 October 2017.
I am satisfied that there is a reason to depart from the usual order as to costs on a standard basis because it was unreasonable of the agency not to accept Rocky’s Calderbank offer of 12 October 2017.
I will not make an order for indemnity costs on the counterclaim from its inception as the agency’s conduct does not warrant that order.
I will not make an order for an apportionment of costs as sought by the agency because Rocky was almost entirely successful in the proceeding.
I will not make a separate order that there be ‘no order’ as to the costs of and incidental to the directions hearing on 19 October 2017. I am not satisfied there is any reason to depart from the usual basis that the losing party – the agency – pays reserved costs.
Affidavits relied on
Affidavits relating to costs were sworn by legal representatives of the parties. Rocky relied on two affidavits of Katherine Elizabeth Wangmann, sworn 22 and 27 June 2018. The agency relied on an affidavit of Travis Robert Payne sworn 20 July 2018, and of Anthony Brooke Watson sworn 18 October 2017.
Calderbank offer
The Calderbank offer of 12 October 2017 states:
We refer to our letter dated 20 September 2017 enclosing our client's without prejudice settlement proposal (copy enclosed). Your client did not accept the offer, which expired on 4 October 2017.
For the reasons expressed in our 20 September 2017 letter, in our view, our client has strong prospects of succeeding on his claim in the Proceeding, in its current form or as proposed to be amended. Likewise, in our view, your client's counterclaim will fail, whether that is in its current form or as proposed to be amended. The further allegations are speculative, lack adequate particulars and have no substance.
Offer of settlement
Notwithstanding the above, in the interests of resolving this matter on a commercial basis, our client has instructed us to make the following offer:
a)our client will accept the sum of $150,000 as full and final settlement of all amounts claimed by our client in relation to the subject matter of the Proceeding, inclusive of interest and costs, payable within 14 days …
b)this offer is subject to the execution by the parties to the Proceeding of a Deed of Settlement containing mutual releases for any and all claims arising between our clients in relation to the subject matter of the Proceeding, specifically including claims made by your client by way of counterclaim and, if requested, a confidentiality agreement between the parties; and
c)as soon as practicable after execution of the Deed of Settlement, the parties will take such steps as will be necessary to discontinue the Proceeding with no order as to costs, (the Offer).
The Offer is open for acceptance until 4.00 pm on 19 October 2017.
Considering the extent of the accommodation afforded by our client as set out in the offer, we specifically draw your attention to the following factors as originally outlined in Calderbank v Calderbank [1975] 3 All ER 333, and Cutts v Head [1984] 1 All ER 971, and as considered by the Court of Appeal in Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (no.2) (2005) 13 VR 435, which will be relevant in assessing whether a rejection of the offer by you is unreasonable:
1.the offer is being made at a time when your client has been made fully aware of the strengths of our client's case and at the stage of the proceeding at which the parties are about to incur significant costs in the conduct of the Proceeding;
2.your client has been given sufficient time to properly consider the offer before such costs are incurred;
3.the offer represents a significant indulgence being offered by our client; and
4.the terms of the offer are of sufficient clarity for your client to understand that fact.
Should your client reject this offer, and as we expect, our client receives more by way of judgment at trial, our client will further rely on this letter in support of an application for costs of the Proceeding on an indemnity basis, or on such other higher scale as the Court shall determine than the scale on which our client would otherwise be entitled to any order for costs.
The letter of 20 September 2017 is referred to in the Calderbank offer as stating the reasons why Rocky thinks he has strong prospects of success on his claim (and so those reasons need to be considered as part of the Calderbank offer). It states relevantly:
In our view, our client has strong prospects of recovering his unpaid commissions, plus interest and costs. To this end, many of the commissions claimed by our client have been conceded by your client.
On the other hand, we consider that your client's various counterclaims appear to have very little merit, if any, and appear to have been devised as a negotiating tactic.
We make the following comments (which are not exhaustive) in relation to each claim and counterclaim:
Defence &
counterclaim
Property Comment 9 (a)-(c) 123 Vaughan Street, 7 McHarry Place, and 67 Corio Street. We do not understand your client's denial of our client's commission in respect of these properties. Our client obtained valid sale authorities for these properties, and, in any event, it is clear that your client admitted liability to pay commission for these properties. 9 (d) Lot 7, 148 River Road Your client admits liability. 15(a) 114 Knight Street Your client admits liability. 15 (b) 439 Dookie Road Your client admits liability. 15 (c) Lot 193 N Links Estate Your client admits liability. 15 (d) Lot 7 Gardens Estate We note that your client asserts that Kevin Hicks was the listing and managing agent of that property, yet you have not produced any documents whatsoever in support of this claim. Our instructions are that the documents (which ought to be discovered by your client) support out client's position. 15 (e) Lot 1155 Kialla Lakes Estate This property is no longer in dispute. 15 (f) 366 & 368 Wyndham Street We confirm that the correct address for this property is 372 to 398 High St. Your client has not indicated its position in relation to this property. 15 (g) 4/234 Wyndham St We confirm that the correct address for this property is 4/234 High Street. Your client has not indicated its position in relation to this property. 15 (h) Shop 6, 208 to 210 Vaughan St We confirm that the correct address for this property is Shop 6, 208 to 210 Corio St. Your client has not indicated its position in relation to this property 15 (i) SPC, Camp & Young Streets, Mooroopna In our view, the documents discovered to date do not support your client's allegations. For example, there is no evidence that our client withheld any documents or that he engaged in dealings · subsequent to his departure. In fact, it is clear from your client's discovery that it has all of the relevant correspondence in its possession.
Your client has refused to discover documents including Kevin Hick's telephone records and requests made to Rory Hilton which we are instructed support our client's position. Also, the property was sold as a result of our client's efforts, and your client was paid the commission. Our client should be rewarded for his efforts.15 (j) 69 - 71 Maude Street Your client admits liability. 20-23 John Taigs Building Your client has not produced any documentary evidence which establishes that the property was for sale prior to 25 May 2015. In the circumstances, it is our view that the Court is likely to accept our client's position.
24(a)-(c) 24 Mitchell St,
7969 Goulburn Valley Highway, and
1-4, 15 Elizabeth St
We confirm that 24 Mitchell St and 7969 Goulburn Valley Highway were withdrawn from sale and 1-4, 15 Elizabeth St has not been sold. Therefore your client cannot have suffered any loss.
Further, our client was not restrained from accepting an approach from the owners of these properties because in each case the relevant authority had expired. Your client's claim appears to be misconceived.
As to your client's proposed "breach of confidentiality claims", we do not understand the basis of those claims. Your client has not explained what specific confidential information has been misused. Accordingly, in our view the allegation is baseless.26-28 Grange Estate No lots have been sold by GSRE. Therefore your client cannot have suffered any loss.
In any event, we confirm that your client's authority expired prior to our client obtaining an authority.29(a)-(d) 347 - 349 Wyndham
Street,
11 Edward Street,
124 - 126 Fryers Street,
and
234 - 236 Maude Street
Your client has not established that these properties are rent roll properties in the sense that there was a rental management agreement for each of these properties. Your client has refused to discover documents in relation to 124-126 Fryers St, which your client has also listed for lease.
As to your client's proposed "breach of confidentiality claims", we do not understand the basis of those claims. Your client has not explained what specific confidential information has been misused. Accordingly, in our view the allegation is baseless.31-35 Connolly Park Estate In our view, your client has not established that (a) our client had a positive duty to request a further authority and (b) our client would have been able to obtain that authority. In fact, we are instructed that our client attempted to obtain the authority but the developer was not prepared to provide it. 36-38 Connolly Park Estate Signboards We confirm that our client's position is that the signboards were owned by the owner/developer of Connolly Park Estate. Our client has provided you with copies of the tax invoices for those signboards. 39-44 10 Corvette Court Your client has not provided any particulars or produced any supporting documentation to establish how our client used confidential information of KPHRE in relation to this property. We are instructed that our client had no involvement in the listing of this property by Ray Dobson Real Estate. Accordingly, in our view the allegation is baseless. 45-49 2- 6 Apollo Drive Your client has not produced any documentary evidence which establishes that the property was available for lease prior to 1 June 2016. In the circumstances, it is our view that the Court is likely to accept our client's oral evidence in relation to the negotiations and the date when the property was available for lease. 50-53 The 12 properties listed in paragraph 50 We confirm that your client's claim has been reduced to 7 of the 12 properties. Your client has not provided any particulars or satisfactory documentary evidence in support of your client's claims. Accordingly, in our view the allegation is baseless. 54-56 5/575-585 Wyndham St Your client has not established that our client had a duty to "document and finalise responsibility for payment of the leasing fee" or to advise the landlord and tenant of the same. In any event, our client denies that he failed to meet his obligations under the Employment Agreement or at common law. 57-60 Motor vehicle and property Our client does not accept your client's claims for the reasons set out in our clients' reply and defence to counterclaim. In any event, even if proved, the allegations are of little value. …
Law
In Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) [2005] 13 VR 435, the Victorian Court of Appeal set out the principles to be considered in the use of Calderbank offers. It said that orders for special costs should only be made in special circumstances.
The Court noted (at [21] – [22]) the competing policy considerations of providing an incentive to settle but not discouraging litigants from bringing their disputes to the Court. The Court found at [23] that the competing considerations:
… can be sufficiently accommodated by applying a test of (un)reasonableness. The critical question is whether the rejection of the offer was unreasonable in the circumstances.
As made clear in Hazeldene’s, determining whether an offer was unreasonably rejected involves matters of judgment and impression. Matters I need to consider include the stage of the proceeding at which the offer was received, the time allowed to consider the offer, the extent of the compromise offered, Rocky’s prospects of success (assessed as at the date of the offer), the clarity of the terms of the offer, and whether the offer foreshadowed an application for indemnity costs in the event of it being rejected.
The stage of the proceeding
Wangmann’s 22 June 2018 affidavit at [10] sets out the many interlocutory steps that had occurred in the proceeding by the time the offer was made. Mediation had occurred. The case was listed for trial a month later.
I find that the agency had the necessary evidence available to it at that stage to assess the offer. (It is well established that if a party does not have the necessary evidence to assess a Calderbank offer, it would be reasonable to wait until it had seen it before agreeing to compromise the case: Chint Australasia Pty Ltd v Cosmoluce Pty Ltd [2008] NSWSC 768.)
At the time of the Calderbank offer, Rocky’s claims totalled $125,377.38. The agency argues that, at the time the offer was made, Rocky’s claim did not include a number of new claims which were added in November 2017 (the November claims) and February 2018 (the February claims). The new total of his claims by the trial was $158,803. He had abandoned some minor claims by then as well.
By the November claims, Rocky added commission claims over 24 new properties, totalling $15,889. Four of these claims were not pursued at trial. The agency disputed the claims over only two of these properties at trial: 29 Waranga Drive, and Lot 7 Enterprise Drive – a total disputed amount of $3,010. It admitted $9,912 of the November claims.
By the February claims, Rocky claimed a further $12,518. The agency admitted almost all of these claims. It disputed Rocky’s entitlement to commission on just four of the properties – a total disputed amount of $2,998.
The agency submitted:
It would be very unfair of the Court to permit the Plaintiff to rely upon a Calderbank Offer in circumstances where the quantum of the claims was increased by subsequent amendments and the insertion of additional claims which altered the context in which the Calderbank Offer had been made, and considered, during the period from 12 to 19 October 2017.
However, Rocky’s new claims only increased the amount over which the agency was at risk – and the amount of work required preparing for trial, and time in trial for both parties – thus improving the offer made to settle all Rocky’s claims arising out of his work as commission agent for the agency. Put another way, the amount the agency was at risk for could only increase with new claims being made, meaning that the Calderbank offer became an even better deal.
Rocky had sent the agency a proposed amended statement of claim including the November claims on 26 September 2017 (see Watson’s affidavit at 5(i)). This was two weeks before the Calderbank letter was sent. The agency knew the properties over which commission was to be claimed and the amount Rocky claimed. It was well able to consult its records and assess its risk on whether it owed Rocky commission on these properties as well. It was not a complex task.
Counsel for the agency conceded that it knew at the time of the Calderbank offer that the offer was to settle the November claims as well as the claims already made in the proceeding.
The agency was well placed to quantify the value of the November claims and factor its risks into its assessment of the Calderbank offer.
I accept Rocky’s submission that the Deed which the Calderbank offer contemplated that would have been drawn up (had the Calderbank offer been accepted) would have settled all matters between the parties, including future commission claims which Rocky later became aware of as a result of the agency finally giving discovery of relevant documents (such as the February claims). The offer was intended to bring finality to Rocky’s claims arising out of his time at the agency.
Time offer open and payment due
The agency says that it was not unreasonable for it to reject the offer because it was only open for 7 days, and 14 days was insufficient time for payment. I disagree.
The offer was made almost a year after the proceedings were instituted, when most necessary interlocutory steps had occurred (including mediation), and one month before the trial was due to start.
It expired a week later, on the day the agency’s application to adjourn the trial was listed, principally as a result of Rocky seeking to add the November claims.
The 26 September letter had set out risks Rocky considered the agency had with its defences and counterclaim, so in fact the agency had an extra two weeks (before the seven days offered in the Calderbank offer) to assess its risks in light of the comments in the September letter.
The agency submits:
The Calderbank Offer was expressed to remain open for only a period of 7 days with payment to be made within 14 days of acceptance. The time for payment was in itself unreasonable for a small regional real estate agency. The Defendant submits that the 7 day acceptance period and the 14 day payment terms were too short and unreasonable. The standard period for acceptance if the offer had been made as a formal Offer of Compromise is not less than 14 days (Rule 26.03(3) County Court Rules) and the standard time for payment after acceptance of a formal Offer of Compromise is 28 days (Rule 26.03.1 County Court Rules). Where not time critical, the Defendant submits that any Calderbank offer should remain open for acceptance, at a minimum, for at least the time period provided for formal Offers of Compromise.
In circumstances where the trial date at the time of the making of the Calderbank Offer was still a month away (13 November 2017) and given that the Plaintiffs claim and Defendant's counterclaim comprised a multiplicity of claims of both factual and legal complexity, the 7 day period for acceptance was unreasonably short.
… Court should infer that the making of the Calderbank Offer, almost a month after the last without prejudice communication from the solicitors for the Plaintiff on 20 September 2017, was made in response to the Defendant's application seeking the vacation of the trial date and in an attempt to exert strategic pressure on the Defendant to accept the offer against the risk of the trial date not being vacated. The Court should not uphold a Calderbank Offer which sought to leverage commercial pressure on the Defendant rather than as a genuine attempt seeking a compromise. This submission is bolstered by the fact that even when the trial date was vacated by order of Judicial Registrar Tran made on 19 October 2017 and a new trial date of 5 February 2018 was fixed, the Plaintiff did not extend the time for acceptance of the Calderbank Offer or restate it.
However, I consider the seven day time the offer was open was reasonable in the circumstances.
There are cases where seven days was held to be insufficient; there are others where seven days or less has been held to be sufficient. It depends on the facts.
In M.T. Associates Pty Ltd v Aqua-Max Pty Ltd & Anor (No. 3) [2000] VSC 163 at [121]-[122] Gillard J considered a Calderbank offer open for six days to be reasonable.
He said at [121]-[122]:
This litigation had been on foot by 15 November 1999 for some 21 months since the hearing commenced and some five years since it was instituted…
I have no doubt that experienced counsel and the experienced solicitor acting for the defendants would have no difficulty in assessing what the offer represented and I have no doubt they could have made up their mind about whether they wished to accept within a period of less than six days.
Like the offer in M.T. Associates, the offer here was made close to trial and at a time when the offeree could assess its risks. An offer made closer to trial has been considered more reasonable, as the parties have a better opportunity to make an informed assessment of their prospects of success: Texxcon Pty Ltd v Austexx Corp Pty Ltd (No 2) [2013] VSC 343 at [17].
In Mainteck Services Pty Ltd v Stein Heurtey SA [2013] NSWSC 1165 at [17], seven days was considered reasonable. Sackar J stated at [17]:
…I am mindful that the offer was open for only seven days. It is clear from their letter of 2 July 2010 that in calculating the quantum of the offer, the defendants were conscious of costs they had incurred up to that point. The obvious purpose behind the limitation of seven days was to take into account the daily increasing costs incurred by the defendants. For this reason, the defendants explicitly stated in a covering letter that if after the expiry of seven days the plaintiff wished to settle, the defendants would still be prepared to do so, but only after a new calculation was made to take into account further costs incurred. Further, as the hearing before the referee commenced only about three months after the Calderbank offer, I think the parties would have been aware of their respective evidentiary strengths and weaknesses. The parties have indicated that at the time of the offer on 2 July 2010, their evidence was complete or substantially complete. In my view, the limitation of seven days would therefore not have hindered the plaintiff's ability to assess the offer in light of the evidence.
In contrast, in Jones v Trad (No 3) [2013] NSWCA 463 [47]-[48], seven days was considered too short. Notably, the hearing of the relevant appeal was five months away at the time the offer was made – there was no need for the offer period to be so short.
In some cases, no issue of timing was taken with Calderbank offers open for seven days: for example, see Groves v Matt O’Connor & Associates Pty Ltd (No 2) [2015] NSWSC 817 and Roland Ofria v Robert William Cameron (No 2) [2008] NSWCA 242.
I note that in the particular circumstances of Nominal Defendant v Dighton (No 2) [2012] SASCFC 97 at [11], a Calderbank offer was made by a respondent the day before the appeal, which resulted in the Court giving the respondent costs of the hearing on an indemnity basis.
In the circumstances of the present case, seven days was adequate.
Rather than being an inappropriate tactic ‘to exert strategic pressure’, because it expired on the day of the agency’s adjournment application, I consider the fact it expired that day a reason for the seven days offered. The parties were, at the time of the offer, a month out from trial, all but ready to go, and if the adjournment application were successful costs would continue to increase significantly.
The agency did not ask Rocky for extra time to consider and respond to the offer or say that it required more details about the offer: see Hewitt v Count Financial Ltd [2017] VCC 405 at [22].
The payment period of 14 days was also reasonable. In Hewitt a payment period of 14 days was held by Judge Cosgrave to be acceptable: at [33] and [37].
The fact the agency is a ‘small regional agency’ is irrelevant. No evidence was put forward that it could not have paid $150,000 within 14 days. The agency did not indicate to Rocky that it wanted to settle on an all in payment of $150,000 but wanted longer to pay. In any event, Counsel for the agency conceded that had it accepted the offer and not paid, there would then have been an outstanding debt by it for that amount. It would not have stopped the compromise taking effect.
Extent of the compromise offered
I am satisfied that the compromise offered of Rocky accepting $150,000 ‘all in’ was a genuine compromise of the proceeding.
After a lengthy trial, Rocky obtained an order for payment of $141,866, plus interest of $21,567, being $163,434.25.
Rocky had incurred over $73,500 in legal costs by the time of the Calderbank offer. In her affidavit, Wangmann says that of that amount, 75%, or approximately $55,000 would be allowed on a standard taxation. In his affidavit, Payne concedes that 60% would be allowed (which amounts to approximately least $45,000).
Deducting those estimated costs from the $150,000 offered has the effect that Rocky’s offer to compromise the proceeding represented him accepting payment of between $95,000 and $105,000 for his claims and interest. Interest would have been around $10,000.
At the time of the offer, Rocky was seeking $125,377 and the agency knew he was also seeking a further $15,889 (the November claims).
Interest was accruing on the claims.
The agency of course had a counterclaim, but as discussed below, objectively assessed, it was a weak one.
The Calderbank offer made certainly cannot be properly characterised, as the agency suggests, as ‘nothing more than an offer for the agency to capitulate’.
The offer from Rocky represented a considerably better outcome than the agency achieved after the trial.
As Judge Cosgrave stated in Hewitt at [16]:
A comparison between the final outcome of the case and the terms of the compromise offered will generally be a significant matter in assessing the reasonableness of the offer. An offer of something considerably better than was ultimately obtained from the court, though not necessarily to be characterised as a reasonable offer, is more likely to be so characterised than an offer of something less than was ultimately obtained.
Prospects of success
In considering if it was unreasonable for the agency to reject the offer, it is necessary to consider its prospects of success as at the time of the Calderbank offer.
This assessment – as was agreed by the parties – is an objective one.
The agency relies on Payne’s affidavit, particularly at [10] and [11] which it says sets out some of the facts and matters it considered relevant to its prospects of success at the time of the Calderbank offer. The agency’s views do not alter the objective assessment to be undertaken.
The agency says its rejection was reasonable because at the time of the offer:
… no witness statements or outlines of evidence had been served in the proceeding and the proceeding involved a complex matrix of factual matters many of which were wholly or partly in the knowledge of the Plaintiff.
It says, by way of example of the complexity, that the case involved:
·Legal construction, interpretation and assessment of the interrelation of terms in contracts and the parties obligations pursuant to them including in respect to the Settlement Agreement, Share Sale Agreement and particularly, the Plaintiff's Employment Agreement, Early Termination Agreement and the Variation Agreement. A significant portion of the parties closing submissions and the Court's Reasons for Judgment were ultimately given over to these complex issues of contractual construction and relevant legal principles;
·allegations of breach of duties, breach of contractual terms (including in the Plaintiff's Employment Agreement and of the Variation Agreement) and alleged use of confidential information; and
·a multiplicity of defended claims and cross claims which themselves were occasioned with their own complex factual and documentary complexities which would be the subject of viva voce evidence.
However, the fact that legal questions needed determining and facts needed to be established – even where there is some complexity – certainly does not mean that an objective assessment of risk cannot be undertaken. Were that the case, no Calderbank offer could ever be effective in any matter where tricky issues needed determining.
It is often the case that no witness statements or outlines of evidence are served before a Calderbank offer needs to be assessed (and in many cases they are never served).
Evaluations of prospects of success are commonly undertaken in a necessarily incomplete setting, as outlined by Justice Digby in Winky Pop Pty Ltd v Mobil Refining Australia Pty Ltd [2015] VSC 580 at [66]-[68].
The Calderbank offer, by incorporating the earlier 20 September 2017 letter, set out a summary of reasons as to why Rocky was likely to succeed in both establishing his claim and defeating the agency’s counterclaim. Many of the reasons there given accurately indicate why, on the objective basis, the agency had weak prospects of success in defending much of the claim, and a very weak counterclaim.
Many of the reasons stated in the September letter as reasons Rocky was likely to succeed ultimately were reasons he ultimately was successful – for example that the agency could not identify that any specific confidential information was used by Rocky, and that he did not have a fiduciary or contractual duty to ‘obtain’ exclusive sales authorities. These were matters that could have been objectively assessed by the time of the Calderbank offer – they did not depend on anything that changed later, such as evidence Rocky called at trial or on any documents later discovered.
Clarity of offer
Costs inclusive offer
The agency argued that because Rocky offered to settle for a sum of money inclusive of costs, this weighed against making an indemnity costs order. It said it made the offer insufficiently clear: that it is not appropriate for a plaintiff to offer to accept payment of a sum inclusive of costs by way of a Calderbank offer. It relied on a line of authority commencing with Smallacombe & Others v Lockyer Investment Co Pty Ltd(1993) 114 ALR 568.
It referred to White v Baycorp Advantage Business Information Services [2006] NSWSC 910, where Campbell J stated at [12]:
… there is a line of authority whereby, when a plaintiff makes a claim for an order involving payment of money, it is not appropriate for that plaintiff to serve a Calderbank letter offering to settle its claim for a particular sum of money inclusive of costs: Smallacombe & Others v Lockyer Investment Co Pty Ltd (1993) 114 ALR 568 at 573; Dr Martens Australia Pty Ltd v Figgins Holdings Pty Ltd (No 2) [2000] FCA 602 at [22]-[24] Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runoff Limited (formerly GIO Insurance Limited) & Ors [2006] NSWSC 583 at [40]-[41]. I agree with Einstein J, in the last-mentioned case, that the reason why in those circumstances the Calderbank offer is inappropriate is that, “… the offeree is placed in a position of not being able to determine the appropriate amount to attribute to the substantive claim”, as opposed to the costs incurred in advancing it. In my view that principle is applicable in the present case, as damages was one of the elements of the claim which the plaintiffs made, and paragraph 5 of the Calderbank offer rolls together an amount offered to be paid for both damages and costs.
The New South Wales Court of Appeal considered the Smallacombe principle in Elite Protective Personnel Pty Ltd & Anor v Salmon [2007] NSWCA 322. There the respondent offered to accept a sum from the appellants inclusive of costs. The appellants appealed the trial judge’s decision to award indemnity costs, arguing amongst other things that as the offer was inclusive of costs, it was reasonable to refuse it.
At [5]-[7] Beazley JA stated:
… I do not agree that an offer which is inclusive of costs cannot ever be the basis upon which the court exercises its discretion to award indemnity costs. The award of indemnity costs involves the exercise of a discretion. The application of an overarching ‘rule’ or ‘principle’ that only offers exclusive of costs could ground a favourable exercise of the court’s discretion would operate as a fetter on that discretion and would introduce a rigidity to the making of so called Calderbank offers which has no basis in principle.
There is, however, as discussed in the judgments of McColl JA and Basten JA, some disputation in the authorities as to whether an offer that is inclusive of costs may be the basis upon which an indemnity costs order can be made. Notwithstanding a number of first instance decisions that state that an offer inclusive of costs does not operate as a Calderbank offer, there are authorities of this Court that an offer of compromise which is inclusive of costs may form the basis upon which the court awards indemnity costs.
… I consider that the proper approach to any such offer of compromise is to consider it according to its terms and determine whether, in all the circumstances, the court should exercise its discretion to award indemnity costs. …
McColl JA at [100]-[117] discussed the authorities relating to the Smallacombe principle. At [102], her Honour referred to the fact that Gillard J did not apply the principle in M.T. Associates Pty Ltd v Aqua-Max Pty Ltd & Anor (No. 3) [2000] VSC 163. At [103], her Honour referred to the fact that Allsop J in DSE (Holdings) Pty Ltd v InterTAN Inc [2004] FCA 1251 did not regard Smallacombe as having articulated a ‘definitive rule that in an application for costs, an offer that was an all inclusive sum could not, in any circumstances, be taken into account by a Court in considering whether thereafter indemnity costs should be awarded’.
At [115] McColl JA stated:
I agree with Allsop J that Smallacombe does not lay down a “definitive rule” that an “all-in” Calderbank offer can never be considered on the question of indemnity costs. The Court cannot fetter the s 98 discretion by legal rules: Oshlack (at [35]). Smallacombe does, however, afford guidance as to the exercise of the s 98(1) discretion. It informs the question of the reasonableness of an offeree’s refusal to accept an “all-in” offer. In my view it has a sound practical basis. While I accept each case should be considered on its facts, Smallacombe provides sound reasons to discourage offerors from drafting Calderbank letters on an “all-in” basis.
However, I am satisfied that the Victorian position is that ‘all in’ Calderbank offers can be a basis on which the Court exercises its discretion to award indemnity costs. In Marriner & Ors v Australian Super Developments Pty Ltd [2016] VSCA 141 Tate ACJ, Kyrou and Ferguson JJ state at [231]:
… although an ‘all in’ offer may have previously been defective under the 2005 Rules, such offers were (and remain) permissible in the form of Calderbank offers. … The Trial Division has, on a number of occasions, treated defective ‘all in’ offers of compromise as Calderbank offers which are relevant to the discretionary determination of costs. [citations omitted]
In M.T. Associates Pty Ltd v Aqua-Max Pty Ltd & Anor (No. 3) [2000] VSC 163 the plaintiff made an offer to the defendants to accept an amount inclusive of costs, amongst other things.
Gillard J stated at [126]:
In my opinion, it is open for a party to deliver a Calderbank letter in which the offer is made on an all inclusive basis. The mere fact that it required the offeree to determine the likely value of the claim and the likely cost to date does not alter the fact that an all inclusive offer has been made. During my experience in the law, spread over some 35 years, many cases are settled on an "all in" basis. There is little difficulty in making an assessment of the likely amount of the claim and costs.
In regards to assessing the ‘all in offer’, Gillard J stated at [137]-[143]:
An argument was put as to the difficulty that the solicitor acting for the Rees [defendant’s] interests would have in trying to determine what amount was for costs and what amount was in settlement of the claim. …
In this regard I accept the evidence of Mr Luff that Mr Jonas [defendant’s lawyer] is an experienced litigation lawyer and that he would not have much difficulty in determining what the offer amounted to, that is, between claim and costs …
…
In my opinion, the Sietel [defendant’s] interest should have accepted that offer. In my view it was clearly a reasonable offer. Instead the defendants persisted with the proceedings and in my view were acting unreasonably.
I agree with Gillard J’s reasoning. In the present case it would not have been difficult for the agency’s lawyers – experienced litigation lawyers – to make an assessment of what approximate portion of the offer would have been referrable to costs and therefore as to what Rocky was offering to accept to settle the proceeding.
Effect of further possible claims
The agency relied on the fact that the statement of claim alleged that Rocky would become entitled to further commissions on an ongoing basis to say that the Calderbank did not make sufficiently clear:
… as to whether or not the terms of the Calderbank Offer, assessed at the time, only contemplated the potential settlement of the then quantified claims of the Plaintiff or potential further claims pursuant to paragraph 12 of the Statement of Claim. It would have been straightforward for this issue to have been made expressly clear in the terms of the Calderbank Offer but this was not done.
I disagree. Particulars of Rocky’s claim for commission in the statement of claim referred to him making further commission claims after discovery.
The Calderbank offer provided for the discontinuance of the proceeding with mutual releases from all claims arising between the parties in the proceedings. The agency knew about the November claims that Rocky wanted to bring and that these were included in the offer.
It was clear that the offer was to compromise all outstanding claims, whether expressly referred to and quantified or not. Had the agency been in doubt, it could have sought clarification.
Application foreshadowed appropriately?
The Calderbank offer said that if the offer was rejected and Rocky received more by way of a judgment at trial then he would rely on the Calderbank offer in support of an application for costs ‘of the Proceeding on an indemnity basis’. The agency argues:
On a plain reading, the Calderbank Offer foreshadows a potential application for indemnity costs not just after the making of the offer but of the whole proceeding (including the Counterclaim). Such an application, in reliance upon a Calderbank Offer, would be highly irregular, if not unheard of, and the Defendant would be entitled to treat the threat of any such application as excessive, unreasonable, and unlikely to be successful.
Whilst that is not the application which the Plaintiff now makes, the Defendant submits that assessed at the time of its making, it is another factor (in addition to a lack of clarity) which the Court, in its discretion, ought take into account in determining that it was not unreasonable for the Defendant to have rejected the Calderbank Offer.
However, there is no requirement that a party precisely identify the nature of the indemnity costs order that it will ultimately seek if the Calderbank offer is not accepted. The Court has a discretion as to the date upon which an indemnity costs order commences: Hewitt v Count Financial Ltd [2017] VCC 405 at [17]. What is important is that indemnity costs were foreshadowed.
Indemnity costs for other reasons?
Rocky also says that some of the defences and all of the counterclaim pursued by the agency were hopeless and bound to fail, and that for this reason and because of other unmeritorious conduct by the agency, indemnity costs should be ordered against the agency. In particular, Rocky says the agency should pay costs of the counterclaim from its inception (and not just from after the failure to accept the Calderbank offer).
As submitted by the agency:
For costs to be awarded other than on a normal party-party (now standard) basis there needs be something particularly ‘special,’ ‘unusual,’ ‘improper’ or ‘unmeritorious’ about a case which brings it out of the ordinary and justifies the court exercising its discretion in that way: Preston v Preston [1981] 3 WLR 619 at 637, as cited in Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 at 400 - 401 per Woodward J. PCRZ Investments Pty Ltd v National Golf Holdings Ltd [2002] VSCA 24 at [34] (Chernov JA); Avis & Anor v Australian Mutual Provident [1997] NSW IRComm 182, per Bauer, Peterson J and Marks JJ.
While indemnity costs may be awarded in cases that are commenced or continued where there is no chance of success, such cases are usually ‘without substance’, ‘groundless,’ ‘fanciful or hopeless’ or so weak as to be futile in order to justify an award of costs on an indemnity basis: Hillebrand v Penrith Council [2000] NSWSC 1058, in which case a limitation period was obviously at an end. As noted in Civil Properties Pty Ltd v Miluc Pty Ltd (2011) 184 LGERA 150; [2011] WASCA 195 at [84] - [86] ‘it is a considerable step to find a case was so devoid of merit that it should lead to an order for indemnity costs’ and ‘it is a step that a court should be slow to take to be reserved for the clearest of cases.’ Even a ‘resounding defeat' does not necessarily brand the claim as sufficiently hopeless to justify a special costs order: Gellagher International Ltd v Tlais Enterprises Ltd [2008] EWHC 203. In this case, the mere fact that the Defendant did not succeed on the claims in its counterclaim does not found an order for indemnity costs.
Also relevant to the exercise of the court's discretion is the complexity of the matter at hand. In Richard Walter Pty Ltd v Commissioner of Taxation [1995] FCA 1491 the Federal Court refused to make an indemnity costs order noting that the issues involved complex facts and difficult questions of law, concluding that it could not be said that the claim ‘was hopeless or not reasonably arguable or was doomed to failure’: at [22] per Tamberlin J. …
Rocky has many complaints about the way the agency approached aspects of the proceeding. These included that it resisted making discovery; that it refused to abandon some of its claims during the trial even in the face of overwhelming contrary evidence and admissions from its own witnesses; that it identified and sought to apply incorrect legal principles to the facts; and that it put forward a great deal of irrelevant evidence.
There is some merit in some of the complaints made. I accept that the agency’s approach to some of these matters added to preparation time and lengthened the trial to some degree.
However, I am satisfied that there was no wilful disregard by the agency or its lawyers of facts or law, or improper conduct such that it should lead to indemnity costs.
Although some of its defences, and the entirety of the counterclaim, were weak, I am not satisfied that they were sufficiently ‘without substance’, ‘groundless’, ‘fanciful or hopeless’ or so weak as to be futile in order to justify a special costs order – which should only be made in the clearest of cases.
Apportion costs?
Rocky was overwhelmingly successful. This is not a case where it is appropriate to apportion costs just because the agency was successful in defending a minor proportion of Rocky’s claims, and Rocky did not pursue a few of his claims to trial.
Directions hearing costs
The agency said that no order should be made as to the costs of or incidental to a directions hearing on 19 October 2017 at which the agency applied to adjourn the trial, a new trial date was set and a new timetable set out for the parties to prepare for that adjourned trial. The agency submitted:
The Defendant should not be liable for the costs of the Directions Hearing on 19 October 2017 as the primary reason which necessitated the hearing was the Plaintiff's foreshadowed amendments to its statement of claim a short time prior to the trial fixed for November 2017.
In oral submissions, no reason could be advanced as to why these costs should be dealt with differently to other reserved costs. It is customarily the case that the losing party pays reserved costs. I will not make an order that there be no order of costs of the directions hearing. They will form part of the costs the agency pays as losing party.
Costs hearing costs
My preliminary view is that these should be payable by the agency on an indemnity basis – like the rest of the proceeding after 19 October 2017.
Rocky has been successful in obtaining indemnity costs from 20 October 2017. That issue was by far the most significant aspect of the costs dispute before me. Rocky’s costs after 19 October 2017 dwarf those prior to it. The difference in costs assessed on a standard basis and costs assessed on an indemnity basis relating to the counterclaim prior to 20 October 2017 are not high in circumstances where Rocky had only spent about $75,000 on the proceeding – including the claim as well as counterclaim – prior to the Calderbank offer (as set out in Wangmann’s affidavits).
Rocky was also successful in resisting an order for an apportionment of costs, and for there to be no order as to costs of the directions hearing.
If the Calderbank offer had been accepted, the costs hearing – like the trial – would not have been necessary.
If either party seeks a different order regarding the costs of the costs hearing other than the one I have indicated above, the parties may file submissions, limited to three pages, in relation to the costs of the costs hearing by 4 p.m. on Wednesday 22 August 2018. I will then deal with that issue on the papers and make the orders relating to costs.
---
Certificate
I certify that these 28 pages are a true copy of the reasons for ruling of her Honour Judge Marks, delivered on 17 August 2018, and revised on 22 August 2018.
Dated: 22 August 2018
Samantha Marinic
Associate to Her Honour Judge Marks
3
23
0