Hills Industries Ltd T/A Hills Eco v Hiley (No 2) - [2012] SADC 170

District Court of South Australia
(Civil)
HILLS INDUSTRIES LTD T/A HILLS ECO v HILEY & OTHERS (NO 2)
[2012] SADC 170
Judgment of His Honour Judge Beazley (ex tempore)
23 November 2012
PROCEDURE
JUDGMENT - INTEREST - COSTS - SET OFF - STAY OF EXECUTION
(1) Costs - Defendant, successful in the principal proceedings, seeks costs on an indemnity basis or on a solicitor/client basis.
Held: plaintiff must pay the defendant's costs of action as and from 16 September 2009, on a party/party basis to be agreed or taxed.
(2) Form of Judgment - The defendant submitted that pursuant to the terms of the agreement as found to be subsisting and binding by the court in the principal proceedings, the sum of $41,000 was not payable by him until 28 days of the exchange of duly signed counterparts of a Deed. It was submitted that as no Deed had been signed, no sum was owing, and no judgment ought therefore be entered for the plaintiff.
Held: Plaintiff entitled to have judgment entered for sum of $41,000 plus interest (if any).
(3) Interest - Plaintiff seeks pre-judgment interest on the sum of $41,000. The defendant submits that no interest is payable, but if granted, it ought be fixed at a rate of 3 to 4% per annum, reflecting the loss of use of money.
Held: The plaintiff entitled to pre-judgment interest at 6.5% per annum from late November 2008 to judgment date, fixed at $10,000.
(4) Judgment - The plaintiff entitled to judgment in the sum of $51,000.00, inclusive of interest.
(5) Set Off - The defendant sought an order that the costs awarded to him be set off against the judgment sum of $51,000.00 awarded to the plaintiff, pursuant to 6 DCR 266.
Held: Order for set off refused.
(6) Stay of Execution - The defendant sought an order for a stay of execution of the judgment to await the taxation of the costs awarded to him.
Held: The present application for a stay of execution refused. However, liberty granted to the parties to apply, in respect of any future application.
(7) Formal Orders:
1. That judgment be entered for the plaintiff in the sum of $51,000.00 inclusive of interest.
2. That the plaintiff pay to the defendant the defendant's costs of action as and from 16 September 2009 on a party/party basis to be taxed or agreed.
3. Save for orders already made by a Master, no order for costs prior to 16 September 2009.
4. Application for set off dismissed.
5. Application for a stay of execution dismissed.
6. Liberty to the parties to apply on short notice.
District Court Act 1991 ss 39(2) and 42; District Court Rules 1991 6 DCR 188, 263 and 266, referred to.
Stanley v Phillips (1996) 115 CLR 470; Cretazzo v Lombardi (1975) 13 SASR 4; Sands v Channel Seven Adelaide Pty Ltd (No. 2) (2009) SASC 365; Hughes v Western Australian Cricket Association (1986) ATPR 40, 748; Oshlack v Richmond River Council (1998) 193 CLR 72; Cromer v Harry Richards' Tivoli Theatres Limited (1921) SASR 325; Bryant Bros v Thiele (1923) SASR 393; Asic v West (2008) 100 SASR 496; In Re Fuller Holdings Pty Ltd (1979) 21 SASR 212; Bush v Condon & Barrett [1975] 1 NSWLR 260; Maha-Ashi Pty Ltd v Innes [2011] SASCFC 72; NRMA v Checchia (2011) 80 NSWLR 1; Regency Media Pty Ltd v AAV Australia Pty Ltd (2009) NSWCA 368; Indigo Financial Money Pty Ltd v Bolivar Road Pty Ltd (In Liq) [2012] SASC 214; Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225; Varga Group Investments No. 8 Pty Ltd v Geelong Investments (1995) 7 BPR 14, 551; Davies v Gertig (No 2) (2002) 83 SASR 521 at 531, applied.

HILLS INDUSTRIES LTD T/A HILLS ECO v HILEY & OTHERS (NO 2)
[2012] SADC 170
Introduction

On 9 November 2012, I published my reasons for decision in the principal proceedings,[1] which involved a liquidated claim by the plaintiff against the remaining defendant, Mr Hiley, pursuant to a guarantee in writing entered into by him on or about 25 January 2008.
[1] [2012] SADC 148
He had guaranteed the payment of debts due by Ecological Homes Pty Ltd, a company of which he was a director, for goods purchased on credit from the plaintiff. Between 2 April 2008 and 26 May 2008, Ecological Homes Pty Ltd had purchased goods from the plaintiff in the sum of $81,144.23.
In the principal proceedings, Mr Hiley had pleaded that an agreement was entered into by him with the plaintiff, whereby the plaintiff would accept the “lesser sum” of $41,000, inclusive of costs and interest, from him in full settlement of its claim.
In those reasons I detailed the bases for concluding that an agreement, to accept “the lesser sum,” was indeed entered into between the plaintiff and Mr Hiley by no later than 5 November 2008, and that it was an immediately binding agreement.
To enable the parties to consider the legal effect of those reasons, I adjourned consideration of:
(a)The form of orders, in particular, whether judgment ought to be entered for the plaintiff and, if so, in what sum.
(b) The quantum of interest (if any) to be awarded to the plaintiff.
(c) The costs of the action.
When the matter was called on for hearing this day, Mr Hiley intimated through his counsel, Mr Lazarevich, that he also wished to submit that any costs awarded to him ought be set off against any judgment awarded in favour of the plaintiff; and that a stay of execution upon the judgment ought be granted. I do not propose to detail all of the submissions. I will deal briefly with each topic canvassed by the parties.
· Form of Judgment
Mr Hiley submitted that no judgment ought be entered in favour of the plaintiff in the sum of $41,000 because the time for payment did not arise until 28 days after the exchange of duly signed counterparts of a Deed. No such Deed had been signed by the plaintiff, and, accordingly, it was submitted the time for payment had not arrived.
While, in the ordinary course of events this submission would carry great weight, in the circumstances of this case, that submission of Mr Hiley is without substance. The facts detailed in the principal proceedings were most unusual. The plaintiff had undoubtedly supplied goods in the sum of $81,144.23 to Ecological Homes. Mr Hiley had undoubtedly guaranteed the payment of that debt.
I did not need to determine whether Mr Hiley had a bona fide defence to the plaintiff’s claim at any time prior to the agreement by the plaintiff to accept the lesser sum. This was because Mr Hiley had abandoned any such defence. I have little doubt that he had no prospect of successfully defending the action until the agreement to compromise was entered into in November 2008.
Until that time Mr Hiley was liable for the sum of at least $81,144.23 in addition to interest at the rate detailed in the guarantee document. From Mr Hiley’s point of view a Deed was a useful shield in the event that a Court had held the lesser sum provided no consideration for the agreement. By contrast, it was in the plaintiff’s interest to include in such a Deed a term obliging Mr Hiley to render future assistance to it, and a covenant not to sue, so as to enable it to proceed against the co-guarantor Mr Walsh.
I had concluded in the principal proceedings that there was no need for the Deed to be executed for the agreement to be binding. Indeed it was probably enforceable on the basis of accord and satisfaction.
Both parties implicitly conceded that there was no longer any need for the Deed to be executed.
Mr Hiley did not plead that the plaintiff’s action ought be stayed pending the execution of the Deed. Nor did he file a counterclaim seeking such relief. The question of a stay was raised only as a stay of execution on any judgment that may be entered. Indeed he pleaded that the ‘agreement’ had merged in the action. In my opinion, the plaintiff is, prima facie, entitled to judgment for at least the sum of $41,000.
· Interest
Counsel for Mr Hiley repeated his submission that as the quantum of the plaintiff’s claim had not fallen due, and would not fall due until the Deed had been executed, then no interest ought be allowed, pursuant to s 39(2)(b) of the District Court Act, 1991.
Section 39 of the District Court Act, 1991, provides:
39—Pre-judgment interest
(1)Unless good reason is shown to the contrary, the Court will, on the application of a party in whose favour a monetary judgment has been, or is to be, given include in the judgment an award of interest in accordance with this section.
(2)       The interest—
(a)     will be calculated at a rate fixed by the Court; and
(b)     will be calculated in respect of a period fixed by the Court (which must, however, in the case of a judgment given on a liquidated claim, be the period running from when the liability to pay the amount of the claim fell due to the date of judgment unless the Court otherwise determines); and
(c)     is, in accordance with the Court's determination, payable in respect of the whole or part of the amount for which judgment is given.
(3)     The Court may, without proceeding to calculate interest under subsection
(2), award a lump sum instead of interest.

...
In the alternative, he submitted, the time when the sum of $41,000 fell due was when judgment was entered for the plaintiff. Accordingly, he submitted, the plaintiff was entitled to judgment in the sum of $41,000 alone, without any interest. Counsel also stressed the discretionary nature of the power to award pre-judgment interest. He submitted that the plaintiff, by its own conduct, had elected not to receive the sum of $41,000, when it was first offered, by Mr Hiley on 3 December 2009. It could have accepted the filed offer of $41,000 plus interest. He submitted that instead the plaintiff claimed an excessive sum and forced Mr Hiley to incur the costs of the litigation.
In my opinion the latter submission confuses the issues of costs with that of an award of interest.[2] I repeat that the facts of the subject case are most unusual, and call for the proper exercise of my discretion in such circumstances. On any view goods to the value of $81,000 were supplied by the plaintiff to Ecological Homes Pty Ltd. That was never in dispute. Had I found against Mr Hiley’s argument as to the binding nature of the agreement entered into in November 2008, the plaintiff would have been out pocket for $81,000.00 since about May 2008 together with interest on any overdue amount at the rate of 1.5% per month pursuant to the credit agreement. Pursuant to the guarantee, Mr Hiley would, prima facie, have been liable for that interest on that sum.
[2] Cf. BHP Billiton Ltd v Parker [2012] SASCFC 73, and Indigo Financial Money Pty Ltd v Bolivar Road Pty Ltd (In Liq) [2012] SASC 214 at [47]
In my opinion there was no doubt, from that time, that Mr Hiley was liable to the plaintiff for some sum, whether it be the sum of $81,000 or the sum of $41,000.
I ultimately found in favour of the defendant that the sum of $41,000 was the total amount recoverable by the plaintiff pursuant to the agreement of November 2008. That sum could and should have been tendered by Mr Hiley in November 2008.
In the proper exercise of my discretion the major factor in awarding interest to it is that the plaintiff, in accepting the lesser sum, has been left out of the use of its money since November 2008.
As part of his submissions that the plaintiff was responsible for its own predicament, counsel for Mr Hiley repeated that the plaintiff had elected not to accept the sum of $41,000 offered by Mr Hiley. He referred to an affidavit deposed to, by his solicitor, Van Angelo Moulis, on 22 November 2012. No point was taken about the affidavit not being sworn in accordance with the Rules of Court, nor whether the offer of settlement referred to therein, complied with 6 DCR 187 and 188. Indeed, both parties consented to me taking into account,[3] that offer of settlement filed by the defendant on 3 December 2009, in the following terms:
1.That the third defendant (Mr Hiley) pay the plaintiff the sum of $41,000 plus interest at 5 per cent per annum from 7 November 2008.
2. No order as to costs for the period up to and including 7 November 2008.
3.That the plaintiff pay the third defendant’s costs of the proceedings on and from 7 November 2008 to be taxed or agreed.’
[3] See s 67C(1) Evidence Act 1929, Cutts v Head (1984) CH290, Jownal v Commonwealth Bank [1999] SASC 72 at [42], Indigo Financial Money v Bolivar Road [2012] SASC 214
While this offer had no relevance to the question of interest it is of note that at the same time as Mr Hiley submits that no money was due until the Deed was executed, he asserts that the sum of $41,000 was available to the plaintiff without conditions. In my opinion, it reflects the true position, namely that Mr Hiley knew that he was liable to pay to the plaintiff the sum of $41,000, in early November 2008.
I simply do not accept that the plaintiff ought not receive interest on that sum of $41,000.
In my opinion, notwithstanding the forceful argument of Mr Lazarevich, the plaintiff has been kept out of its money for a long period of time and, interest ought be awarded to it on that sum.
· Period carrying interest
I turn to the question of the date from which interest ought be paid. In my opinion it ought commence from the end of November 2008, about 28 days from when the agreement, as contrasted with the Deed, was entered into and became immediately binding. The defendant could have paid that sum into Court or alternatively tendered it to the plaintiff. In effect a period of four years has elapsed since that time.
· Quantum of interest
I turn now to the question of the appropriate rate of interest over that time.
It is trite that an award of interest is designed to compensate the party for being kept out of the use of its money at a time earlier than judgment.
Counsel for the defendant submitted that I ought to fix a rate based upon the Reserve Bank rates, which were detailed in the affidavit of Mr Moulis.
Counsel for the plaintiff referred to Rule 6.DCR 261 which relates to post-judgment interest. The rate provided in the Schedule to Practice 13 of the Rules varied between 6.5% and 6% during the relevant period. It must be noted that the rate for pre-judgment interest is not the same as that contained in 6 DCR 261.[4]
[4] Maidment v Davis (2000) 77 SASR 167
I have already referred to the interest rate in the credit contract between the plaintiff and Ecological Homes Pty Ltd, which contract was the subject of the guarantee executed by Mr Hiley. In my opinion the rate of 6.5% per annum is a modest interest rate.
Applying that rate to the period of approximately 4 years, results in the sum of $10,660. In the exercise of my discretion I allow the sum of $10,000 as pre-judgment interest on the sum of $41,000. Accordingly I enter judgment for the plaintiff in the sum of $51,000 inclusive of interest.
· Costs
Counsel for Mr Hiley correctly submitted that his client had succeeded on the principal issue at the trial namely that the plaintiff had indeed entered into a binding agreement to accept the lesser sum of $41,000. He submitted that an award of costs ought be made on, at least, a solicitor/client basis. This submission was based primarily upon the filed offer of 3 December 2009. He did however submit that this was an appropriate case for the award of indemnity costs to Mr Hiley upon the principles expressed in Colgate-Palmolive Co v Cussons Pty Ltd.[5] The relevant principles were recently affirmed by the Full Court in BHP Billiton Ltd v Parker,[6] wherein at [261]-[265] it was said:
[5] (1993) 46 FCR 225 at 233
[6] [2012] SASFC 73
Relevant principles
There appears to be no dispute about the relevant principles. By s 42(1) of the District Court Act 1991 (SA) the Judge had an unfettered discretion as to costs, subject to the provisions of the section (none are relevant) and subject to the Rules. The general rule is that costs follow the event: r 263 of the District Court Civil Rules 2006. Rule 263(3) provides that the court may “have regard to any offer to consent to judgment or other attempt to settle the action …”. By r 264(1) the court can award costs “… on any basis the Court considers appropriate”. The usual practice is for costs to be awarded on a party and party basis, but as the rule just referred to indicates, that is no more than the usual practice, and the court can adopt some other basis, and from time to time does so. The District Court Civil Rules provide a regime for the making of a “formal offer of settlement” by filing the offer in court: see rr 187 and 188 of the District Court Civil Rules 2006. A formal offer can be filed by a plaintiff or by a defendant. The offer must be in the approved form: r 187(3)(a). Such an offer can be accepted by the party to whom it is made at any time before the date falling seven days before the first or any subsequent date fixed for the trial: r 188(1) and (2). Rule 188(6) provides:
188    Consequences of filing offer of settlement in Court
…
(6)     If a formal offer of settlement so far as it relates to principal relief is not accepted by the party to whom the offer is made and the Court determines the relevant action or claim on terms (as to principal relief) that are no more favourable to the party than the terms of the offer, then, subject to the Court's order to the contrary—
(a)     the party to whom the offer was made is not to be entitled to costs referable to the period falling after the relevant date; and
(b)     the party that made the offer—
(i)      if a defendant—is entitled to costs referable to the period falling after the relevant date; and
(ii)     if a plaintiff—is entitled to the whole of the party's costs of action on a solicitor/client basis and the defendant is not entitled to any costs not otherwise ordered.
In Morris v McEwen[7] this Court held that in exercising the discretion as to costs, a court can have regard to a Calderbank letter, even though the party making the offer could have filed, but did not file, a formal offer of settlement: Debelle J at [1], Besanko J (diss) at [34], White J at [62] and [73]. The Court followed the reasoning of a earlier Full Court in Pirrotta v Citibank Ltd (1998) 72 SASR 259, in particular the reasons of Debelle J. White J went on to say, referring to the reasons of Debelle J in Pirrotta:
… The second matter suggests that there are some limitations on the circumstances in which it will be appropriate to attach any weight to a Calderbank letter. It suggests that in order for effect to be given to a Calderbank letter, it should be framed in terms which are consistent with the spirit and intent of r 40. In particular, for effect to be given to a Calderbank letter where an offer in accordance with the Rules of Court could have been lodged, the Calderbank letter should not impose more onerous obligations on the recipient than would an offer filed in accordance with the rules. The procedure specified in the rules for the lodgment of an offer is to be understood as an expression of what the court regards as a reasonable approach. To the extent that a defendant departs from that regime, it runs the risk that the court will regard the manner or content of its offer as being unreasonable and, therefore, as not warranting any alteration of the usual position as to costs.
In considering whether to give a Calderbank letter the same effect as an offer lodged pursuant to r 40, a number of matters will be relevant. These will include: whether or not an offer could have been lodged pursuant to r 40; any difficulties associated with the framing of an appropriate offer; any difficulties occurring because of the involvement of other parties in the litigation; the proximity of the trial at the time when the offer was made and the time available to the plaintiff in which to consider the offer; the commitments to which the plaintiff may be subject at that time; and the extent to which, if at all, the circumstances of the offer, or its terms and conditions, differ from the circumstances, or terms and conditions, of an offer lodged in accordance with r 40. This is not intended to be an exhaustive list of the matters which may be relevant.[8]
Footnotes omitted
Debelle J agreed at [1], as did Besanko J at [36].
We make the following comments. The expression “Calderbank letter” seems to be used as a term of art, as if such a letter is always of a particular kind, with the same consequences, and has some special status. As we understand it, the expression is used to refer to a letter making an offer in settlement, usually with a time limit for acceptance, and usually with an indication that the letter will be relied upon in relation to costs should that be considered appropriate. Bearing in mind that in cases of the kind now under consideration the court is exercising a broad discretion, it is better, we think, and avoids misconceptions, to refer simply to an informal offer of settlement made by letter. The court can have regard to any such informal offer: r 263(3) of the District Court Civil Rules and Morris v McEwen.
It is also important to bear in mind that the question is not simply whether, having regard to a Calderbank letter, a court should order the defendant to pay costs on a basis other than as between party and party. The court will be exercising a broad discretion, and the making of an informal offer of settlement is merely one of a number of matters relevant to the exercise of that discretion: Colgate-Palmolive Co v Cussons Pty Ltd.[9] And a Calderbank letter is but one instance of how a party might make an offer which has been “imprudently refused”: Pirrotta at 263 Debelle J. Imprudent refusal of an offer of settlement is often raised as the basis for an application for an order for costs on a basis other than as between party and party, but once again it has to be borne in mind that while “imprudent refusal” conveniently encapsulates an approach to the exercise of the discretion, in the end the issue is whether the discretion should be exercised to depart from the usual basis of an order for costs.
[7] [2007] SASC 284; (2005) 92 SASR 281.
[8] Ibid at [74]-[75]; 300.
[9] (1993) 118 ALR 248, Sheppard J at 257.

There can be no doubt that the defendant has succeeded in all respects in respect of the action and is entitled an order for costs. I do not propose to interfere with any cost orders which have previously been made in this action. It had had a difficult history. In the subject matter, judgment had been entered by default against Mr Hiley at an early stage. That judgment was set aside by order of the court on 15 September 2009, and cost orders made. I am of the opinion that any costs awarded to Mr Hiley ought run from 16 September 2009 at the earliest.
I readily accept that the “filed offer” was made on 3 December 2009, that is about three months after judgment was set aside. The offer filed by Mr Hiley purported to have been made pursuant to rule 187, sub-rule (3).
As is apparent from the decision in BHP Billiton v Parker, supra, there is a distinction between the consequence of offers filed on behalf of a plaintiff and offers filed on behalf of a defendant, in 6 DCR 188.[10]
[10] See also Maha-Ashi Pty Ltd v Innes [2011] SASCFC 72
A plaintiff is entitled to receive solicitor/client costs in the event that an offer is not accepted by the defendant, whereas a defendant, having made an offer, is entitled to receive costs as contrasted with solicitor/client costs.
I do not need to consider whether the “offer” of 3 December 2009 had complied with Rule 6 DCR 187, or was an informal officer. In my opinion it does not matter. See BHP Billiton Ltd v Parker, supra.
Counsel for Mr Hiley, Mr Lazarevich submitted that in the exercise of the general discretion either indemnity costs or solicitor client costs ought be awarded to Mr Hiley because of the manner in which the plaintiff conducted the proceedings. It is trite that a Court may award even indemnity costs in circumstances, where there is some element of misconduct. Relevantly an imprudent refusal of an offer of compromise may give rise to such an order. See Colgate-Palmolive Co v Cussons.[11]
[11] (1993) 46 FCR 225; Varga Group Investments No 8 Pty Ltd v Geebung Investments (1995) 7 BPR 14, 551; Ballieu Knight Frank v Ted Manny Real Estate (1992) 30 NSWLR 359 at 362
In my opinion any suggestion that the plaintiff had acted imprudently is misconceived.
I repeat that this was an unusual case in which the plaintiff genuinely held the view that it was entitled to judgment for the full sum of $81,000.
There was a genuine dispute as to whether there could be consideration for the plaintiff accepting the lesser sum. Ultimately the question to be answered was whether the agreement was immediately binding or would not, at law, be binding until the Deed was executed.
The reasons delivered in the principal proceedings highlight the different views expressed on that topic by various Courts of Appeal.
In my opinion, in the proper exercise of my discretion the defendant ought receive party/party costs. I dismiss any application for an order for either indemnity costs or solicitor/client costs.
In the exercise of my discretion I order that Mr Hiley ought receive his costs from the earlier date of 16 September 2009, namely the day after the default judgment was set aside.
I formally order that the plaintiff pay Mr Hiley the costs of action on a party/party basis as and from 16 September 2009.
· Stay of Execution or Set Off
The final issue which was raised by Mr Lazarevich was there ought to be either an order to set off the costs awarded to Mr Hiley against the judgment or a stay of execution on the judgment. This submission was based upon an assertion in the affidavit filed by Mr Moulis to the effect that orders for costs awarded to Mr Hiley would exceed the quantum of the judgment awarded to the plaintiff.
There is no doubt that the Court may order, pursuant to 6 DCR 266 that an award of costs be set off against the judgment. See Davies v Gertig (No 2).[12]
[12] (2002) 83 SASR 52
In my opinion it would not be a proper exercise of the discretion to set off the award of costs. While the Court may in some cases, particularly involving questions of insolvency, set off unascertained costs, the subject case is not an appropriate case. I am also not satisfied as to the quantum of costs asserted by Mr Moulis.
There is no doubt that the plaintiff is a solvent company. There is no risk that any order for costs would not be satisfied. I am also not satisfied that Mr Hiley would be unable to meet the judgment sum.
In my opinion it is inappropriate, at least on the evidence before me, for an order to be made that the unascertained or at least untaxed costs be set off against the judgment. I decline to make such an order.
For the same reasons I decline the oral application of Mr Hiley for a stay of execution of the judgment.
I would encourage both parties to use their best endeavours to agree the quantum of costs so the matter can be resolved quickly. If the taxation of costs is delayed or some other problem arises, which may lead to a risk of bankruptcy, I give liberty to the parties to make such other application as they may be advised. On the state of the evidence before me the plaintiff has been left out of its funds for a long period of time. It cannot be suggested that the plaintiff is insolvent. When finally taxed the order for costs will be recoverable from the plaintiff.
Forma Orders
I make the following formal orders:
(1)That judgment be entered for the plaintiff in the sum of $51,000.00 inclusive of interest.
(2)That the plaintiff pay to the defendant the defendant’s costs of action as and from 16 September 2009 on a party/party basis to be taxed or agreed.
(3)Save for orders already made by a Master, no order for costs prior to 16 September 2009.
(4)    Application by Mr Hiley for set off dismissed.
(5)    Application by Mr Hiley for a stay of execution dismissed.
(6)    Liberty to the parties to apply on short notice.