Kermani v Gaylard (No. 2)
[2011] VSC 143
•14 April 2011
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
No. 9405 of 2005
| HOMAI KERMANI | Plaintiff |
| V | |
| MICHAEL R GAYLARD & ORS | Defendants |
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JUDGE: | SIFRIS J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | On the papers – Written Submissions filed | |
DATE OF JUDGMENT: | 14 April 2011 | |
CASE MAY BE CITED AS: | Kermani v Gaylard & Ors (No. 2) | |
MEDIUM NEUTRAL CITATION: | [2011] VSC 143 | |
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COSTS – Separate representation by defendants – Common issues – Whether all defendants entitled to costs where plaintiff failed – Duplication – Order for one set of costs only.
COSTS – Calderbank offer – Failure to accept unreasonable.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr G Bigmore QC with Mr P Fary | Comlaw Barristers & Solicitors |
| For the First and Fourth Defendants | Mr R Heath | Tresscox Lawyers |
| For the Tenth Defendant | Dr A Hanak | Minter Ellison Lawyers |
HIS HONOUR:
Introduction
On 25 February 2011 I published my reasons for dismissing the plaintiff’s claim against the relevant Rogers & Gaylard defendants (“R & G defendants”) and the tenth defendant, Mr Richard Flory.
Originally, the proceeding was instituted against nine defendants comprising partners of the firm formerly trading as Rogers & Gaylard. However, in August 2007 Mr Flory, a consultant of the firm during the relevant time, was added as tenth defendant. Initially, all the defendants were represented by the same firm of solicitors. On or about 22 July 2009 however, Mr Flory retained separate legal representation.
By its latest statement of claim, the plaintiff pleaded its case in the alternative against Mr Flory and the R & G defendants. Allegations were made that when Mr Flory gave the relevant advice to the plaintiff, he was either acting on behalf of the firm Rogers & Gaylard in which case the R & G defendants were liable, or as a solicitor on his own behalf and as a consequence he was personally liable.
In my reasons, and notwithstanding evidence and submissions directed to this issue, I did not determine the capacity in which Mr Flory was acting in giving the advice that he did to the plaintiff. It was not necessary to do so.
The case has been disposed of save as to costs.
The plaintiff has (save for some exclusions) agreed to pay the party and party costs of the R & G defendants but contends that she should not have to pay Mr Flory’s costs.
The defendants each submit that they are entitled to an award of costs in their favour. Further, they seek costs on the scale as between solicitor and client based on calderbank letters and an offer of compromise made under the relevant rules of the court.
Accordingly, there are two contested issues remaining in relation to costs. First, whether each of the defendants, namely the R & G defendants[1] and Mr Flory, are entitled to costs. Secondly, whether solicitor and client costs should be awarded.
[1]Although the plaintiff initially issued proceedings against nine members of the now defunct firm of Rogers & Gaylard, it only proceeded to trial against two former members of the partnership, the first defendant Michael Gaylard and the fourth defendant Michael Houston.
One set of costs only?
The plaintiff accepts that costs should follow the event, but contends that she should only be liable for one set of costs. In written submissions the plaintiff contends that the defendants should not have been separately represented and accordingly, she should not have to pay any of Mr Flory’s costs.
The R & G defendants and Mr Flory contend that they were entitled to separate representation given that the plaintiff pleaded her case in the alternative. They submitted that because the interests of the R & G defendants and Mr Flory conflicted separate representation was necessary and accordingly, costs should be awarded in favour of each of the defendants.
It is apparent that the R & G defendants had originally and with respect correctly, admitted that when Mr Flory gave advice to the plaintiff he was acting within the course and scope of his employment with Rogers & Gaylard. However, at a later stage the defendants sought to withdraw that admission based on a document prepared by Mr Flory to the effect that he had personally and on his own behalf provided services to the plaintiff. The document in the form of a tax invoice was produced to the court and is part of the evidence. An application to withdraw the admission was made but I did not decided the issue.
In my opinion, given the nature of the allegations made and the ambiguity in relation to the relationship between Mr Flory and Rogers & Gaylard, it was appropriate for there to be separate representation. This is particularly so in view of the joinder of Mr Flory and the plaintiff’s decision to plead her claim in the alternative as against the R & G defendants and Mr Flory. There was, on the evidence, a real issue relating to Mr Flory’s capacity. He was permitted by agreement to do some private work and as pointed out above, rendered a personal tax invoice for legal work done in relation to issues in the case. The nature and extent of such work and in what capacity it was performed were issues in the case. It was not unreasonable for the R & G defendants to distance themselves from Mr Flory and exclude Mr Flory from any legal representation. However, that is by no means the end of the matter or a sufficient justification for awarding costs to each of the respective defendants.
In my opinion, although separate representation was desirable and perhaps even necessary, there was a great deal of duplication and overlap of defences so far as all defendants sought to challenge the basis of the plaintiff’s claim. All defendants argued that there was no breach of retainer or duty and no causation and relevant loss. In fact, the only issue between the defendants related to the capacity in which Mr Flory was acting, a matter that I declined to determine in light of the findings made.
In all of the circumstances and in the exercise of my discretion, I am of the opinion that the plaintiff ought to pay only one set of costs. It would be unfair to burden the plaintiff with both sets of costs where there was a substantial overlap in the interests of the defendants in respect of the main issues in the case and where the discrete issue between them was of less relevance (and significantly less court time) and not the subject of any finding. Further factors in the exercise of my discretion in this regard are the scale of costs that I propose to award (as referred to below) and the fact that I do not propose to exclude from the order the costs associated with the capacity dispute.
As it is neither possible nor desirable to determine which of the defendants’ costs should be paid, I will order that the plaintiff pay 50 percent of the costs of each of the R & G defendants and Mr Flory. I appreciate that this is not the same as one set of costs, but it is desirable and appropriate in all of the circumstances.
The scale of costs
Each of the R & G defendants and Mr Flory served calderbank letters and an offer of compromise under the Rules.
The defendants served two calderbank letters. By the calderbank letter dated 30 October 2009 a joint offer was made by all defendants to compromise the proceeding by making payment of $120,000 plus costs to the plaintiff. By a previous letter dated 24 October 2007 all defendants (at this stage Mr Flory had been joined but was not separately represented) offered to compromise the proceeding by making a payment of $30,000 to the plaintiff with each party to be liable for its own costs.
It is necessary to assess whether, in all of the circumstances of the case, it was unreasonable for the plaintiff to reject the offers made by the defendants.[2]
[2]Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) [2005] VSCA 298.
In determining whether it was unreasonable for the plaintiff not to have accepted the offers made by the defendants, there is authority to the effect that where the offer does not involve a genuine compromise, but is in fact an invitation to capitulate, it would not be unreasonable for the losing party to have rejected it.
In Berrigan Shire Council v Ballerini & Anor (No 2)[3] Callaway JA observed that the treatment of calderbank offers comes down to the question of whether the rejection was unreasonable in the circumstances. In that case, the offer was an offer to walk away. Callaway JA characterised it as a demand to capitulate that could reasonably be rejected.[4]
[3][2006] VSCA 65.
[4]Chernov JA and Nettle JA in effect agreed with the observations made by Callaway JA.
In the case of Truenergy Pty Ltd v Dispute Resolution Panel (No 2)[5] Cavanough J considered that in order for a calderbank offer to be taken into account by the court it should be attractive in all the circumstances and not merely comprise, in effect, a demand to capitulate.
[5][2009] VSC 612.
In the recent case of Pepe v Platypus Asset Management Pty Ltd (No 2)[6] Almond J held that offers of $65,000 and $90,000 (inclusive of costs) were properly rejected in circumstances where the claim was in excess of one million dollars.[7]
[6][2011] VSC 21.
[7]See also Ipex ITG Pty Ltd (in liquidation) v State of Victoria (No 2) [2011] VSC 39.
In my opinion and in the circumstances of this case, it was unreasonable for the plaintiff to reject the calderbank offer made on 30 October 2009 on behalf of the R & G defendants and Mr Flory. The letter does not, in my opinion, amount to a demand to capitulate. Rather, the amount offered represents a serious endeavour to resolve the proceeding. It was by no means a token amount. As pointed out by the R & G defendants in their written submissions, the offer was in addition to costs which would not have been insubstantial at that time. Further, the relevant matters set out in the joint calderbank offer are highly relevant so far as inviting the plaintiff to accept the amount is concerned.[8]
[8]See Mackie Group Pty Ltd v Reading Properties Pty Ltd (No 2) [2010] VSC 205.
In the circumstances and in light of the joint calderbank letter, solicitor and client costs should be awarded.
In relation to the earlier calderbank offer made by the defendants on 24 October 2007, I am of the opinion that the plaintiff did not act unreasonably in failing to accept. The offer was $30,000 with each party to bear its own costs. The offer was too low and was in effect a demand to capitulate.
In addition to the calderbank letters, each of the R & G defendants and Mr Flory made an offer of compromise under Order 26 of the Supreme Court (General Civil Procedure) Rules 2005. The offer is dated 30 October 2009, the same day as the joint calderbank letter. The plaintiff failed to beat the offer which was in the same terms as the joint calderbank letter. This provides a further reason for awarding solicitor and client costs.[9]
[9]Mutual Community Ltd v Lorden Holdings Pty Ltd (Unreported decision of Byrne J 28 April 1993).
In the circumstances, I propose to order that each of the R & G defendants and Mr Flory recover 50 % of their costs, such costs to be taxed on a party and party basis up to and including 16 November 2009 and on a solicitor and own client basis with effect from 17 November 2009.[10]
[10]Pursuant to the joint calderbank letter the offer expired at 4.00 pm on 16 November 2009.
I am not prepared to exclude from the order costs associated with the issue relating to the capacity in which Mr Flory was acting. Evidence and argument was directed to this issue and it was the court that, for obvious reasons, declined to determine the issue. It would be unfair to deprive the defendants of such costs. In any event, this was a matter that was taken into account when deciding to award 50% of the costs to each defendant.
In her written submissions, the plaintiff contends that it was not unreasonable for her to reject the offers for three reasons. First that “the legal effect of acceptance would have been to fix the amount of the debt provable in their bankruptcy”[11]. The bankruptcy referred to was that of Mr Gaylard and Mr Houston. Their estates were sequestrated before the offers were made. The second reason was that it was not unreasonable because an insurer was not a party to the offer. The third reason was that the offers were “significantly less than the amount of the claim”.
[11]Paragraph 15 of the plaintiff’s submissions on costs.
I reject the first reason. Even if acceptance had the effect contended for the settlement sum in effect represented the true amount of the claim. Although one hundred cents in the dollar may not have been recovered as against the defendants who were bankrupt, thereby further eroding a claim already compromised, at that stage not all defendants were bankrupt. There is no reason to believe the full amount of the compromised claim would not have been received.
I reject the second reason. Where a serious offer is made it should be accepted that what comes with it is a representation (and indeed a promise) that it will be honoured. In any event no response was made by the plaintiff to the effect that it required some security or evidence of ability to pay. The plaintiff must have known or suspected that insurers were acting.
I have already dealt with the third reason.
Costs thrown away by reason of the further discovery made by the R & G defendants
In her written submissions the plaintiff seeks an order that the R & G defendants pay her costs thrown away by reason of the “discovery problems identified during the trial”. According to the plaintiff “one day was lost by reason of this matter”.
In their written submissions in response, the R & G defendants accept that as a result of the discovery problems there were wasted costs comprising one day of the trial. Accordingly, I will order that the R & G defendants pay the plaintiff’s costs associated with the discovery problems, being the costs of 19 October 2010 and that such costs be set off against the amounts payable by the plaintiff to the R & G defendants as set out herein. I will also order that the R & G defendants pay Mr Flory’s costs of 19 October 2010.
Disposition
Accordingly, the orders of the court will be as follows:
(1)The plaintiff’s claim is dismissed.
(2)The plaintiff pay one-half of the first and fourth defendants’ costs, including costs reserved, such costs to be taxed as between party and party up to 16 November 2009 and on a solicitor and own client basis from 17 November 2009, save for the costs of 19 October 2010.
(3)The plaintiff pay one-half of the tenth defendant’s costs, including costs reserved, such costs to be taxed as between party and party up to 16 November 2009 and on a solicitor and own client basis from 17 November 2009, save for the costs of 19 October 2010.
(4)The first and fourth defendants pay the plaintiff’s costs of 19 October 2010 such costs to be taxed as between party and party in the absence of agreement and set off against the costs payable by the plaintiff to the first and fourth defendants pursuant to paragraph 2 of these orders.
(5)The first and fourth defendants pay the tenth defendant’s costs of 19 October 2010 such costs to be taxed as between party and party in the absence of agreement.
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