Kilkenny Walsh v Strasburger Enterprises (Properties)
[2014] VSC 117
•19 MARCH 2014
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
No. 01501 of 2011
| KILKENNY WALSH PTY LTD | Plaintiff |
| v | |
| STRASBURGER ENTERPRISES (PROPERTIES) PTY LTD | Defendant |
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JUDGE: | VICKERY J | |
WHERE HELD: | MELBOURNE | |
DATE OF HEARING: | 19 MARCH 2014 | |
DATE OF RULING: | 19 MARCH 2014 | |
CASE MAY BE CITED AS: | KILKENNY WALSH v STRASBURGER ENTERPRISES (PROPERTIES) | |
MEDIUM NEUTRAL CITATION: | [2014] VSC 117 | |
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COSTS – OFFER OF COMPROMISE - Order 26 of Supreme Court (General Civil Procedure) Rules 2008 - Rule 26. 03(7) – Counter-Calderbank offer - Time between acceptance of offer and counter offer - Allocation of costs incurred by the parties between the date of the service of the offer of compromise and its acceptance – No prima facie entitlement for plaintiff to recover the costs incurred by it while considering an offer - Exercise of Court’s discretion to award costs – Principle of ‘usual order as to costs’ – No reason to depart from costs order in favour of successful party.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr I G Waller SC with | Best Hooper |
| Mr H L Redd of Counsel | ||
| For the Defendant | Mr S Horgan SC with Mr B Gibson of Counsel | Slater & Gordon |
HIS HONOUR:
This case involves the sale of the former petrol station at a site situated at 1C Ballarat Road, Footscray (the ‘Site’). The property was sold by the defendant, Strasburger Enterprises (Properties) Pty Ltd, to the plaintiff, Kilkenny Walsh Pty Ltd in September 2003. The sale was settled in November 2003. The terms of the sale were contained in a written agreement for sale of land entered into between the parties on 10 September 2003 (the ‘Agreement’).
On 1 April 2011, the plaintiff commenced the proceeding seeking payment of licence fees that had been unpaid since 2010 purportedly pursuant to the Agreement, as well as specific performance of the defendant's obligation to deliver an environmental validation report that complied with the Agreement, confirming that outstanding environmental issues had been attended to. Following correspondence between the parties' solicitors on 9 May 2012, the defendant paid the plaintiff the sum of $284,469 being the amount demanded in full and final settlement of the dispute concerning licence fees.
The remainder of the proceeding involved essentially the construction of the Agreement in relation to terms designed to manage the risks of costs associated with the environmental remediation of the Site, whether the Agreement had been breached and whether the plaintiff suffered any and what loss and damage.
On 28 February 2014, the defendant served an offer of compromise on the plaintiff pursuant to Order 26 of the Supreme Court (General Civil Procedure) Rules 2008 (‘the Rules’). The offer of compromise provided that the defendant would pay the plaintiff the sum of $1m, and in addition, the plaintiff's costs of the proceeding. The offer was open for 14 days. On 13 March 2014, the plaintiff accepted the defendant's offer of compromise.
Rule 26.03(7) relevantly provides:
Upon the acceptance of an offer of compromise that states that costs are to be paid or received in addition to the offer, then, unless the offer otherwise provides or the Court otherwise orders—
(a)such costs are to be paid or received in respect of the claim up to and including the day the offer was served;
(b)liability for any costs in respect of the claim in relation to any subsequent period shall be in the discretion of the Court; and
(c)any party to the accepted offer may apply for the taxation of the costs.
The issue in this application concerns the allocation of costs incurred by the parties between the date of the service of the offer of compromise and its acceptance.
It is to be noted that the trial of the proceeding, being the balance of the proceeding, was set down for hearing due to commence on 17 March 2014 on an estimate of 11 days. The remaining issues to be heard and determined at this trial were attended with some complexities both of fact and law. Expert evidence was to be called in relation to the valuation of the Site and the market value of units constructed on the property. A court book of some nine volumes of documents was produced for use at the trial.
The proceeding was attended with some procedural complexity. The proceeding commenced by writ dated 1 April 2011. On 13 December 2012, the plaintiff filed its second further amended statement of claim. The matter proceeded thereafter essentially as follows:
·On 5 March 2012, a mediation was conducted. The matter did not settle.
·On 11 February 2013, the defendant filed its defence to the second further amended statement of claim.
·The plaintiff has filed five witness statements. The defendant has filed eight witness statements.
·On 15 November 2013, a second mediation was conducted. The matter did not settle at this mediation.
·On 18 November 2013, the hearing of the proceeding commenced and the parties opened their respective cases. The trial was adjourned until 17 March 2014 part heard on 20 November 2013 to enable the plaintiff to file further particulars and the defendant to file further evidence.
·On 26 November 2013, the plaintiff filed further and better particulars of its statement of claim. Also on 26 November 2013, the plaintiff filed a fourth amended further and better particulars of loss and damage.
·A third mediation of the matter was held on 28 February 2014.The matter again did not settle at this mediation.
·On 28 February 2014 following the third mediation, the defendant served its offer of compromise. The offer of compromise expired at 4 pm on 14 March 2014 being a period of 14 days in accordance with the Rules. On 28 February 2014, the parties were notified that the matter had been transferred from the docket of Justice Hargrave to that of this Court. On 6 March 2014 the defendant filed a document entitled, "Defendant's case summary" which set out, amongst other things, the defendant's position in respect of quantum.
·On 6 March 2014, a fourth informal mediation was conducted between counsel for the parties. The matter again did not settle at this mediation.
·The matter was also listed for pre-trial directions before this Court on 7 March 2014.
·On 12 March 2014, the plaintiffs filed revised opening submissions for the proceeding. The parties were due to file opening submissions by 11 March 2014.
·Also on 7 March 2014 at approximately 9 am the plaintiff served a Calderbank offer. The plaintiff's offer was open for acceptance until 4 pm on 13 March 2014, the day before the defendant's offer of compromise was to expire. The defendant did not accept the plaintiff's offer on 13 March 2014 and that offer expired at 4 pm on that day. At approximately 4.39 pm on that day, its offer having lapsed, the plaintiff accepted the defendant's offer.
In Malliaros v Moralis,[1] a decision of McGarvie J of this Court, his Honour considered an application under Rule 26.03(7), as it stood at that time. The Rule then appeared in the following form:
[1][1991] VR 501.
(7)Upon the acceptance of an offer of compromise in accordance with paragraph (4), unless the Court otherwise orders, the defendant shall pay the costs of the plaintiff in respect of the claim up to and including the day the offer was received.
McGarvie J considered that in his opinion Rule 26.03(7) as it then stood, operated:
[e]ffectively within the area in which it intends to operate – that is up to the time of service of the offer. It does not make provision for the costs after service of the offer. Many considerations may be relevant to that period and the position is left to the ordinary discretion of the trial judge as to costs; see Supreme Court Act 1986 s 24(1) and r 63.02.[2]
At page 505, McGarvie J considered that one of the two obvious policies of the Rule included the policy:[3]
To encourage a party to whom a fair and reasonable offer of compromise has been made, to accept the offer and bring the proceeding to an end. Thus, r 26.08(1), (2) and (3) bring pressure upon a party receiving a fair and reasonable offer, to accept it, by providing an additional cost burden if the proceeding goes to a verdict or judgment which shows the offer should have been accepted. Both these policies are designed to operate in the interests of the parties by keeping down their costs and in the interests of good judicial administration by freeing the court from the time and resources taken by proceedings which are prolonged unnecessarily.
[2]Malliaros v Moralis [1991] VR 501, 504.
[3]Malliaros v Moralis [1991] VR 501, 505.
This policy may now be seen to be reflected in the overarching purpose of the Civil Procedure Act 2010 (Vic). Section 7(1) provides that the overarching purpose of this Act and the Rules of court in relation to civil proceedings is to facilitate the just, efficient, timely and cost effective resolution of the real issues in dispute.[4]
[4]Civil Procedure Act 2010 (Vic) s 7(1).
It was argued in Malliaros for the defendants that the rules disclosed an intention that justice indicated that they were entitled to delay accepted up to 14 days mentioned in the offer of compromise without being liable to be ordered to pay the plaintiff offeror's costs incurred during that time. However, McGarvie J was of the opinion that neither Rule 26.03(7) nor any other provisions by implication disclosed any such intention.
Malliaros was applied and approved by Beach J in Singh v Care & Anor.[5] Further, the principle in Malliaros has now been incorporated into Rule 26.03(7) of the Rules by paragraphs (a), (b) and (c) of that Rule.
[5][2013] VSC 163.
The defendant in this proceeding does not dispute the jurisdiction of the court to award costs in relation to a period subsequent to the service of an offer of compromise that has been accepted. I accept that from the terms of Rule 26.03(7) there is no entitlement as such for a plaintiff to recover the costs incurred by it while considering an offer of compromise. Whether such an order should be made is to be determined solely by the exercise of the court's discretion founded on established facts.
As McGarvie J observed in Malliaros in relation to the period following the service of an offer,[6] many considerations may be relevant to that period and the position is left to the ordinary discretion of the trial judge as to costs.
[6]Malliaros v Moralis [1991] VR 501, 504.
Applying the usual principles as to the award of costs the court's discretion is not at large. It must be exercised judicially according to established principles having regard to the factors directly connected with the litigation.
A principal argument of the defendant in the present case is that the plaintiff delayed accepting the defendant's offer of compromise for its own purposes while both parties continued to incur costs during the 14 day period. It will be recalled that on 7 March 2014 at approximately 9.00 am the plaintiff itself served a Calderbank offer on the defendant. The plaintiff's offer was open for acceptance until 4.00 pm on 13 March 2014, the day before the defendant's offer of compromise served on 28 February 2014 was due to expire, which was at 4.00 pm on 14 March 2014. The plaintiff's Calderbank offer was to settle the matter by accepting $1,495,000 from the defendant.
The sum of $1,495,000 was some 33 per cent more than the plaintiff's formal offer of compromise.
In these circumstances, the defendant submitted that the plaintiff in fact used the period during which the offer of compromise was open to attempt to extract a greater settlement offer from the defendant and waited to see if that offer would be accepted before it accepted the formal offer of compromise from the plaintiff.
In the end, the defendant did not make any further offer, nor did it accept the plaintiff's Calderbank offer which expired at 4.00 pm on 13 March 2014. As previously noted, at approximately 4.39 pm on that day, its Calderbank offer having lapsed, the plaintiff accepted the defendant's offer.
The discretion of the court here must be exercised judicially. McHugh J said in Oshlack v Richmond River Council:[7]
Although the statutory discretion is broadly stated, it is not unqualified. It clearly cannot be exercised capriciously. Importantly, the discretion must be exercised judicially in accordance with established principle and factors directly connected with the litigation.[8] In this manner, the law has gradually developed principles to guide the proper exercise of the discretion and, in some cases, to highlight extraneous considerations which, if taken into account, will cause the exercise of the discretion to miscarry. Consistent with the aim of justice, the law could not have developed otherwise.
[7](1998) 152 ALR 83, 101 [65] (‘Oshlack’).
[8]In re Elgindata Ltd (No 2) [1992] 1 WLR 1207; [1993] 1 All ER 232.
As Mason CJ said in Latoudis v Casey:
It does not follow that any attempt to formulate a principle or a guideline according to which the discretion should be exercised would constitute a fetter upon the discretion not intended by the legislature. Indeed, a refusal to formulate a principle or guideline can only lead to exercises of discretion which are seen to be inconsistent, a result which would not have been contemplated by the legislature with any degree of equanimity. (Citations omitted)
McHugh J in Oshlack proceeded to consider the most important factor which the courts have viewed as guiding the exercise of the costs discretion in litigation, namely the result of the litigation, noting that the usual principle that, subject to certain limited exceptions, a successful party in litigation is entitled to an award of costs in its favour.[9] His Honour further observed,
[9]Oshlack (1998) 152 ALR 83 [67].
By far the most important factor which courts have viewed as guiding the exercise of the costs discretion is the result of the litigation. A successful litigant is generally entitled to an award of costs. As Devlin J said in Smeaton Hanscomb & Co Ltd v Sassoon I Setty, Son & Co (No 2), when setting aside an arbitrator's costs award:
"the arbitrator is not directing his mind to one of the most, if not the most, important of the elements which ought to affect his discretion, namely the result of the case. Prima facie, a successful party is entitled to his costs. To deprive him of his costs or to require him to pay a part of the costs of the other side is an exceptional measure".
The combined force of the sentiments recognised above by Mason CJ, regarding the need for consistency in order to avoid injustice, and by Devlin J, regarding the most significant factor affecting the costs discretion, provides the jurisprudential basis for the important principle commonly referred to as the "usual order as to costs".
The expression the "usual order as to costs" embodies the important principle that, subject to certain limited exceptions, a successful party in litigation is entitled to an award of costs in its favour. The principle is grounded in reasons of fairness and policy and operates whether the successful party is the plaintiff or the defendant. Costs are not awarded to punish an unsuccessful party. The primary purpose of an award of costs is to indemnify the successful party. If the litigation had not been brought, or defended, by the unsuccessful party the successful party would not have incurred the expense which it did. As between the parties, fairness dictates that the unsuccessful party typically bears the liability for the costs of the unsuccessful litigation.
As a matter of policy, one beneficial by-product of this compensatory purpose may well be to instil in a party contemplating commencing, or defending, litigation a sober realisation of the potential financial expense involved. Large scale disregard of the principle of the usual order as to costs would inevitably lead to an increase in litigation with an increased, and often unnecessary, burden on the scarce resources of the publicly funded system of justice.
The traditional exceptions to the usual order as to costs focus on the conduct of the successful party which disentitles it to the beneficial exercise of the discretion. In Anglo-Cyprian Trade Agencies Ltd v Paphos Wine Industries Ltd, Devlin J formulated the relevant principle as follows:
"No doubt, the ordinary rule is that, where a plaintiff has been successful, he ought not to be deprived of his costs, or, at any rate, made to pay the costs of the other side, unless he has been guilty of some sort of misconduct."
‘Misconduct’ in this context means misconduct relating to the litigation, or the circumstances leading up to the litigation. Thus, the court may properly depart from the usual order as to costs when the successful party by its lax conduct effectively invites the litigation; unnecessarily protracts the proceedings; succeeds on a point not argued before a lower court; prosecutes the matter solely for the purpose of increasing the costs recoverable; or obtains relief which the unsuccessful party had already offered in settlement of the dispute.
Apart from anomalous examples in the equity jurisdiction, there are very few, if any, exceptions to the usual order as to costs outside the area of disentitling conduct. (citations omitted)
In the present case, I see no good reason from departing from the usual order as to costs being that the successful party is entitled to an award of costs in its favour. In my opinion, that successful party in this case is the plaintiff. It had to proceed since 1 April 2011 when it issued its writ in this complex litigation. It was a case in which both parties were represented by solicitors and senior and junior counsel throughout. It was not until the eve of the trial that the plaintiff extracted an offer from the defendant which resulted in the proceedings being put to an end. The offer if accepted was for payment to it of the sum of $1m together with its costs.
To this I would add the following factors which bear upon the exercise of the costs discretion in this particular case:
(a)the offer of compromise was served by the defendant very shortly prior to trial at a time when it could be anticipated that the plaintiff would be incurring costs of trial preparation in the event that the proceeding did not settle. It could not be anticipated that in those circumstances the plaintiff would have downed tools;
(b)the proceeding was attended with legal and factual complexity;
(c)the defendant provided a further witness statement of Mr David Raymond on 7 March 2014, seven days after it served its offer of compromise. On that day the defendant indicated that a further expert witness statement from the defendant's valuation expert would be filed either that day or early in the following week which was said to: "bear upon a quantum issue". Those observations were made at the directions hearing on 7 March 2014 before this Court. The plaintiff was entitled to assess the defendant's evidence on quantum and await delivery of the further evidence, if any, before accepting the offer of compromise;
(d)the defendant at the directions hearing on 7 March 2014 also indicated that revised opening submissions would be filed on 12 March 2014. Those opening submissions did not eventuate; and
(e)in these circumstances it was reasonable for the plaintiff to await the further material that was foreshadowed by the defendant even though it was never delivered to assess what if any impact it may have had on the plaintiff's risks in the litigation.
I can see no conduct on the part of the plaintiff which would disentitle it to its costs applying the usual principles in respect of the controversial period. The allegation that the plaintiff deliberately delayed in accepting the defendant's offer until the final hour while it sought to explore whether the defendant would accept its higher offer, although it may be regarded as commercially astute, was not improper conduct. The plaintiff acted entirely within the purview of the rules and within the bounds of robust practice of litigation in an adversarial system.
Accordingly, the plaintiff ought to have all of its costs paid by the defendant up to and including the day of the plaintiff's acceptance of the defendant's offer. Since the defendant was also unsuccessful in the present application for costs in relation to costs incurred during the controversial period between the making of the offer and the acceptance of that offer by the plaintiff, it should also pay the plaintiff's costs of the present application.
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