Kinshuk Swanhey v Gap Realty Pty Ltd (Costs)
[2021] VCC 660
•25 May 2021
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
EXPEDITED LIST
Case No. CI-20-01526
| KINSHUK SAWNHEY | Plaintiff |
| v | |
| GAP REALTY PTY LTD (ACN 609 623 224) | Defendant |
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JUDGE: | Judicial Registrar Burchell | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | On the papers | |
DATE OF RULING: | 25 May 2021 | |
CASE MAY BE CITED AS: | Kinshuk Swanhey v Gap Realty Pty Ltd (Costs) | |
MEDIUM NEUTRAL CITATION: | [2021] VCC 660 | |
RULING
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Subject:Costs – partnership
Catchwords: COSTS – how costs are to be borne in a partnership dispute involving a taking of accounts – whether conduct by plaintiff warranted cost order against it
PARTNERSHIP – dissolution – taking of accounts
Legislation Cited: Fair Work Act 2009 (Cth)
Cases Cited:Sawhney v Gap Realty Pty Ltd [2021] VCC 462 - Tucker v the State of Victoria [2021] VSCA 120 - Melbourne Stadiums Ltd v Sautner [2015] FCAFC 20 - McDonald v Parnell Laboratories (Aust) (No 2) (2007) 164 FCR 591 - AlpineHardwoods (Aust) Pty Ltd v Hardys Pty Ltd (No 2) (2002) 190 ALR 121- Calderbank v Calderbank [1975] 3 All ER 333 (EWCA) - StrattonFinance Pty Limited v Webb (2014) 314 ALR 166 - BHP Billiton Olympic Dam Corporation Pty Ltd v Steuler Industriewerke gmbH (No 3) [2012] VSC 414 - Protec Pacific Pty Ltd v Steuler Services GMBH & Coke KG [No. 2] [2015] VSCA 123 - Hannover Life Re of Australasia v Colella [2014] VSCA 205 - Slim v Kabra [2006] NSWSC 837 - MW Corp Pty Ltd & Anor v Sabata Lalita Nominees Pty Ltd (No 2) [2018] VCC 213 - England v Moore (1879) 5 VLR (E) 312
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Ms S Finegan | via Direct Brief |
| For the Defendant | Ms A Carruthers | Allied Legal |
JUDICIAL REGISTRAR:
1This costs ruling follows from my reasons for judgment dated 27 April 2021 for a taking of accounts of the Biggin & Scott Melton Partnership. After the Trial Assessment conducted on 20 and 21 April 2021, I who found that the defendant owed the plaintiff the sum of $8743.00 for underpayment in commissions, and the plaintiff owed the defendant the sum of $63,533.59 for overpayment of partnership distributions. Further, I determined that as there were no assets in the company at the dissolution of the partnership, there was no allowance for goodwill.[1]
[1] Sawhney v Gap Realty Pty Ltd [2021] VCC 462 (27 April 2021).
2In terms of costs in the proceeding, the Judgment provides at [7]:
… There will also be an order that there be no order as to costs up to 19 March 2021 and thereafter that the costs of and incidental to the proceeding shall be costs in the dissolution of the partnership, unless either party has a basis for seeking a different order as to costs.
3By email dated 30 April 2021, the defendant sought to make submissions in relation to costs. The timetable for submissions in reply was amended to give the plaintiff more time after his solicitors ceased to act on his behalf on 4 May 2021.
4The defendant submits that the appropriate costs orders in the circumstances are that the defendant/plaintiff by counterclaim’s costs in the proceeding be payable on an indemnity basis by the plaintiff/defendant by counterclaim from 6 March 2020 onwards.
5The plaintiff submits that the appropriate orders are as proposed in paragraph 7 of the judgment.
6The defendant relies on the written submissions on costs filed on 12 May 2021, 19 May 2021 on the Court of Appeal decision of Tucker v the State of Victoria[2] in accordance with the request made by the court and their reply submissions dated 25 May 2021 and the affidavits of Rahul Kumar affirmed on 12 May and 25 May 2021.
[2] [2021] VSCA 120 (“Tucker”) (12 May 2021).
7The plaintiff filed his submissions as to costs on 19 May 2021 with the assistance of pro bono counsel and his affidavit affirmed on 19 May 2021. The Court is grateful to Ms Finegan for her valuable contribution in this matter at such short notice.
Factual Background
8By Writ and Statement of Claim dated 8 April 2020, the plaintiff made claims against the defendant under the Fair Work Act 2009 (Cth) (“FWA”) for unpaid employee leave and superannuation entitlements, unpaid profit share entitlements, a share in the assets of Biggin & Scott Melton and further sought pecuniary penalties under the FWA.
9By defence and counterclaim, the defendant made allegations denying that the plaintiff was never an employee and that the plaintiff was overpaid and ought repay those overpayments to the defendant.
10Following mediation, on 19 March 2021 the plaintiff abandoned all claims under the FWA, and his claim regarding an alleged rent roll. The parties consented to orders for an accounting to be taken. The defendant conceded that the Agreed Share specifically included that the plaintiff would be entitled to 20% of the profits generated by the Melton Partnership, and 20% of the goodwill associated with the Melton Partnership.
Fair Work Act
11It is common ground between the parties that the FWA provides that costs are only ordered if proceedings are instituted vexatiously, and outlines this principle in s 570, which states:
(1) A party to proceedings (including an appeal) in a court (including a court of a State or Territory) in relation to a matter arising under this Act may be ordered by the court to pay costs incurred by another party to the proceedings only in accordance with subsection (2) or section 469 or 569A.
(2) The party may be ordered to pay costs only if:
(a)The court is satisfied that the party instituted the proceedings vexatiously or without reasonable cause; or
(b) The court is satisfied that the party’s unreasonable act or omission caused the other party to incur the costs; or
(c) The court is satisfied of both of the following:
i.The party unreasonably refused to participate in a matter before the FWC;
ii.The matter arose from the same facts as the proceedings.
12In Melbourne Stadiums Ltd v Sautner[3] the majority of the Full Court observed at [156] that:
The word “proceeding” is not defined in the Fair Work Act. In the context of s 570 it bears a different meaning from the word “matter”. “Matters”, in the sense of claims or causes of action or their underlying controversies, are raised in the “proceeding” or “proceedings” which is or are prosecuted in the Court.
[3] [2015] FCAFC 20.
13The majority further noted at [157] that:
There was a single proceeding which was commenced and prosecuted to judgment in the County Court. Mr Sautner made claims under the Fair Work Act and at common law. The claims under the Fair Work Act were “matters” within the meaning of s 570(1) of the Fair Work Act. The proceeding was, as a result, a proceeding in relation to a matter arising under that Act. Section 570(1) operated to preclude the Court from ordering MSL (‘another party to the proceedings’) to pay any costs incurred by Mr Sautner in prosecuting his claims unless he could satisfy the Court that one of the exceptions, provided for in s 570(2), applied.
14The plaintiff relies on the recent Court of Appeal decision in Tucker v State of Victoria, at paragraph [406] which provides:
A proceeding in which a matter directly arising under the FWA (seeking to enforce a right or duty owing its existence to the FWA) is a component, even only as one matter amongst others not arising under the FWA, will be sufficiently related. That a proceeding encompasses multiple matters, claims, or causes of action, only some of which arise under the FWA, will not take the proceeding as a whole, or any part of it, outside the scope of the provision.
15The plaintiff submits that the proceeding was clearly in relation to a matter arising under the FWA. Throughout the proceeding, and until the Judicial Resolution Conference dated 19 March 2021, the plaintiff maintained the pleadings under the FWA.
16The plaintiff contends that it is therefore not open to the Court to apportion costs where the FWA is pleaded.
17It is, however, well established that a failure to accept a reasonable offer of compromise may constitute an unreasonable act for the purposes of s 570(2).[4]
[4] McDonald v Parnell Laboratories (Aust) (No 2) (2007) 164 FCR 591 at 598-9.
18On the other hand, even if it is accepted that the defendant’s offer was a reasonable one, it does not necessarily follow that the plaintiff’s failure to accept it constituted an unreasonable act for the purposes of the exception contained in s 570(2).[5]
[5] AlpineHardwoods (Aust) Pty Ltd v Hardys Pty Ltd (No 2) (2002) 190 ALR 121 at 128.
19The defendant submits that the Court can be satisfied that the plaintiff’s unreasonable act (in issuing the proceedings under the FWA) and/or omission (in not accepting a reasonable offer) has also caused the defendant to incur costs, thus engaging the exception to the FWA rule.
20It is submitted by the defendant that this is a case where costs ought be awarded on an indemnity basis. In addition to the s 570(2)(b) FWA provisions, the defendant further submits that the Court ought use its discretion to award indemnity costs, under the principles in Calderbank v Calderbank[6] (Calderbank).
[6] [1975] 3 All ER 333 (EWCA).
21The Full Court in StrattonFinance Pty Limited v Webb[7] further noted that Calderbank letters presupposed the existence of a “costs jurisdiction”. No such jurisdiction existed (subject to s 570(2)) where claims are made under the Fair Work Act. As the Full Court said at [80]:
To group together contractual and [Fair Work] Act claims in an offer may permit the conclusion that the refusal of the offer was unwise, even unreasonable, but it does not follow that such is an unreasonable act or omission, for the purposes of s 570(2).
[7] (2014) 314 ALR 166 at [80].
Indemnity Costs and Calderbanks
22In considering whether or not a party should have their indemnity costs, the principles that guide the court are set out in the decision of Habersberger J in BHP Billiton Olympic Dam Corporation Pty Ltd v Steuler Industriewerke gmbH (No 3)[8] as follows:
[8][2012] VSC 414 at [59]-[67] (with reference to Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) (2005) 13 VR 435).
(a) First, the fact that a less favourable result is achieved does not give rise to a presumption of a special costs order. The making of an offer and its rejection are “but two albeit important circumstances” to which the Court will have regard in the exercise of its costs discretion.
(b) Secondly, the competing policy objectives relevant to the exercise of the costs discretion are principally the desirability of promoting settlement and reducing litigation costs as against the undesirability of discouraging potential litigants from bringing their dispute to the courts.
(c) Thirdly, the critical question is whether the rejection of the offer was unreasonable in the circumstances. As the Court of Appeal said in Hazeldene:
In our view, these 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. We see no justification for a more stringent test such as “manifestly” or “plainly” unreasonable.
(d) Fourthly, a court considering submissions that the rejection of a Calderbank offer was unreasonable should ordinarily have regard at least to the following matters:
(i)the stage of the proceeding at which the offer was received;
(ii)the time allowed for the offeree to consider the offer;
(iii)the extent of the compromise offered;
(iv)the offeree’s prospects of success, assessed as at the date of the offer;
(v)the clarity with which the terms of the offer were expressed; and
(vi)whether the offer foreshadowed an application for indemnity costs in the event of the offeree rejecting it.
(e) Fifthly, as the determination of whether it was unreasonable for the offeree to have rejected the offer is made “as at the time, or within a reasonably short time after, the offer” was made[9], the Court should not too readily embrace submissions that it was inevitable that the proceedings would fail. As Hamilton J put it in Grynberg v Muller:
These submissions focus the bright light of hindsight. Hindsight sings a siren song of which Judges must be cautious …
[9] Safeway [2002] FCA 1294, [21] (Goldberg J).
(f) Sixthly, the onus lies on the offeror to demonstrate the unreasonableness of the offeree’s rejection of the offer. This means that it is necessary to analyse what was proposed.
(g) Seventhly, there is no general rule that the Calderbank offer must set out with specificity the basis for the offeror’s contention that the offeree should accept the compromise. Whether there is a need to do so depends upon a consideration of all of the circumstances existing at the time of the offer.
(h) Eighthly, it is not necessary for the applicant for an indemnity costs order to establish matters which might be relevant to other, well-recognised, grounds for indemnity costs. Such conduct is not a pre-requisite for a finding that the rejection of the Calderbank offer was unreasonable.
(i) Ninthly, an “all in” offer is permitted in a Calderbank offer. (citations omitted)
23Habersberger J’s decision was upheld by the Court of Appeal in Protec Pacific Pty Ltd v Steuler Services GMBH & Coke KG [No. 2].[10]
[10] [2015] VSCA 123 at [55].
24The above “principles established by Habersberger J” were also referred to by the Court of Appeal in Hannover Life Re of Australasia v Colella[11] without any criticism.
[11] [2014] VSCA 205 at [91].
25The defendant refers to Adamczak v Alsco Pty Ltd (No.4)[12], (Adamczak) in which the Federal Circuit Court of Australia considered whether a failure to accept a Calderbank offer constituted an unreasonable action. The Court determined that, in the context of an offer, the word “unreasonable” should be used synonymously with the word “imprudent”.[13] The Court found:
Such offers, when properly made, are intended to place a litigant under pressure and in such a situation, a prudent litigant must carefully weigh up the pros and cons – risks and possible benefits which may accrue – of continuing with the litigation in the face of what has been offered.
[12] [2019] FCCA 7.
[13] Ibid at 119.
26The Court also considered that in determining whether a rejection of an offer was reasonable, is by reference to all the circumstances prevailing, at the time the offer was made and rejected.[14]
[14] Ibid at 136.
27The plaintiff contends that the discretion is a limited discretion, and must be exercised very carefully; it is not enlivened in each and every case where a party is at fault in the process of litigation.[15]
[15] Adamczak v Alsco Pty Ltd (No.4) [2019] 284 IR 337 at [131].
28The first settlement offer made by the defendant was on 6 March 2020, which offered to settle the dispute for the sum of $18,540.00 (first settlement offer). This offer was made in the context of the defendant receiving the letter of dispute from the lawyers for the plaintiff dated 12 February 2020, and prior to the plaintiff commencing the proceeding.
29The plaintiff says that the defendant confirmed in the first settlement offer that there were administrative errors and shortfalls in payments of commission. As such, it was not unreasonable for a person in the position of the plaintiff, at the time the offer was made, to fail to accept the first settlement offer.
30The defendant contends that the first settlement offer calculated outstanding entitlements as $11,933. The Judgment determined that an amount of $8,743 was owed to the plaintiff on account of commissions. The first settlement offer was not only comparable to, but more favourable to the plaintiff than the outcome in the Judgment. The first settlement offer also included an ex-gratia payment of $1,000. The Judgment determined that the plaintiff in fact owes the defendant money.
31The second settlement offer made by the defendant was on 23 September 2020, which proposed that the parties “walk away” from the dispute, releasing the parties from the issues in dispute and bearing their own costs (second settlement offer).
32The plaintiff notes that the defendant ventilated the merits of engaging an independent accountant to complete an accounting and business valuation exercise in order to determine the claims between the parties. In response to the second settlement offer, the plaintiff agreed to delaying the process in order to further investigate the possibility of settlement directly between the parties, and allowing the plaintiff’s accountant to make preliminary assessments.
33In my view, in relation to the first and second settlement offers, the plaintiff did not yet have sufficient documentation from the defendant to make a preliminary assessment. The circumstances at the time of the offers and the rejections are as follows.
34Despite court orders requiring discovery to be completed by 1 July 2020, the defendant made its first affidavit of documents on 13 July 2020. The plaintiff made further discovery requests on 30 November 2020, 18 December 2020 and also served a Form 29D (‘Notice of Default in Making Discovery of Documents) on 10 December 2020 on the defendant.
35On 3 February 2021, the Court noted in other matters that “the defendant (plaintiff by counterclaim) has failed to make further and particular discovery, resulting in the plaintiff being unable to instruct for the preparation of expert reports.” Supplementary discovery was required by 19 February 2021.
36On 9 March 2021, the Court further noted in other matters that “during the course of preparation of the defendant's expert's report, some fresh documents were located and provided to the plaintiff. Formal discovery of these documents will be made.” The defendant made further affidavits of documents on 15 March, 29 March and 9 April 2021.
37The defendant possessed all the relevant financial documentation and partnership records. The plaintiff and his expert relied on disclosure of relevant documentation from the defendant. Therefore, until proper discovery was made by the defendant, the plaintiff was unable to make the proper assessment as to whether the first and second settlement offers were reasonable or not. Therefore, I find that it was not unreasonable for a person in the position of the plaintiff at the time the offer was made to fail to accept the first and second settlement offers.
38At the time of the second settlement offer, it was expressed by the defendant that a suitable method of settling the proceeding was by way of engaging an accountant to complete an accounting and business valuation exercise in order to determine the claims between the parties (third option for settlement).
39In the plaintiff’s rejection of the second settlement offer, he stated that he was no longer considering the possibility of the out of court settlement arrangement.
40The defendant submits that the proposed out of court settlement arrangement required the prudent and commercial consideration of the plaintiff. At the time of these negotiations, the discovery and the external Accountant’s Report from Maral Modi Accountants Pty Ltd had been provided to the plaintiff by the defendant.
41The defendant says that had the plaintiff agreed to an accounting process as an appropriate mechanism of resolving the dispute at the time of the negotiations, prior to or around the time of the second settlement offer, the parties would have been spared the costs incurred from that time until the making of the Judgment.
42The Court accepts that given the ongoing discovery from the defendant and the information requests from the plaintiff’s expert on 26 February 2021 that an accounting exercise at the time suggested by the defendant, and prior to the defendant completing discovery, was premature. In my view, the plaintiff requesting that relevant documents be discovered prior to any further consideration of the third option for settlement was not an unreasonable act for the purposes of s 570(2)(b) of the FWA or in rejecting a Calderbank offer.
43Accordingly, it was not unreasonable for a person in the position of the plaintiff, at the time that the third option for settlement was ventilated, to reject the offer.
44In the circumstances, I find that there be no order as to costs to 19 March 2021 as there is no costs jurisdiction where claims were made under the FWA.
45I otherwise make no findings in relation to the merits of the FWA claims and whether the as these matters were abandoned by the plaintiff on 19 March 2021 and were not the subject of adjudication at trial.
Costs of dissolving the partnership
46The plaintiff contends that there is an established rule that in proceedings for winding up or dissolution of a partnership the costs of proceedings consequent upon, and necessary for, the dissolution should be paid out of partnership assets (established rule), unless there is a good reason to depart from this rule.[16]
[16]Slim v Kabra [2006] NSWSC 837 (16 August 2006) at [9], MW Corp Pty Ltd & Anor v Sabata Lalita Nominees Pty Ltd (No 2) [2018] VCC 213.
47The defendant submits that the “established rule” has no bearing here, as this proceeding was not part of the winding up or dissolution of a partnership. The proceedings involve a commercial dispute (and initially an alleged Fair Work claim) regarding alleged outstanding payment entitlements which were not borne out by the plaintiff at trial. Further, the proceedings were initiated long after the plaintiff left the partnership. The defendant says that the present case is distinguishable from Slim, Hamer[17] and Xie[18] for the same reason.
[17] Hamer v Giles (1879) 11 Ch D 942.
[18] Xie v Zhou [2002] NSWSC 1114.
48The defendant claims that the principles in Slim, Hamer and Xie are applicable where proceedings are brought before the court for the purposes of dissolving and winding up the partnership. They defendant contends that it was agreed by the parties that the partnership was dissolved on 30 November 2019 and that both parties sought confirmation by way of orders (which were ultimately made by consent) that the Partnership was dissolved on 30 November 2019, some time prior to the proceedings being brought. It says that at no point during the dispute did either party seek an order that the partnership be wound up.
49The defendant relies on the orders of Judicial Registrar Muller made on 19 March 2021 which makes no reference to a winding up of the partnership. They were to determine whether there are debts payable from either party to the other on account of profit share entitlement, commission entitlement, or goodwill entitlement.
50Finally, the defendant claims that in Xie, that the court considered that the “established rule” only applies where the court is assisting in winding up the partnership. Where the court is presiding over contested litigation beyond a winding up of a partnership, costs should be awarded.
51In my view, both the statement of claim and the counterclaim in the present proceeding sought, inter alia, declarations that the parties had entered into a partnership and that the Melton Partnership had been dissolved on 30 November 2019, alternatively that the Melton Partnership be dissolved. They further sought a taking of accounts. There was a mutual request for a winding up of the Melton Partnership by reason of the relief sought.
52My reading of Judicial Registrar Muller’s orders made on 19 March 2021 was that he mad a declaration that the Melton Partnership was dissolved on 30 November 2019 and he ordered a taking of accounts for the purposes of the dissolution of the Melton Partnership under Part 2 Division 4 of the Partnership Act 1958 (Vic).[19]
[19]See Sawhney v Gap Realty Pty Ltd [2021] VCC 462 at [24]-[27]; ss 42, 43 and 48 of the Partnership Act 1958 (Vic).
53While it was necessary for the partnership to be wound up as the accounts of the partnership had not been consolidated, there were errors in the accounting. Given there was a dispute between the partners, the accounting between the parties could have been undertaken as an out of court arrangement rather than as a taking of accounts by the Court.
54In my view, although the dissolution of the partnership required a taking of accounts by someone, the plaintiff forced the process into the Court’s hands in an adversarial manner instead of relying on an independent accountant as proposed by the defendant. I accept that the court was assisting in winding up the partnership post 19 March 2021, however, the court presided over a contested litigation that was not necessary for the winding up of the Melton Partnership in the form of the 2 day trial on the taking of accounts. Accordingly, I find that in all the circumstances, and in order to meet the justice of the case,[20] the plaintiff ought to pay the defendant’s costs of and incidental to the hearings conducted on 20 and 21 April 2021 for the taking of accounts on a standard basis to be taxed in default of agreement. Save for those cost ordered, the costs of the proceeding shall otherwise be costs in the dissolution of the partnership.
[20] England v Moore (1879) 5 VLR (E) 312.
Conclusion
23 For the foregoing reasons, in relation to the defendant’s application of the costs of the proceeding, I order:
a) There be no order as to costs to 19 March 2021, and
b) The plaintiff pay the defendant’s costs of and incidental to the hearings conducted on 20 and 21 April 2021 for the taking of accounts on a standard basis to be taxed in default of agreement.
c) Save and except for the cost ordered in the sub paragraphs above, the costs of and incidental to the proceeding after 19 March 2021 be borne by the partnership.
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Certificate
I certify that these 13 pages are a true copy of the judgment of Judicial Registrar Burchell delivered on 25 May 2021
Dated: 25 May 2021
Associate to the Judicial Registrar Burchell
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