Konstantinos Markos Stavreas v Kenneth Stout (No.2)
[2010] VSC 663
•10 June 2010
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
S CI 2010 00544
| KONSTANTINOS MARKOS STAVREAS | Plaintiff |
| v | |
| KENNETH STOUT | Defendant |
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JUDGE: | GARDINER As J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 1 June 2010 | |
DATE OF RULING: | 10 June 2010 | |
CASE MAY BE CITED AS: | Konstantinos Markos Stavreas v Kenneth Stout (No.2) | |
MEDIUM NEUTRAL CITATION: | [2010] VSC 663 | |
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CORPORATIONS – External administration – Appeal from rejection of proof of debt by deed administrator – Costs of appeal ordered to be paid by deed administrator as part of his expenses as deed administrator.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr M. Harding | Holding Redlich |
| For the Defendant | Mr S. Pitt | Browne & Co Solicitors and Consultants |
HIS HONOUR:
On 1 June 2010, I gave judgment in this matter, which was an appeal under s 1321 of the Corporations Act2001. I ordered that the decision of Mr Stout rejecting Mr Stavreas’ proof of debt be reversed and made other orders directing Mr Stout to pay the amount of Mr Stavreas’ proof pursuant to the terms of the deed of company arrangement, the Corporations Act and the Corporations Regulations.
Mr Stavreas submits that Mr Stout should be ordered to pay Mr Stavreas’ costs personally and on an indemnity basis by reason that Mr Stout has acted unreasonably in defending this application.
At the hearing of this matter on 1 June 2010, I indicated my view that the circumstances were not such as to warrant an order that Mr Stavreas pay the costs personally. The argument then proceeded on the question as to whether Mr Stavreas should be paid his costs by Mr Stout on an indemnity basis with such costs to be part of Mr Stout’s expenses as deed administrator.
In support of his application for costs, Mr Stavreas relies on an affidavit of Jennifer Michelle Kanis sworn 31 May 2010. Ms Kanis is a lawyer employed by his solicitors, Holding Redlich. Ms Kanis exhibits a chain of correspondence passing between Holding Redlich and Mr Stout and his solicitors, Browne & Co, prior to and after the commencement of this application. Prior to that exchange of correspondence, Mr Stavreas, in the proof of debt which was the subject matter of the present appeal, articulated in considerable detail his position as to why his claim should be admitted to proof. A number of the claims he made in that proof were admitted by Mr Stout. The claims for notice (for which he has now been successful) and for what is described as performance incentives for 2000 and 2008, (otherwise referred to as bonuses in the evidence) were not admitted. In my view, the proof of debt which is Exhibit KNS-4 to Mr Stavreas’ affidavit of 4 February 2010 is comprehensive and placed all relevant information before Mr Stout to enable him to make an informed decision in respect of the proof.
On 27 January 2010, Holding Redlich wrote to Mr Stout subsequent to the rejection of the proof. This letter again articulated in some detail the basis for Mr Stavreas’ claim. It culminated in an offer to settle the matter by dropping the claim for the 2007 and 2008 bonuses, by Mr Stout admitting the claim for payment in lieu of notice and each party bearing its own costs to the date of that letter
On 29 January 2010, Mr Stout emailed Ms Kanis. He indicated that he had had a conference with senior counsel to consider the terms of the letter of 27 January 2010. Mr Stout indicated that the offer in that letter was “totally rejected” but he did not articulate his reasons for doing so.
On 18 February 2010, Holding Redlich wrote to Mr Stout’s solicitors, Browne & Co. That letter yet again articulated in plain terms and in some detail the basis upon which Mr Stavreas’ claim was put. It stated in the final paragraph that if Mr Stavreas was successful he would claim penalty interest on the debt and costs.
On 1 March 2010, Browne and Co wrote to Holding Redlich, stating:
In our view based on materials filed and served in this proceeding your client’s claim is unlikely to succeed. It is unlikely that Mr Stout’s determination will be overturned and his determination will stand.
However, in the interest of avoiding costs, uncertainty and inconvenience of legal proceedings our client is prepared to settle this proceeding on the basis that each party “walk away” and bear their own costs to date.
The letter culminated in a statement that in the event that Mr Stout was successful in opposing the application, costs would be sought on an indemnity basis and made reference to the decision of Calderbank v Calderbank and other authorities in that regard. The letter did not detail why it was considered that Mr Stavreas was unlikely to be successful in his application.
On 3 May 2010, Holding Redlich wrote two letters to Mr Stout’s solicitors. The longer of the two letters observed that Mr Stout had not filed and served any affidavit material and that Holding Redlich considered that its client’s claim was likely to succeed. It stated that Mr Stavreas was prepared to settle the proceeding on the basis that he received $16,667 plus interest plus costs to date and culminated with an indication that the offer was made in accordance with the principles in Calderbank v Calderbank. It stated that the letter would be tendered in support of an application for indemnity costs at the conclusion of the matter if Mr Stavreas succeeded.
Mr Stout led no evidence in opposition to the application and Mr Stavreas was not cross‑examined. Mr Stout was fully informed in the proof of debt and subsequent correspondence as to the basis of Mr Stavreas’ claim and all the relevant documentation to enable him to properly assess the claim was available to him. The correspondence from Mr Stout and his solicitors does not reveal why the apparently strong view was taken that Mr Stavreas had no prospects of success. It appears that he placed much emphasis on the 20 May 2008 letter as establishing the position in regard to Mr Stavreas’ employment. In addition, Mr Stout had indicated through his solicitors that should the claim be unsuccessful, application would be made against Mr Stavreas for indemnity costs.
The approaches taken by Holding Redlich on behalf of Mr Stavreas in their quest to resolve the proceedings was sensible and above reproach. Those approaches were rebuffed and no reasons were provided for doing so, other than a contention that Mr Stavreas’ claim was unlikely to succeed. It was accompanied by a threat that if Mr Stavreas should lose the application, costs would be sought against him on an indemnity basis. Holding Redlich attempted to resolve the matter both before and after the commencement of the application. If the offer in the letter of 27 January had been accepted it would have resulted in the saving of a considerable sum in legal costs on both sides. I consider that Mr Stout has unreasonably rejected the several offers that were made to resolve the proceeding. No good reason has been put forward as to why Mr Stavreas should be out of the pocket for his costs in these circumstances having regard to the considerable lengths that he and his solicitors have gone to to resolve the matter, both before and after the commencement of the proceeding.
I bear in mind in the circumstances the following passage from the decision of the Court of Appeal in Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No. 2)[1] where the Court observed at para 28:
As we said at the outset, the unreasonable refusal of an offer of compromise is, by itself, a proper ground for the award of indemnity costs or – in the present case – the award of solicitor-client costs. It follows that it is not necessary for the applicant for such an order to establish matters which might be relevant to other, well-recognised, grounds for indemnity costs. Once again we would adopt what Redlich J said in OCBC, as follows:
It is not necessary to establish misconduct by the offeree before the rejection of the offer can be viewed as unreasonable. Lack of merit in the way a party has conducted its case is not a prerequisite for the making of an indemnity costs order [on this ground].
Nor is it necessary for the applicant offeror to show that the offeree acted with “wilful disregard of known facts or clearly established law”, or that it acted with “high handed presumption”. We agree with Redlich J that such conduct was not a prerequisite for a finding of the rejection of a Calderbank offer was unreasonable.
[1](2005) 13 VR 435.
On an application of the principles which were collected and considered by White J in Mendarna Pty Ltd (in liq) (No. 2)[2] I consider that Mr Stout should not be ordered to pay the costs personally because he was, at the end of the day, acting bona fide on behalf of all the creditors, but his manner of dealing with Mr Stavreas’ claim very nearly justified such an order. He appears to have paid no heed to the events which occurred after 20 May 2008. I consider that Mr Stavreas should be awarded his costs on an indemnity basis against Mr Stout, with such costs to be part of Mr Stout’s expenses as deed administrator.
[2]61 ASCR 601.
In my view, an award of indemnity costs in favour of Mr Stavreas against Mr Stout is warranted. I will order that the costs should be on that basis from the date of commencement of the proceeding and should be part of Mr Stout’s expenses as deed administrator.
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