Laidlaw Holdings Pty Ltd and Anor v Fieschi and Ors (No.2)

[2016] VCC 1915

IN THE COUNTY COURT OF VICTORIA Revised
Not Restricted
Suitable for publication

AT MELBOURNE

COMMERCIAL DIVISION
EXPEDITED CASES LIST

Case No. CI-14-04456

LAIDLAW HOLDINGS PTY LTD & ANOR	Plaintiffs
v.
JOHN FIESCHI & ORS	Defendants

---

JUDGE:	His Honour Judge Anderson
WHERE HELD:	Melbourne
DATE OF HEARING:	2 & 9 December 2016 (written submissions)
DATE OF JUDGMENT:	14 December 2016
CASE MAY BE CITED AS:	Laidlaw Holdings Pty Ltd & Anor v. Fieschi & Ors (No.2)
MEDIUM NEUTRAL CITATION:	[2016] VCC 1915

REASONS FOR JUDGMENT

---

Catchwords:              Practice and procedure – Interest on judgment – “Demand of payment” – Demand not made by the successful plaintiff – Section 58(1) Supreme Court Act 1986 (Vic) – AJ Lucas Drilling Pty Ltd v McDonnell Dowell Constructions Pty Ltd [2009] VSCA 310 applied.

Practice and procedure – Costs – Offers of compromise – Whether unreasonably rejected – Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No. 2) [2005] VSCA 298 applied.

---

APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr J. Twigg QC and Dr K. Weston-Scheuber of Counsel	Ferdinand Zito & Associates
For the Defendant	Ms P. Neskovcin SC	Kyriacou Lawyers

HIS HONOUR:

1I delivered judgment in this matter on 18 November 2016. I must now decide the issues of interest and costs. The parties have delivered written submissions and have not sought to address oral argument.

2I determined that there should be judgment for Elgar Road Pty Ltd (“Elgar Road”), the second plaintiff, against John Fieschi, the first defendant, in the sum of $300,761. I made no orders in favour of Laidlaw Holdings Pty Ltd (“Laidlaw Holdings”), the first plaintiff, or against the second and third defendants, Accom Developments Pty Ltd (“Accom”) and Gateway Drive Pty Ltd (“Gateway”).

3Dean Laidlaw is the sole director and shareholder of Laidlaw Holdings. He is also the sole director of Elgar Road. Laidlaw Holdings is the sole shareholder of Elgar Road. Mr Fieschi is the sole director and shareholder of Accom and Gateway.

Interest

4Elgar Road claims interest on the judgment sum pursuant to section 58, or alternatively section 60, of the Supreme Court Act 1986 (Vic). The claim under section 58 is made on the basis of a “demand of payment” in respect of a “debt or sum certain” relying upon a letter dated 3 March 2014 from Rigby Cooke Lawyers addressed to Mr Fieschi, Accom and Gateway.

5This claim is opposed on the following bases:

a.Rigby Cooke Lawyers wrote the letter on behalf of Laidlaw Holdings. The letter stated that, “Our client… now demands immediate payment of $261,593.77”;

b.no demand was made on behalf of the successful plaintiff, Elgar Road;

c.Ward v Eyre (1880) 29 LJ Ch 657 is authority for the proposition that, for the purposes of section 58, “the demand must be made by the creditor or his agent”;

d.Elgar Road was not joined as a plaintiff in the proceeding until 22 May 2015.

6In relation to the alternative claim based on section 60, it is submitted on behalf of Mr Fieschi that:

a.Elgar Road was not a party when the writ was issued on 10 September 2014. It only became a party on 22 May 2015. This was the date the proceeding by Elgar Road “commenced”;

b.Elgar Road “has not suffered any detriment that should be compensated for by an award of interest”, as Elgar Road had not paid interest to Laidlaw Holdings on the advances made to it;

c.the original claim was to recover $261,593.77 and the claim was not revised to $300,761 until 30 May 2016. As a consequence, Elgar Road should only receive interest on $261,593.77 from 22 May 2015 to 30 May 2016, and on $300,761 from 31 May 2016 to the date the order is made.

7Further, it was submitted on behalf of Mr Fieschi that “good cause is shown to the contrary” as to why Elgar Road should not be entitled to the interest, or all of the interest, it seeks.

8The responding submissions on behalf of Elgar Road were as follows:

a.in relation to the claim for interest pursuant to section 58:

i.Ward v Eyre is part of a general line of authority, considered and followed by the Court of Appeal in AJ Lucas Drilling Pty Ltd v McConnell Dowell Constructions Pty Ltd [2009] VSCA 310 (“Lucas Drilling”), that “a demand need not be in any particular form, or specify the exact sum due, so long as it contains a distinct demand for payment”;

ii.the identity of Laidlaw Holdings, as the person making the demand, “is not material as”, although the overpayment was made by Elgar Road, Laidlaw Holdings was funding the project and any overpayment was ultimately to its detriment and it was reasonable that Laidlaw Holdings made the demand;

iii.from the context in which the demand was made, it was obvious that the addressees would understand that it related to money overpaid by Elgar Road and that Laidlaw Holdings “was both the funder for the project and held all of the shares in Elgar Road”;

b.in relation to the claim for interest pursuant to section 60:

i.interest accrues from “the date the proceeding commenced”. The proceeding “commenced” on the date the writ was issued, not the date Elgar Road was joined as a party to the proceeding;

ii.the onus is upon Mr Fieschi to establish “good cause to the contrary” by demonstrating that he “has been disadvantaged in some way by the plaintiff’s conduct”, and interest for the whole of the period since the proceeding commenced should not be allowed;

iii.no “disadvantage” has occurred, as the judgment was based upon an overpayment made by mistake.

Interest - conclusions

9Section 58(1) of the Act provides as follows:

“(1) If in a proceeding a debt or sum certain is recovered, the Court must on application, unless good cause is shown to the contrary, allow interest to the creditor on the debt or sum at a rate not exceeding the rate for the time being fixed under section 2 of the Penalty Interest Rates Act 1983 or, in respect of any bill of exchange or promissory note, at 2% per annum more than that rate from the time when the debt or sum was payable (if payable by virtue of some written instrument and at a date or time certain) or, if payable otherwise, then from the time when demand of payment was made”.

10Justice Kirby said in Victorian WorkCover Authority v Esso Australia Limited [2001] HCA 53; (2001) 207 CLR 520 at 546, that section 58, as well as section 59 and 60 of the Act, have “the beneficial purpose of providing … for the award of interest to compensate parties who have been obliged to take ‘proceedings’ to recover a money sum and who in the meantime have been kept out of moneys which they could otherwise have used or upon which they could otherwise have earned interest”.

11The Court of Appeal in Lucas Drilling said at paragraph 171 that, according to Kirby J’s reasoning, “section 58 of the Supreme Court Act should not be given a narrow meaning. Section 58 has the same beneficial purpose as section 60 and should be given a similarly broad application”.

12Accordingly, having satisfied the requirements of section 58 by having “recovered” a “debt or sum certain” in the proceeding, the plaintiff should be entitled to interest under the Penalty Interest Rates Act 1983 “from the time when demand of payment was made”.

13As I said in “Dumayne Property Group Pty Ltd v Balanced Securities Ltd (No.2) [2016] VCC 1439, the Court of Appeal in Lucas Drilling considered the meaning of the words “demand of payment” in the section. The statements made or approved by the Court of Appeal included that:

a.a demand of payment “need not be in any particular form”;

b.a demand need not “specify the exact sum due”;

c.a demand must contain “a distinct demand of payment”;

d.“the word ‘demand’ need not be used”;

e.a demand may be “clothed in the language of politeness”;

f.“the nature of the language is immaterial”;

g.The demand “must be of a preemptory character and unconditional”;

h.The “constitution of a demand may vary according to the circumstances of the particular case”.

14The present case concerned an informal arrangement between two friends. Both were experienced businessmen and conducted their business activities through corporations which they controlled. The claim concerned payments made to two companies at Mr Fieschi’s direction. It was of no concern to Elgar Road, or indeed Mr Laidlaw, to whom Mr Fieschi’s share of the profit from the development was paid. In fact, the final payment was originally invoiced in Accom’s name and was later reissued by Mr Fieschi in the name of Gateway. It was for this reason I considered that judgment should be entered against Mr Fieschi personally.

15Similarly, Elgar Road was simply a vehicle employed by Mr Laidlaw for the particular project and all expenses incurred in regard to the development, for the purchase of the property and the costs of construction, were advanced by Laidlaw Holdings.

16In these circumstances, so far as Mr Fieschi was concerned, it would have been fortuitous that the payments (which were found to be overpaid) had been made by Elgar Road. The development was to be a joint venture between Laidlaw Holdings, as Mr Laidlaw’s nominee of the one part, and a company nominated by Mr Fieschi.

17Mr Fieschi failed to nominate a specific company as the joint venturer. Later in the project, he agreed to take his share of the profit from the development by invoicing Elgar Road for project management fees. Three invoices were submitted by and paid to Accom and three to Gateway.

18I consider, therefore, that the fact the demand for interest was made on behalf of Laidlaw Holdings prior to the issue of proceedings, and the judgment is to be entered on behalf of Elgar Road, should not disentitle Elgar Road to interest pursuant to section 58 of the Act.

19Section 58 is to be given a “beneficial” construction. The section does not state that the “demand of payment” must be made by the “creditor”. It is clear that “creditor” must be given a broader meaning than in the usual “debtor/creditor” context. The section refers to allowing interest “to the creditor on the debt or sum”.

20In the present case, the repayment of the overpayment is an order in the nature of restitution. The “sum” ordered to be paid is a “sum certain” because “it has become certain”, as section 58(3) permits.

21In my view, Elgar Road should recover interest on the whole of the judgment sum in line with the authorities, although this sum is more than the amount referred to in the letter of demand. The sum referred to in the letter of demand was the amount then thought to be due. Following the statement of opinion expressed in the joint report by the parties’ experts as to the actual profit of the development, the plaintiffs sought to revise the amount of the claim in light of those views.

22There is also no basis for reducing the period in respect of which interest should be paid. No “good cause” has been “shown to the contrary” and the penalty interest rate is less than the 20% per annum which was the agreed rate to be paid on the development expenses in calculating Mr Fieschi’s share of the profit.

23Whilst there is no need to consider the application under section 60, if there had been, I would have allowed interest to Elgar Road, from the date it became a party to the proceeding, on the full amount of the judgment sum.

Costs

24Costs are sought on behalf of Elgar Road on an indemnity basis. Reliance is placed on:

a.a “Calderbank” offer made on 15 April 2014 to accept the sum of $210,000, inclusive of “interest / damages and costs”;

b.alternatively, a “Calderbank” offer made on 1 October 2016 to accept the sum of $300,000 plus costs on a standard basis.

It is submitted that Mr Fieschi’s refusal to accept each of these offers was unreasonable.

25On behalf of Mr Fieschi, it is submitted that for the following reasons, costs should be ordered to be paid on a standard basis:

a.the first offer indicated that Mr Laidlaw had instructed his solicitors the sum “he would accept in full settlement of his claim” (emphasis added). The letter refers to Laidlaw Holdings, presumably as the proposed plaintiff. It does not refer to Elgar Road;

b.the second offer appears to be written on behalf of both Laidlaw Holdings and Elgar Road, as the solicitors’ “clients”. Laidlaw Holdings was not, however, “successful in the proceeding”;

c.the “reasons for judgment were not more favourable to the plaintiffs than the terms of the plaintiff’s offers”. This was said to arise as a result of the order I proposed requiring the parties’ solicitors to notify the parties’ tax accountants of the result of the proceeding so that they could “properly advise their clients of their taxation obligations”. It was submitted that, as a consequence, the offers could not be compared with the judgment sum, because the taxation consequences would need to be taken into account.

Costs - conclusions

26In Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No.2) [2005] VSCA 298 (“Hazeldene”), the Court of Appeal said at paragraphs [21] to [23] that, “The critical question is whether the rejection of the offer was unreasonable in the circumstances”. The application of the “test of (un)reasonableness”, and the “general rule that an order for special costs should only be made in special circumstances”, accommodate the competing policy considerations, namely,

a.on the one hand, the “saving of private costs and the avoidance of the inherent risks, relays and uncertainties of litigation”, the saving of “public costs” of “unnecessary litigation” and the appropriate indemnification of a plaintiff who has made a “reasonable offer of compromise”; and

b.on the other hand, the desirability of not discouraging potential litigants “from bringing their dispute to the courts”.

27In Hazeldene, the Court of Appeal at paragraphs [24] and [25] said that “deciding whether conduct is ‘reasonable’ or ‘unreasonable’ will always involve matters of judgment and impression”. Without attempting to be exhaustive, the Court listed a number of matters to which regard should ordinarily be had in “considering a submission that the rejection of a Calderbank offer was unreasonable”.

28In my view, the taxation obligations of the parties as a result of the judgment are not relevant. I proposed the order requiring the parties’ accountants to be informed on the Court’s decision to meet a submission made by defendant’s counsel, Ms Neskovcin. She submitted at the trial that the plaintiffs may have a “windfall” if they were to succeed in the proceeding, because the calculation of Mr Fieschi’s share of the profit from the development after allowing interest at the rate of 20% per annum, was not reflected by payments or receipts in the financial records of either Laidlaw Holdings or Elgar Road.

29Often, litigants who receive awards of damages which may be in the nature of income, are required to appropriately declare that income for taxation purposes. It cannot be suggested that this makes it impossible for an offer of compromise to be made, without taking account of the taxation consequences.

30In the present case, there is no difficulty assessing the judgment sum with the sums which the plaintiffs in each instance offered to accept, even though one offer was inclusive of interest and, in the other, costs were added to the offered sum.

31The first offer was made on 15 April 2014 prior to the issue of the proceeding on 10 September 2014. The letter discussed the principal issues ultimately determined at trial; the calculation of the profit and whether interest at the rate of 20% per annum was to be taken into account.

32The offer threatened that if “no reasonable response to this letter be received by me within seven (7) days this offer will lapse” and court proceedings would be initiated. The offer required payment of the sum of $210,000 within 14 days “or such other time upon such terms as Dean [Laidlaw] and you might agree”.

33The sum offered to be acceptable; $210,000 including “interest / damages costs”, involved a discount of about 20%, as the costs and interest at that stage were minimal. The offer foreshadowed that if proceedings were issued, and it became “appropriate and/or necessary”, the offer “may be tendered to the Court on the question of costs”.

34On balance, it is my view that a consideration of the following matters make it difficult to conclude that Mr Fieschi was acting unreasonably in rejecting the offer:

a.the offer sum involved a fairly small discount;

b.the offer was made early in the dispute. There was some understanding of the issues and the parties had already been through alternative dispute resolution processes. However, the parties’ understanding of the issues in the case was likely to have been limited;

c.the time for receipt of a response to the offer before it lapsed was, in the context of when the offer was made, fairly short and was likely not to have given adequate time for consideration, particularly as the letter was sent to Mr Fieschi and his companies directly and some time would have been required for them to instruct lawyers in order to be properly advised;

d.the offer sum was to be paid within 14 days, although this time might be extended by further agreement;

e.the payment was, presumably, to be received by the solicitors on behalf of Laidlaw Holdings, not Elgar Road;

f.the offer did not foreshadow an application for indemnity costs;

g.the issues in the dispute were complex. It involved an arrangement in which matters were discussed between friends in conversations and by emails written informally and in “shorthand” form. The monies were claimed as restitutory relief the Court would be asked to grant on the basis of a “mistake”, of probably mixed fact and law.

35The second offer was made by letter dated 16 September 2016. The features of this offer were:

a.it was made about 5 weeks before the commencement of the trial on 24 October 2016;

b.the defendants had 14 days to accept the offer;

c.the offer sought virtually the whole of the revised sum of $300,761 which the experts had agreed was Mr Fieschi’s “profit entitlement”, together with costs on a standard basis. The plaintiffs “waived” interest from the date of demand. Even on the originally claimed amount of $261,593.77, by 16 September 2016, penalty interest would have been $67,618.42;

d.the defendants’ prospects of success were probably as clear then as they would be at trial. The interlocutory argument which had led to the joinder of Elgar Road as a plaintiff and the statement of claim being amended had been resolved in May 2015;

e.the offer was clear in its terms, although it did not say that indemnity costs would be sought if the offer were not accepted.

36In the circumstances, and in the view of the determination I have made, I consider that Mr Fieschi acted unreasonably by failing to accept the offer.

37Further, although the judgment is only in favour of the second plaintiff, I consider that the costs order should be in favour of both plaintiffs and should include the costs from the date the writ was issued. Any existing costs orders in the defendants’ favour will be set off against the costs order.

Orders

38Accordingly, I propose to make the following orders:

1. Judgment for the second plaintiff against the first defendant that the first defendant pay to the second plaintiff the sum of $300,761 together with interest pursuant to statute from 3 March 2014 to 14 December 2016 of $84,690.52, total judgment $385,451.52.

2.When the proceeding is concluded, including any appeal process, the parties’ solicitors must provide a copy of these reasons for judgment and the final orders to the parties’ tax accountants together with a letter explaining that the Court required this to be done to ensure that the accountants were made aware of the result of the proceeding and could properly advise their clients on their taxation obligations. The solicitors must comply with this direction not more than 7 days after the making of final orders in the proceeding and must file an affidavit deposing to their compliance with these directions not more than 14 days after the making of final orders. 

3.The first defendant must pay the plaintiffs’ costs of the proceeding, including any reserved costs, to be assessed by the Costs Court in default of agreement:

a.from the issue of the proceeding to 30 September 2016, on a standard                 basis;

b.after 1 October 2016, on an indemnity basis.

4.Any existing orders for costs made in the proceeding in favour of the defendants shall be set off against the order for costs made in paragraph 3 hereof.

5.Stay execution on the judgment and the costs orders until 27 January 2017, or further order. Reserve liberty to the defendants to apply for an extension of the stay, if the appeal process has been initiated, and until any application for a stay of execution might be heard by the Court of Appeal in the normal course of its business.

- - -

Certificate

I certify that the preceding 9 pages are a true copy of the reasons for decision of His Honour Judge Anderson delivered on 14 December 2016.

Dated:       14 December 2016

Carla Cianfaglione 

Associate to His Honour Judge Anderson