LDY Pty Ltd v GE & L International Investment Pty Ltd (No 6)
[2024] VSC 810
•20 December 2024
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
S ECI 2020 00793
| LDY PTY LTD (ACN 629 727 224) & ANOR (according to the Schedule) | Plaintiffs |
| v | |
| GE & L INTERNATIONAL INVESTMENT PTY LTD (ACN 139 294 590) & ORS (according to the Schedule) | Defendants |
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JUDGE: | COSGRAVE J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | On the papers |
DATE OF JUDGMENT: | 20 December 2024 |
CASE MAY BE CITED AS: | LDY Pty Ltd & Anor v GE & L International Investment Pty Ltd & Ors (No 6) |
MEDIUM NEUTRAL CITATION: | [2024] VSC 810 |
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COSTS — Court has broad discretion — Pragmatic approach where parties enjoyed mixed success at trial — Plaintiffs exaggerate success — Calderbank offer — Refusal not unreasonable — Plaintiffs to pay defendants’ costs on a standard basis — BHP Billiton Olympic Dam Corporation Pty Ltd v Steuler Industriewerke GmbH (No 3) [2012] VSC 414; Chen v Chan [2009] VSCA 233.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr M Clarke KC Ms V Plain | MGA Lawyers |
| For the Defendants | Mr P Noonan | Waterson Legal |
HIS HONOUR:
Introduction
I handed down my reasons for judgment in this matter on 1 November 2024 (“the principal reasons”).[1] In that judgment I gave directions requiring the parties to file submissions about the form of final order and the question of costs. Due to a substantial disagreement in the submissions subsequently made between the Lydia parties and the Genie parties about the appropriate orders to give effect to the principal reasons, I conducted another hearing and then delivered another judgment which addressed the orders to be made (“the supplementary reasons”).[2] Having clarified this issue, I again gave directions for the filing of submissions about the costs of the proceeding. These directions included both this proceeding and proceeding S ECI 2021 00383 (“the B8 proceeding”) in which B8 Group Pty Ltd (“B8”) is the plaintiff and the defendants are GE & L, LDY, Lydia and Genie. The parties in both proceedings filed submissions. Because the submissions raised issues which I considered that one or more parties may not have contemplated but would have wanted to respond to, I made further directions granting the parties in both proceedings the ability to file reply submissions. B8 and the Lydia parties advised the Court that they did not wish to file any further submissions. The Genie parties were the only ones to file additional submissions.
[1]LDY Pty Ltd v GE & L International Investment Pty Ltd & Ors (No. 4) [2024] VSC 677. This judgment uses the same abbreviations and terminology as the principal reasons and supplementary reasons.
[2]LDY Pty Ltd v GE & L International Investment Pty Ltd & Ors(No. 5) [2024] VSC 738.
In the present proceeding, the Lydia parties contend that the parties should each bear their own costs of the proceeding. The rationale for such an order is that each of Lydia and Genie enjoyed success in the proceeding and it is appropriate that the costs order should recognise this outcome.
The Genie parties seek an order for costs in their favour. They rely upon a Calderbank offer dated 19 April 2023 to contend that Lydia should pay the costs of the proceeding on a standard basis until the date of the offer, and thereafter on an indemnity basis.
I will address first the question of whether the parties should bear their own costs and then whether Lydia should pay some costs on an indemnity basis.
The Incidence of Costs
Legal Principles
The Court enjoys a broad discretion on the issue of costs. The discretion must be exercised judicially and not capriciously. Perhaps the only immutable rule about costs is that there are no immutable rules. However, there is a general principle that, subject to limited exceptions, a successful litigant is entitled to an award of costs in their favour. In the absence of disqualifying conduct, costs generally follow the event. The successful party usually recovers its costs even if it does not succeed on all heads of claim or defence (as the case may be). This principle is grounded in reasons of fairness and policy and operates whether the plaintiff or defendant is successful. The main aim of a costs order is to indemnify the successful party and not to punish the unsuccessful party. If the litigation had not been brought or defended by the unsuccessful party, then the successful party would not have incurred the needless expense which it did. In this context, considerations of fairness usually dictate that the unsuccessful party should be responsible for the costs of the other party.[3]
[3]Latoudis v Casey (1990) 170 CLR 534 at 566–7; Oshlack v Richmond River Council (1998) 193 CLR 72 at [67]; Bell Lawyers Pty Ltd v Pentelow (2019) 269 CLR 333 at [33].
Where opposing parties have each enjoyed success at trial, some general principles have developed:
(a) because the Court’s discretion is broad and flexible regarding costs, the Court can examine the realities of the case and strive to do substantial justice between the parties;
(b) where there are multiple issues and the parties enjoy mixed success, the Court can take a pragmatic approach on costs and consider the success enjoyed on an issues basis. Generally, if such an order is made, the successful party will recover a proportion of its costs; and
(c) if the Court decides to make an order apportioning costs, it does so primarily as a matter of impression and evaluation rather than with arithmetical precision. The Court can, for example, consider the importance of the issues on which a party was successful, the time occupied with issues, the submissions made about them and any other relevant matter.[4]
[4]Chen v Chan [2009] VSCA 233 at [10].
Lydia Parties’ Submissions
The Lydia parties contended that they enjoyed success because:
(a) while Genie disputed part of the notice to admit, Lydia succeeded on a significant issue; and
(b) the Court made factual findings in favour of Lydia which entitle her to receive payment from Genie.
Lydia argued that the plaintiffs’ notice to admit dated 26 August 2021 said that Lydia was entitled to the proceeds of sale of the Armadale property because she provided funding for the acquisition and development of the Armadale property through the Bankwest account and GEY Pty Ltd contributed $661,684 on her behalf, or alternatively, due to a loan agreement alleged by the defendants in paragraph 39 of the defence to the further amended statement of claim dated 21 September 2020. By paragraph 1 of the defendants’ notice of dispute dated 10 September 2021, the Genie parties disputed this allegation. But, Lydia says, the proceeds of sale have been paid into court. And Genie later consented to an order made on Lydia’s application that she receive $661,684 from the funds held in court. Justice Delany made this order on 17 June 2022.
The three factual findings Lydia relied upon were as follows:
(a) Lydia agreed to lend funds to Genie on an interest-free basis that would be repaid upon completion of the Armadale project;[5]
(b) the Radnor Street property was purchased on the basis of Lydia having a 60% interest and Genie having a 40% interest. Any capital gains tax paid by Lydia greater than her proportionate share should be returned to her;[6] and
(c) $163,564.46 worth of disputed transactions in the Bankwest account were resolved in favour of Lydia.[7]
[5]The principal reasons at [467]. The Armadale project is complete: see the supplementary reasons at [38].
[6]The principal reasons at [288].
[7]The plaintiffs referred to the principal reasons at [268], [286], [298], [302], [303], [313], [318], [326]–[328], [354], [382]–[384]. I note that this figure does not seem to align precisely with the paragraphs referred to by the plaintiffs.
Further, Lydia pointed to Genie’s further and better particulars filed 5 July 2021 which acknowledged a debt owed to Lydia of approximately $1.233 million.
Analysis
As I referred to in the supplementary reasons, the major point of Lydia’s case at trial was that GE & L undertook the purchase and development of the Armadale property as trustee of Lydia’s family trust. Hence, Lydia said that any financial benefit flowing from that work was, in substance, hers. Alternatively, Lydia said that she contributed her own funds to the project so that GE & L held the funds upon a resulting trust for her.
For the reasons set out in the principal reasons and the supplementary reasons, I rejected these propositions and found against Lydia.
I also noted that it was Genie, not Lydia, who pleaded the loan agreement made between the sisters in June 2015. Under this agreement, Genie said Lydia advanced an interest-free loan to her to assist in the purchase of the Armadale property. Genie was to repay the loan after the conclusion of the Armadale project. Genie conducted the trial on the basis that she borrowed money from Lydia and she intended to repay those funds. Genie’s plea in her further and better particulars that she owed money to Lydia was entirely consistent with the case which she ran. This scenario was not one in which the plaintiffs alleged that they had lent money to Genie and the prayer for relief claimed the money as a debt. That was simply not the case which the plaintiffs ran.
Whilst I did find that Genie had a 40% interest in the Radnor Street property and that, accordingly, she needed to pay 40% of the capital gains tax levied on the sale of that property, that finding was made in response to Lydia’s claim that she alone had the full beneficial ownership of that property. My finding as to the ownership of the property was contrary to the case which Lydia ran.
In the circumstances, I consider that Lydia exaggerates her position when she says the she enjoyed success at the trial. To the extent that I made findings about the loan from Lydia to Genie and the ownership of the Radnor Street property, they were findings sought by Genie, not Lydia. Lydia argued that:
(a) GE & L acted as trustees;
(b) alternatively, GE & L held funds on resulting trust for Lydia; and
(c) the Court should assume that it was more likely than not that the Bankwest contributions belong to Lydia unless shown otherwise.
None of those arguments was accepted. Contrary to Lydia’s position, I rejected her primary submissions and found in favour of Genie. Although it is true that, subject to these costs orders, Lydia will probably receive money as a result of my findings, it will be substantially less than she sought and, largely, on a different basis from that upon which she claimed.
Lydia claimed that:
(a) GE & L acted as trustee of her family trust or alternatively held funds for her on resulting trust;
(b) she owned 100% of the Radnor Street property; and
(c) the Court should assume that it was more likely than not that the contributions to the Bankwest account belonged to Lydia unless shown otherwise.
Genie fought the case which Lydia propounded and succeeded in establishing that GE & L acted in its own right and not as trustee, Genie had a 40% interest in the Radnor Street property and Genie contributed substantial deposits to the Bankwest account — at least $1.1 million.[8]
[8]This was in addition to the contributions which Meredith found in Genie’s favour.
In my opinion, there should be no reduction in the measure of costs awarded to Genie. Any alleged success which Lydia claimed was more apparent than real as Lydia failed to prove the major elements of her case.
The Calderbank Letter
I turn now to the submission made by the Genie parties that, by reason of the Calderbank offer made to Lydia, they should recover their costs on a standard basis up until the date of the letter and thereafter, on an indemnity basis.
Legal Principles
In deciding whether a party is entitled to costs taxed on an indemnity basis due to the rejection of a Calderbank offer, Habersberger J set out the relevant legal principles in BHP Billiton Olympic Dam Corporation Pty Ltd v Steuler Industriewerke GmbH (No 3)[9] as follows:
[9][2012] VSC 414 at [59]–[67].
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.
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.
Thirdly, the critical question is whether the rejection of the offer was unreasonable in the circumstances. As the Court of Appeal said in [Hazeldene’s Chicken Farm Pty Ltd v Victorian Workcover Authority (No 2) (2005) 13 VR 435 at [23]]:
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.
Fourthly, a court considering submissions that the rejection of a Calderbank offer was unreasonable should ordinarily have regard at least to the following matters:
(a)the stage of the proceeding at which the offer was received;
(b)the time allowed for the offeree to consider the offer;
(c)the extent of the compromise offered;
(d)the offeree’s prospects of success, assessed as at the date of the offer;
(e)the clarity with which the terms of the offer were expressed; and
(f)whether the offer foreshadowed an application for indemnity costs in the event of the offeree rejecting it.
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, 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 [[2002] NSWSC 350 at [48]]:
These submissions focus the bright light of hindsight. Hindsight sings a siren song of which Judges must be cautious ...
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.
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.
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.
Ninthly, an “all in” offer is permitted in a Calderbank offer.
Analysis
Genie made her Calderbank offer by letter dated 19 April 2023. The letter summarised parts of the history of the proceeding. It observed that the parties had filed all witness statements in this proceeding and the B8 proceeding and had exchanged discoverable documents. The letter referred to court-ordered payments made to B8 from profits derived from the Armadale project and other payments to both Lydia and Genie. The letter referred to parts of the evidence filed and asserted the belief that Genie’s claim was very strong and supported by documents. Nevertheless, the letter said that Genie was willing to compromise the proceeding and to treat the use of Lydia’s funds in the Armadale project as reflecting an investment by her which gave her a percentage of the profit.
The letter also referred to the fact that, to date, there were five interlocutory cost orders in favour of Genie against Lydia. It estimated that if taxed, these costs orders would total $250,000 to $300,000.
The letter put the Calderbank offer on the following terms:
1.All witness statements in the two proceedings have now been filed and served and the parties have exchanged discoverable documents. For the purpose of this offer, our client and her related entities will be referred to as “Genie”, and your client and her related entities will be referred to as “Lydia”. B8 Pty Ltd, Stefan and Dragan and their related entities will be referred to as “B8”.
2.We note that on 13 May 2022 and 8 August 2022, the Court ordered payment to B8 of funds in the sum of $265,532 and $169,530 respectively out of the profits of the Armadale Project, in reimbursement of B8’s contribution to the Armadale Project, while reserving Lydia’s right to allege it was a loan.
3.On 17 June 2022, the Court ordered by way of summary judgement, payment of $477,030.61 to Genie, and by consent $661,684 to Lydia, in reimbursement of their contribution to the Armadale Project outside Bank West Account.
4.The remaining dispute is as to which part of the funds used in the Armadale Project from the Bank West Account was Genie’s and which was Lydia’s, as it is common ground that the funds in the Bank West Account were intermingled. A separate dispute is whether Lydia’s funds used were a loan to Genie or an investment entitling Lydia to a share in the profit of the Armadale Project.
5.As explained in detail in our client’s evidence, Lydia was not interested in participating in the Armadale Project and agreed for Genie to use her funds for the project as a loan. However, for the purpose of this offer only, our client is willing to treat the use of Lydia’s funds in the Armadale Project as reflecting an investment by Lydia in the Armadale Project, and as such, entitling her to the respective percentage in the profit. This is already a significant concession by Genie, for the purposes of this offer.
6.As detailed in our client’s further and better particulars dated 5 July 2021, and as supported in her evidence, our client claims to have contributed about 55% of the funds to the project (after accounting for part repayment to Lydia), Lydia contributed 30% and B8 contributed 15%. When filing her evidence, Genie realised that five payments of $10,465.28 described as Lydia’s “salary” were in fact payments made by Genie. Accordingly, when adjusting these figures Genie’s contribution increases to just over 56% and Lydia’s reduced to 29%.
7.Based on the CFAS report dated 22 March 2022, the net profit of the project before tax was $1,869,270. This report relied on valuations for apartment 5&6. Based on the actual sale of apartment 6 for $1,080,000 and the anticipated similar sale of apartment 5, the proceeds of sale should be about $600,000 less; so the net profit of the project before tax should be about $1,270,000, and the net profit after tax should be about $950,000.
8.Other than profit distribution, Genie and Lydia still have to be reimbursed the balance of their contribution, as B8 has been paid its contribution. Deducting the amounts already paid pursuant to orders, Genie is entitled to be reimbursed a further $1,829,653.68 and Lydia a further $529,241.80.
9.Adding a corresponding percentage of net profit after tax (out of $950,000) for each party: 15% B8 = $142,500, 56% Genie = $532,000 and 29% Lydia = $275,500, the total still to be paid to Genie and Lydia for both reimbursement and profit, would be:
• Genie - $2,361,654
• Lydia - $807,742
10.After reviewing the evidence closely, we consider Genie’s claim to be very strong and supported by documents and are of the view that Genie will be successful in proving most of her contributions, if not all.
11.We further note that to date there are 5 interlocutory cost orders in favour of Genie against Lydia, and that Genie’s total costs in the proceedings to date, if these were to be taxed, would be approximately $250,000-$300,000. The further estimated costs of the trial would be about $200,000.
Offer
12.Lydia and Genie have been to several unsuccessful mediation in the last few years. However, Genie is willing, in a gesture of good faith, to make a significant concession one last time, in an attempt to bring this dispute to an end once and for all, and hopefully restore some normality in the family dynamic.
13.We are instructed to make an offer as follows, in full and final settlement of all claims by Lydia against Genie, and by Genie against Lydia, arising out of or in any way connected with the two proceedings. That out of the total funds, including reimbursement and net profit after tax:
(a)Genie is paid a further $1,500,000 inclusive of all costs and interest;
(b)Lydia is paid the balance, less any profit entitlement of B8. Assuming B8 will receive 15% of net profit after tax of approximately $142,500, Lydia should receive about $1,670,000;
(c)as apartment 5 is on the market for sale but has not sold yet, in order to avoid further litigation, the parties should agree to nominate the reserve price at a minimum of $1,080,000 and before any distribution is made, to make sure there are sufficient funds to pay all outstanding tax liabilities of GE&L; and
(d)GE&L International Investment Pty Ltd’s current registration shall remain (under Genie’s sole control and ownership).
14.This offer is to resolve the dispute between Genie and Lydia. As you are aware, Genie does not deny B8’s entitlement to their 15% share of profit. It is up to Lydia as to whether she chooses to continue to defend B8 proceeding. If Lydia proceeds with her defence and the two proceedings are not settled simultaneously, Genie will require Lydia to provide Genie a release and indemnity against any costs which Genie may incur by way of orders against her or her related entities, in the B8 proceeding.
15.For the sake of completeness, this offer is copied on B8’s solicitors as well, as it includes reference to B8’s alleged share.
16.This offer is open for acceptance for 14 days of the date of this letter. In the event the offer is rejected and our client is forced to proceed in this litigation, our client intends to rely on this offer in order to seek a cost order against your clients on an indemnity basis and/or in accordance with both the rules and the principles enunciated in Calderbank v Calderbank [1975] 3 WLR 586, Cutts v Head [1984] CH 290, Mutual Community Limited v Lorden Holdings Pty Ltd and as set out by Gillard J in M T Associates Pty Ltd v Aqua-Max Pty Ltd & Anor.
Genie made the offer at a time when the bulk of the evidence had been filed. The parties had filed witness statements and given discovery even though other additional discovery was given subsequently. As a result, the parties should have had a sound basis upon which to assess the merits of the pleaded cases and the evidence which supported them. It was not a situation in which the offer was made shortly after the plaintiffs issued the writ and the parties could not make an accurate assessment of the main issues in the case and the evidence to be relied upon.
The offer allowed a period of 14 days for acceptance. This is a reasonable period and allowed Lydia a fair opportunity to consider the offer.
The gist of the offer was to pay Lydia, from the total funds held (including reimbursement and nett profit after tax), whatever amount was left after:
(a) Genie received $1.5 million (inclusive of costs and interest); and
(b) B8 received 15% of the nett profit after tax from the Armadale project.
Genie estimated that Lydia would receive about $1.670 million, assuming B8 received about $142,500 as its profit share.
As to the B8 proceedings, Genie did not deny B8’s entitlement to a 15% share of the nett profit. Genie said that if Lydia proceeded with her defence in the B8 proceeding and the two proceedings did not settle at the same time, then Genie wanted Lydia to give her a release and indemnity in relation to any costs which she might incur through orders made against her or entities related to her in the B8 proceeding.
In my view, Genie’s offer was a genuine compromise because it treated Lydia as entitled to a profit share in the Armadale project and diminished the amount which Genie might otherwise have expected to receive from the project.
At the time of the offer, there were some difficulties in trying to assess Lydia’s prospects of success and, therefore, the attractiveness of the offer. Parts of the documentary evidence supported aspects of Genie’s case. But the oral evidence at trial had an important bearing on various issues. How the Court would assess that evidence could not be known without a trial.
I have some concerns about the clarity of the offer. Paragraphs 12 to 16 of the Calderbank offer (set out above) appear under the heading “Offer”. However, there is no explicit reference in that section of the letter to the earlier paragraph 11 which referred to the five interlocutory costs orders in Genie’s favour. The reference in paragraph 13(a) to “inclusive of all costs” suggested that these orders would be subsumed into the $1.5 million which Genie was to receive. The timing of the payment was also unclear. Also, the offer made no express reference to the loan funds which Genie said she borrowed from Lydia and their repayment. Further, it was not obvious what would happen if there were a problem selling unit 5. In my opinion, these aspects of the offer introduced some uncertainty into its scope and operation.
Further, in assessing Lydia’s response to the offer, the Court needs to compare Lydia’s financial prospects at the time with the terms of the offer. The accounting exercise required to ascertain what proportion of the funds in the Bank West account belonged to each of Lydia and Genie at any given time is a complicated exercise. However, the Bank West account was used by both Genie and Lydia for a whole range of transactions with only some of those relevant to Armadale. Accordingly, Lydia’s entitlement could only be calculated by a progressive calculation of the effect of each deposit and withdrawal on what proportion of the funds belonged to which sister at any given time. Due to the complexity in calculating the relevant amounts, I do not regard Lydia’s rejection of the offer as unreasonable. It was not readily apparent from the offer how much better off the Lydia parties would have been by accepting the offer.
The offer plainly foreshadows the possibility of an application for indemnity costs if Lydia rejects the offer and the terms of the offer are more favourable than the judgment.
In the circumstances, I am not satisfied that Lydia’s refusal to accept the offer was unreasonable for the purposes of making an order for indemnity costs against her. Unfortunately, Lydia’s submissions failed to address the topic. But where Genie had the onus to demonstrate the unreasonableness of refusing the offer, I do not consider that she has discharged that burden. While in several respects, the offer was an appropriate compromise, the detail of the offer and its operation was not as clear as it might have been. The element of uncertainty or confusion, for example, what would happen if there was a problem selling unit 5 or the calculation of the Bankwest entitlements was such that Lydia’s rejection of the offer was not so unreasonable as to warrant a special order for costs.
Conclusion
For the reasons set out, I consider that the Lydia parties should pay the Genie parties’ costs of this proceeding, including reserved costs, such costs to be taxed on a standard basis in default of agreement.
SCHEDULE OF PARTIES
| LDY PTY LTD (ACN 629 727 224) | First plaintiff |
| LIANGDI GE | Second plaintiff |
| - and - | |
| GE & L INTERNATIONAL INVESTMENT PTY LTD (ACN 139 294 590) | First defendant |
| LIANGYAN GE | Second defendant |
| GECW INTERNATIONAL PTY LTD (ACN 140 282 613) | Third defendant |
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