Li v Mikkelsen
[2022] VCC 26
•24 January 2022
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
Case No. CI-20-00733
| Li & Anor | Plaintiffs |
| v | |
| Mikkelsen & Anor | Defendants |
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JUDGE: | Her Honour Judge Burchell | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | Written submissions dated 22 December 2021, 19 January 2022 and 21 January 2022 | |
DATE OF RULING: | 24 January 2022 | |
CASE MAY BE CITED AS: | Li & Anor v Mikkelsen & Anor | |
MEDIUM NEUTRAL CITATION: | [2022] VCC 26 | |
RULING
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Subject:COSTS – INDEMNITY COSTS – OFFER OF COMPROMISE
Catchwords: whether costs should be awarded on an indemnity basis – offer of compromise – appropriate costs order following judgment – separate costs orders for applications made during and post trial
Legislation Cited: Supreme Court Act 1986 (Vic); Penalty Interest Rates Act 1983 (Vic) s2; Civil Procedure Act 2010 (Vic) s56; County Court Civil Procedure Rules 2018 r26.08 and r29.12.1
Cases Cited:Stevens v Spotless Management Services Pty Ltd (No 2) [2016] VSCA 311 – PCCEF Pty Ltd v Geelong Football Club Ltd (No 3) [2019] VSCA 191
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr P Caillard | Accuro Maxwell (Melbourne) |
| For the Defendants | Mr D Connors | VMC Legal Pty Ltd |
HER HONOUR:
Introduction
1On 14 December 2021, the Court gave judgment for the first plaintiff in the proceeding in the sum of $59,500.00, and for the second plaintiff in the amount of $476,000.00, together with interest pursuant to the Penalty Interest Rates Act 1983 (Vic).[1] The parties were invited to provide submissions as to costs and interest and the issues were to be determined on the papers.
[1] Li & Anor v Mikkelsen & Anor [2021] VCC 2027 at [8].
2The plaintiffs submit that pursuant to r26.08(2)(b) of the County Court Civil Procedure Rules 2018 (“the Rules”), the defendants should pay the plaintiffs’ costs of and incidental to the proceeding, including any reserved costs, to be taxed in default of agreement on the standard basis up to and including 20 May 2021, being the second business day following service of the Offer of Compromise; and on an indemnity basis thereafter.
3The defendants submit that costs should be awarded in favour of the plaintiffs on a standard basis, not on an indemnity basis, seek a costs order in their favour in relation to the plaintiffs’ application to strike out their defence for failure to discover material documents and submit that the applicable interest rate should be reduced to 5% per annum due to COVID delays.
Legal Framework
4Pursuant to r26.08 of the Rules, where an offer of compromise is not accepted and a judgment is delivered that is no less favourable than the offer, then the plaintiff is entitled to costs on an indemnity basis.
Plaintiffs’ Submissions
5The plaintiffs submit that the judgment obtained is no less favourable for the defendants than the terms of an Offer of Compromise dated 18 May 2021 made pursuant to Order 26 of the County Court Civil Procedure Rules 2018 (“the Rules”) in which the plaintiffs offered to accept $500,000.00.
6The plaintiffs state that the defendants’ failure to accept the Offer of Compromise led to the plaintiffs incurring unnecessary expense, including the conduct of the trial.
7On this basis, the plaintiffs submit that pursuant to r26.08(2)(b), the defendants should pay the plaintiffs’ costs of and incidental to the proceeding, including any reserved costs, to be taxed in default of agreement on the standard basis up to and including 20 May 2021, being the second business day following service of the Offer of Compromise; and on an indemnity basis thereafter.
Defendants’ Submissions
8The defendants submit that r26.08 of the Rules should not be applied in this case as the Offer of Compromise made by the plaintiffs to settle was not a genuine offer to compromise the proceedings that were determined by the Court. The plaintiffs’ Offer of Compromise was made on 18 May 2021. The plaintiffs substantially amended their Statement of Claim, with leave of the Court, on the first day of the trial. The defendants contend that the Offer of Compromise was, therefore, not related to the claim that the plaintiffs prosecuted before the Court and the decision by the defendants not to accept this Offer related to the plaintiffs’ case as it then was and not as it was ultimately.
9The defendants claim that the rejection of the Offer related to the original statement of claim and was, therefore, not unreasonable considering that the plaintiffs saw fit to subsequently amend their Statement of Claim.
The Authorities
10Both parties relied on the decision of Stevens v Spotless Management Services Pty Ltd (No 2)[2] in which the Court of Appeal observed that:
In determining the proper application of r 26.08, the first question is whether, in terms of r 26.08(8), the appellant’s offer was ‘of a genuine compromise’. The onus lies on the plaintiff in that regard. If that onus is discharged, the second question, which is not an issue in this matter, is whether the judgement obtained was no less favourable than the offer. The third issue is whether, notwithstanding an affirmative answer to the second question, the Court should order ‘otherwise’ than in the terms set out in r 26.08. In that regard the onus lies on the defendant.
[2] [2016] VSCA 311 at [22].
11The plaintiffs submitted that the party seeking to displace the prima facie rule in r26.08 of the Rules bears the onus, which is not easily displaced. They cited the Court of Appeal in PCCEF Pty Ltd v Geelong Football Club Ltd (No 3)[3] which provided as follows:
[3] [2019] VSCA 191.
The party seeking to displace the prima facie rule in r 26.08 bears the onus. The onus is not readily discharged. In Gamborini, Tate JA and Kyrou AJA stated:
“In Simonovski, Ashley J stated that while the Court retains a discretion under r 26.08(2)(b) of the… Rules, an ‘order otherwise’ should not be lightly made, and that the prima facie position established by the rule ‘is a strong one, not easily displaced’.”
In Saric, McMIllan J referred to the language used in the authorities to describe the kinds of cases where the prima facie rule has been displaced:
“The Court must exercise caution in departing from the prima facie rule and only do so in cases that warrant such departure, invariably expressed in terms such as ‘compelling and exceptional circumstances’, ‘for proper reasons which, in general, only arise in an exceptional case’ and ‘special circumstances’.”
Whether the Court will ‘otherwise order’ depends on whether doing so advances the purposes of O 26. That purpose, broadly speaking, is to encourage the compromise of litigation and the saving of the private and public costs associated with it. The reasonableness of the rejection or non-acceptance of an offer is one matter that may be taken into account, but is not of itself determinative.
Analysis
12In my view, the defendants’ submission that the plaintiffs’ Offer was not a genuine offer to compromise the proceeding that was determined by the Court is rejected for the following reasons.
13The plaintiffs claimed that the defendants falsely represented the financial position of Forever Exotic Pty Ltd, which induced them to purchase shares in that company. The statement of claim was amended to include an additional claim for negligent misstatement because on Friday, 15 October 2021 (shortly before the commencement of the trial on Monday, 18 October 2021) the defendants, in their reply to the Statement of Issues document, submitted that s18 of the Australian Consumer Law (“ACL”) did not apply. The amendment to include the common law claim was responsive and made promptly at the commencement of the trial.
14The plaintiffs’ claim initially relied on misrepresentations for the purposes of s18 of the ACL. The amendment to include or, plead alternatively, negligent misstatements at common law related to the same facts and representations.
15In the reasons for decision, the Court held that plaintiffs were successful in their claims under s18 of the ACL as well as the common law claim.
16The plaintiffs have obtained judgment on the claim in the amount of $535,500.00 (plus interest and costs) which is no less favourable for the defendants than the terms of an Offer in which the plaintiffs offered to accept $500,000.00 (plus costs). The defendants’ failure to accept the Offer led to the plaintiffs incurring unnecessary expense, including the conduct of the trial, which could have been avoided if the Offer had been accepted.
17The Offer was a genuine offer to compromise as they were offering to forgo the balance of their claim which included the $60,000.00 capital contribution and a discount on the purchase price for the shares in the business which amounted to $690,000.00, as well as accrued interest which, by that time, was $65,895.48. It is also noted that the plaintiffs also made a subsequent Calderbank Offer on 22 June 2021 to accept $550,000.00 (inclusive of costs) which was also more favourable to the defendants than judgment.
18The defendants were legally represented and in a position to understand the basis of the Offer.
19In my view, there are “compelling and exceptional” circumstances which would persuade the Court to “otherwise order” pursuant to r26.08(2) of the Rules.
20Accordingly, for the forgoing reasons, the Court will order that pursuant to r26.08(2)(b) of the Rules, the defendants pay the plaintiffs’ costs of and incidental to the proceeding, including any reserved costs, to be taxed in default of agreement:
(a) on the standard basis up to and including 20 May 2021, being the second business day following service of the Offer of Compromise; and
(b) on an indemnity basis thereafter.
Interest Calculation
21The judgment of the Court provided that there be a payment of interest under the Penalty Interest Rates Act 1983 (Vic), which is 10%.
22The defendants submit that the Court should depart from the normal practice of awarding interest on the award of damages pursuant to the rate of 10% allowed under the Penalty Interest Rates Act (1983) (Vic).
23The defendants contend that this matter was originally listed for hearing in February 2021. The hearing was vacated due to the ill health of Jan Mikkelsen, who had to have triple by-pass heart surgery. This, in conjunction with COVID restrictions, meant that the hearing and determination of this matter was not completed until late 2021.
24The defendants submitted that the interest rate allowed under the Penalty Interest Rate Act 1983 (Vic) is greatly in excess of any rate available for deposits from commercial banks. It is submitted that the defendants should not have to pay interest at this much higher rate due to circumstances beyond their control. They contend that an interest rate of 5% would be more apposite in the circumstances.
25The plaintiffs submit that the determination of the Court in its reasons for judgment that interest is payable pursuant to the Penalty Interest Rates Act 1983 (Vic) is a final determination and not interlocutory. They say that the defendants’ submissions are tantamount to an appeal of this determination and should not be allowed. That is the end of the matter.
26In any event, the plaintiffs contend that there is no error of law or reason to set aside the determination. They submit that there is no error of law in the finding that interest is payable or that it is to be paid pursuant to s2 of the Penalty Interest Rates Act 1983 (Vic) and no “good cause” to depart from the usual orders.
27I accept the plaintiffs’ submission that delays in trials occur from time to time through no fault of the parties. This is particularly relevant in the context of the recent COVID pandemic and there was not an exceptional delay from the commencement of this proceeding and judgment being handed down on 14 December 2021. The plaintiffs did not seek to delay determination of this proceeding, and indeed at the hearings before Judge Cosgrave on 4 October 2021 and 11 October 2021, elected to proceed to trial in the absence of critical documents that had not been discovered by the defendants rather than lose the trial date.
28Further, it is noted that in fact, this proceeding was listed for a judicial resolution conference on 11 February 2021 and 11 March 2021. These judicial mediations were adjourned to 13 May 2021 due to the second defendant’s ongoing medical issues, including coronary artery bypass surgery on 9 February 2021.
29The matter had been listed for a trial assessment on 29 June 2020, adjourned to 29 July 2020 and 4 September 2020, by reason of a default judgment that had been entered against the defendants on 7 May 2020 for default of defence. The default judgment was set aside by order of Judicial Registrar Tran (as she then was) on 10 August 2020. The proceeding was set down for trial by order of Judicial Registrar Muller made on 11 March 2021 for 18 October 2021. There has only ever been one trial date fixed in the proceeding.
30After a five day trial and the filing of closing submissions on 6 October 2021, 8 November 2021, 23 November 2021 and 29 November 2021, 1 December 2021 and 6 December 2021, the judgment was delivered promptly on 14 December 2021.
31Finally, the defendants’ submission that “an interest rate of 5% would be more apposite” is an arbitrary figure without any reasoning or substantiation.
32In my view, no good cause has been shown to depart from the usual interest rate provisions set out in the Supreme Court Act 1986 (Vic) and the Penalty Interest Rates Act 1983 (Vic).
Strike Out Application
33The defendants make an application that the Court should make a costs order on a standard basis in favour of the defendants in relation to the application made by the plaintiffs to have the defence dismissed or struck out pursuant to s56 of the Civil Procedure Act 2010 (Vic) or r29.12.1 of the Rules. This application was made after the trial had concluded and was dismissed by the Court in the reasons for judgment. They say that as they were successful in dismissing the application that the normal course that costs follow the event ought to be followed.
34The defendants seek costs of the application as the plaintiffs’ application was brought:
(a) too late considering the earlier applications,
(b) after the parties had closed their case,
(c) when the question of the defence was arguably rendered moribund by all of the evidence having been heard, and
(d) after the same application had earlier been rejected without any new affidavit material being filed.
35The defendants noted that the plaintiffs’ application necessitated the filing of three further affidavits and preparation of submissions entailing days of work on the defendants’ behalf.
36The plaintiffs submit that no separate costs order should be made in circumstances where:
(a) the application principally related to a red book summary which was only disclosed the week before the trial. The plaintiffs could not have known at the time of raising concerns before the trial about the adequacy of discovery, that this red book summary existed or would form a material part of the defence;
(b) an interlocutory application could not have been made before the trial as it was not until the evidence of Zoey Mikkelsen that it became apparent that the defendants had retained and/or once had in their possession source documents on which the red book summaries were based;
(c) there are many interlocutory applications where costs are not awarded. Merely because a party succeeds in an interlocutory application does not necessarily result in an order for costs or multiple taxations;
(d) the application was determined on the papers and was not vexatious or without merit;
(e) the application followed the defendants’ persistent and material failure to comply with its obligations of discovery and associated Court orders (including a self-executing order).
37In my view, in circumstances where the plaintiffs’ application to strike out the defendants’ defence has been dismissed, there ought to be an order for costs of that application.[4]
[4] Similarly at [53] of the reasons for judgment, the defendants’ oral summary judgment application was dismissed on all grounds with costs.
38As I observed in the reasons for decision at [101]–[102]:
[a]lthough the defendants’ non-compliances in relation to discovery are inexcusable, and the plaintiffs have been deprived of the opportunity to forensically analyse source financial documents, particularly the MYOB records, the difficulty for the plaintiffs’ application is the timing of the summons. That is, the five day trial on the evidence has concluded and the Court is waiting on closing written submissions to publish a final judgment. The trial of the main proceeding is all but completed. The application sought by the plaintiffs is for a judgment without determination of the merits of the case.
In circumstances where the receipt books are minimal; the daily records sheets and stocktake software have been destroyed; the EFTPOS receipts are directly recorded on the bank statements; negative inferences can be made from the unavailability of the MYOB and emails to and from Paul when all other financial documents have been discovered; the plaintiffs have engaged a forensic accountant to provide an expert’s report; the defendants have been extensively cross examined on these matters; and concessions have been made during the course of the trial, in my view, the contravening conduct has not rendered it impossible to conduct a fair hearing of the plaintiffs’ claims.
39In my view, it was unnecessary to bring the strike out application after the close of evidence and resulted in the parties incurring additional unnecessary costs.
40The plaintiffs ought to pay the defendants’ costs of and incidental to the strike out application on a standard basis to be taxed in default of agreement.
Conclusion
41Accordingly, I order that there is judgment for the first plaintiff in the proceeding in the sum of $59,500.00, and for the second plaintiff in the amount of $476,000.00, together with interest pursuant to the Penalty Interest Rates Act 1983 (Vic). The defendants must pay the plaintiffs’ costs of and incidental to the proceeding on the standard basis, including any reserved costs, to be taxed in default of agreement. The defendants must also pay the plaintiffs’ costs of and incidental to the summary judgment on an indemnity basis. The plaintiffs must pay the defendants' costs of and incidental to the strike out application on a standard basis to be taxed in default of agreement.
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Certificate
I certify that these 10 pages are a true copy of the ruling of her Honour Judge Burchell delivered on 24 January 2022.
Dated: 24 January 2022
Andrea Ko
Associate to Her Honour Judge Burchell
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