Lo v Russell (No 2)
[2017] VSCA 14
•14 February 2017
SUPREME COURT OF VICTORIA
COURT OF APPEAL
S APCI 2016 0089
| CHENG LO | First Appellant |
| and | |
| ENG KIAT TAN | Second Appellant |
| v | |
| THOMAS JOHN RUSSELL [NO 2] | Respondent |
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| JUDGES: | WARREN CJ, TATE and McLEISH JJA |
| WHERE HELD: | MELBOURNE |
| DATE OF HEARING: | On the papers |
| DATE OF JUDGMENT: | 14 February 2017 |
| MEDIUM NEUTRAL CITATION: | [2017] VSCA 14 |
| JUDGMENT APPEALED FROM: | [2016] VSC 93 (Cameron J) |
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COSTS – Trial – Appellants made Calderbank offer to respondent prior to trial – Respondent successful at trial but unsuccessful on appeal – Whether respondent’s refusal of offer unreasonable – Offer represented only modest discount – Relevance of respondent’s success at trial – Stewart v Atco Controls Pty Ltd (in liq) [No 2] (2014) 252 CLR 331; Miwa Pty Ltd v Siantan Properties Pte Ltd [No 2] [2011] NSWCA 344; Crossman v Sheahan [No 2] [2016] NSWCA 351, referred to – Refusal of offer not unreasonable in circumstances – Respondent to pay appellants’ costs of trial on standard basis.
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APPEARANCES: | Counsel | Solicitors |
| For the Appellants | Mr P Best with Mr P R Miller | Kalus Kenny Intelex |
| For the Respondent | Mr R Hay QC with Mr R T Wodak | Dellios West & Co |
WARREN CJ
TATE JA
McLEISH JA:
On 16 December 2016, the Court granted leave to appeal and allowed the appeal in this matter.[1] It made orders that the appellants have judgment for the sum of $341,040,[2] together with interest pursuant to s 58 of the Supreme Court Act 1986, and that the respondent’s counterclaim be dismissed. The respondent was ordered to pay the appellants’ costs of the appeal. At the parties’ request, the Court ordered that written submissions be filed and served in relation to the costs of the trial.
[1]Lo v Russell [2016] VSCA 323.
[2]‘Being the deposit of $350,000 less 0.2 per cent of the sale price of $4.48 million (as provided in [Sale of Land Act 1962] s 31(4) and the “important notice to purchasers” in the contract)’: ibid [13] n 2.
The appellants seek an order that the respondent pays the appellants’ costs of the trial on a standard basis up to and including 17 February 2015 and on an indemnity basis thereafter. They rely on a Calderbank offer contained in a letter dated 23 January 2015, which was left open for acceptance until 4:00 pm on 17 February 2015.[3] The offer was as follows:
Our clients offer to settle this proceeding on the following basis:
1.Your client refunds the sum of $300,000 to my clients from the sum of $350,000 your client is holding in trust as part payment of the deposit.
2.Your client retains the balance of the deposit of $50,000 plus interest (estimated at around $10,000) which has accrued on the deposit.
3.Your client agrees to pay our clients’ cost of the proceeding on a standard basis to be taxed … in the absence of agreement.
4.Your client discontinues his counterclaim or agrees to an Order that your client’s counterclaim be struck out with no right of reinstatement.
[3]The offer erroneously refers to 17 February 2014.
After explaining the appellants’ view of the weaknesses in the respondent’s case and why it was said that the respondent would be acting unreasonably if he were to reject the offer, the letter stated: ‘If your client does not accept the offer and fails to achieve a better outcome at the trial of this matter, this letter will be produced in support of an application that your client pay our clients’ costs from this date forward on an indemnity basis’. Quite properly, the application for indemnity costs that has been made seeks costs on that basis only from the date on which the offer expired. In the event, the respondent did not reply to the letter.
As can be seen, and as the respondent accepts, this offer was no less favourable than the orders eventually made by this Court. The appellants contend, by reference to the approach essayed in Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority [No 2],[4] that the respondent’s rejection of the offer was unreasonable. In that case, this Court stated that the following considerations were ordinarily relevant to the question whether rejection of an offer of settlement was unreasonable:
[4](2005) 13 VR 435 (‘Hazeldene’s’).
(a)the stage of the proceeding at which the offer was received;
(b)the time allowed to the offeree to consider the offer;
(c)the extent of the compromise offered;
(d)the offeree’s prospects of success, assessed at the date of the offer;
(e)the clarity with which the terms of the offer were expressed;
(f)whether the offer foreshadowed an application for an indemnity costs [order] in the event of the offeree’s rejecting it.[5]
[5]Ibid 442 [25] (Warren CJ, Maxwell P and Harper AJA).
The appellants state that the offer was made after the close of pleadings, discovery and Court-directed mediation, but before preparation for trial had commenced. It was said to be open for 24 days[6] and was not responded to by the respondent. It was said to give the respondent a ‘benefit’ of approximately $60,000 (being the $50,000 ‘discount’ on the deposit and the estimated $10,000 in interest that had accrued) and to finally determine all issues in the proceeding without incurring the costs of preparing for and conducting the trial. Its terms were clear. The letter expressly foreshadowed the potential for an application for indemnity costs.
[6]The offer was in fact open for 25 days.
As to the appellants’ prospects of success at the date of the offer, the appellants submit that there were several issues alive at that point:
(1)The respondent contended in his defence that the land was used primarily for a commercial purpose; s 31 of the Sale of Land Act 1962 therefore did not apply.[7] The letter of offer rejected that contention, in part on the basis that it was said that the estate agent had told the appellants that the property had not been used for any commercial purpose for at least four years. The respondent conceded the point on the first day of trial.
(2)The defence denied that the respondent had received the termination notice within the three clear business days stipulated by s 31(2). The letter of offer rejected that position on the basis that the notice of termination was sent to the estate agent by email and text message on the evening of Wednesday 9 April, which was said to be within three clear business days of Friday 4 April. Prior to the trial, the respondent conceded that the relevant email had been received within the stipulated period, but did not concede that the estate agent received it on behalf of the respondent.
(3)The defence alleged that the notice was sent by only one of the appellants. In the letter of offer, the appellants contended that the relevant email indicated that it was sent by Mr Tan in his own right and also as agent for Dr Lo. The responded later conceded the point in final submissions.
(4)The defence alleged that the notice of termination did not constitute notice to the respondent. The letter of offer stated that the estate agent was the respondent’s agent for the purposes of the transaction ‘and his email address [was] stated in the Contract as a means of communicating with him’. The requirements of s 31 were therefore said to be satisfied. While this issue was decided adversely to the appellants at trial, this Court held that the appellants were correct to contend that the estate agent was the respondent’s agent for the purpose of receiving the termination notice.
(5)The defence denied that the notice was received within the three business day period stipulated by SLA s 31(2), because the estate agent did not see the email within that period. The appellants relied on s 13A(1)(a) of the Electronic Transactions (Victoria) Act 2000 (‘ETA’), which deems an email to be received when it is capable of being retrieved by the addressee. The respondent conceded at trial that the email was capable of being retrieved by the estate agent on Wednesday 9 April.
(6)The respondent contended that the estate agent had not consented to receiving the termination notice by email.[8] The issue was not pleaded in his defence. The letter of offer asserted that the requirement was met because the estate agent had consented to the use of his email for communications by stating it in the contract. The respondent did not put the point in issue at trial, but made a similar submission based on s 9(1)(c) of the ETA. The point did not need to be determined at trial and was not advanced by the respondent in this Court.
[7]See Sale of Land Act 1962 s 31(1)(a) (‘SLA’).
[8] See ETA s 8(1)(b).
On the basis of the foregoing, the appellants submit that the respondent acted unreasonably in rejecting the offer. The abandonment of four of the six issues listed above supported the view that the respondent ought to have assessed his prospects of success on these issues as ‘negligible’. The central issue at trial and on appeal, whether the estate agent was authorised to receive the termination notice on behalf of the respondent, was ultimately determined on the construction of the contract. The respondent was therefore in a position to assess his prospects on this question at the time of the offer. Further, had the offer been accepted, the appellants contend that the respondent would have received a 17 per cent reduction in the appellants’ claim. He would also have avoided paying further interest, an award of further costs, the substantial costs of the trial and the appeal, and the need to find additional money to satisfy the interest portion of the judgment debt.
The respondent submits that the appropriate order is that the appellants pay the respondent’s costs on a standard basis. He submits that the appellants’ primary contention at trial was that ‘agent’ in s 31(3) of the SLA necessarily meant or included the vendor’s estate agent in every case. That contention was rejected both at trial and on appeal. It is said that the appellants resiled from that submission on appeal, instead contending that ‘agent’ was capable of comprehending an estate agent. The appellants succeeded on appeal on a ‘subsidiary’ argument, relating to the construction of the contract itself. The respondent submits that this case was not pleaded or raised at the trial. The appellants having succeeded on appeal on a point not argued at trial, the proper order is to award the costs of the trial to the respondent.
Alternatively, the respondent submits that there should be no order as to the costs of the trial. As to the four issues that the respondent conceded, they were subsidiary and relevant only if the estate agent was an ‘agent’ for the purposes of s 31(3). By not contesting those issues, the respondent shortened the trial. Further, the sixth issue was not determined by the trial judge. The respondent therefore should not have costs awarded against him.
As to the application for indemnity costs, the respondent accepts that he would have achieved a more favourable outcome if he had accepted the offer, but submits that it was not unreasonable for him to reject it. He contends that the letter of offer did not explain why the estate agent had authority to accept the termination notice. He further contends that it did not refer to the appellants’ statutory construction argument or the contractual argument that prevailed on appeal. As to the six issues that were live at the time of the offer, the respondent submits that they were irrelevant to whether he acted unreasonably because, again, the appellants did not identify the basis on which the estate agent was an ‘agent’ within the meaning of s 31(3). Moreover, the concessions were made when the respondent had additional information available. The senior counsel who signed the defence, and made the decision not to contest the issues in question, was not the senior counsel who conducted the trial.
Further, it was not accurate to estimate the interest that had accrued on the deposit as approximately $10,000 at the time of the offer. The respondent’s solicitors only received the deposit on 10 February 2015 (after the date of the offer) and placed the money into a controlled monies account on 12 March 2015 (after the expiry of the offer). As such, no interest had accrued at the time the offer was made.
The appellants purported to file a written reply submission. The Court had not made orders for any reply. As has often been observed, it is inappropriate for a party to purport to file a document after the conclusion of an oral hearing without leave having been given beforehand.[9] The respondent objected to the document being filed. The appellants then belatedly sought the necessary leave. They contended that the respondent had submitted, for the first time, that the point upon which the appeal succeeded had not been raised at trial. The appellants said that they had no prior notice that this argument would be advanced in answer to their costs application, or that the respondent would go further and seek an order that the appellants pay his costs of the trial.
[9]Carr v Finance Corporation of Australia Ltd [No 1] (1981) 147 CLR 246, 258 (Mason J); Eastman v DPP (ACT) (2004) 214 CLR 318, 330 [29]–[30] (McHugh J); Patsuris v Gippsland and Southern Rural Water Corporation (2016) 218 LGERA 167, 192 [94]–[95] (Garde AJA; Tate and Kyrou JJA agreeing); Apple and Pear Australia Ltd v Pink Lady America LLC [2016] VSCA 280 [201] (Tate JA; McLeish and Ferguson JJA agreeing).
There is force in the appellants’ argument that the respondent raised new matters in his own submissions. For that reason, the Court granted leave for the reply submissions to be filed and served.
The reply submissions contend that the appellants had raised at trial the argument on which they succeeded on the appeal. They further submit that this argument was referred to in the letter of offer itself.
Analysis
In exercising the Court’s discretion as to costs following the rejection or non‑acceptance of an offer of settlement, the critical question is whether the rejection or non-acceptance of the offer was unreasonable in the circumstances.[10] The list of factors set out earlier from the Court’s reasons in Hazeldene’s is not exhaustive; rather, they are matters to which a court considering an application such as that made by the appellants in this case will ordinarily have regard.
[10]Hazeldene’s (2005) 13 VR 435, 441 [23] (Warren CJ, Maxwell P and Harper AJA).
The offer that was made in the present matter was clearly expressed. It was made at a time when the issues in the proceeding had crystallised, mediation had been unsuccessful and preparation for trial had not commenced. The offer was open for 25 days, allowing ample time for its evaluation. It was more generous to the respondent than the result ultimately achieved at trial, albeit not by a great deal. The appellants did not challenge the respondent’s contention that no interest had yet accrued on the deposit moneys. Moreover, as the letter of offer acknowledged, the respondents were entitled to retain $8960 of the deposit (being 0.2 per cent of the purchase price of $4.48 million) by reason of s 31(4) of the SLA.[11] The offer therefore represented a discount of $41,040, or just over 12 per cent of the appellants’ claim.
[11]See above n 2.
The fact that the respondent did not proceed with several aspects of his defence, whether before or at trial or on the appeal, affords a strong indication that he ought to have assessed his prospects of success on those aspects of the case as low at the time of the offer. The respondent did not explain how any intervening events, including his change of counsel, revealed weaknesses in those claims for the first time after the offer had lapsed, which it had previously been reasonable not to perceive.
Apart from the abandoned arguments, it must be borne in mind that the appellants did not succeed in their argument that ‘agent’ in s 31(3) of the SLA meant, or included, an estate agent in every case. However, the argument that, in the circumstances of this case, ‘agent’ included the appellants’ estate agent was closely related. That was the argument upon which the appellants ultimately succeeded.
The respondent’s contention that this argument was raised for the first time on appeal is without foundation. The appellants made written and oral submissions at trial regarding the implied or ostensible authority of Mr Gibbons to receive a notice under s 31(3) on behalf of the respondent. Those submissions referred extensively to the contract of sale and the fact that the contact details of Mr Gibbons appeared in it. The trial judge’s treatment of this issue was referred to in this Court’s reasons.[12] Moreover, the argument reflected ground 1(b) in the grounds of appeal. The respondent put no argument in this Court that the ground was novel or should not be permitted to be raised.
[12]Lo v Russell [2016] VSCA 323 [59].
It is true that the submissions in question had not been made at the time when the offer was open for consideration. The argument is not articulated with any precision in the appellants’ statement of claim, which alleges the relevant facts but does not, of course, descend to legal reasoning. However, the letter of offer made it sufficiently clear how the agency was said to be established. The relevant extract reads as follows:
The Real Estate Agent was your client’s agent for the purposes of the transaction, and his email address is stated in the Contract as a means of communicating with him. In addition numerous emails and texts were exchanged between the agent and our clients prior to the contract being entered into.
Further section 31(3) states:
‘A notice under subsection (2) shall be given to the vendor or his agent or left at the address for service of the vendor specified in the contract or the address of his agent within three clear business days after the purchaser has signed the contract.’
Section 30 defines ‘vendor’ as follows:
‘vendor’ includes any person acting as agent for the vendor.[13]
[13]Emphasis in original.
In our opinion, if further elaboration was required, this more than sufficed to put the respondent upon notice of the issue upon which the appellants ultimately succeeded. At the same time, the related statutory construction argument was also pursued.
The respondent contends that the fact that he succeeded at trial indicates that it was not unreasonable for him to have rejected the offer. No such general principle finds support in the authorities. In Stewart v Atco Controls Pty Ltd (in liq) [No 2], the High Court stated that the fact that this Court had found in favour of the party who failed to accept an offer could ‘hardly be said’ to show that non‑acceptance of the offer was reasonable once the High Court had reversed the decision.[14] On the other hand, especially in a complex case, appellate courts have sometimes had regard to the fact of success at trial in finding that it was not unreasonable for the ultimately unsuccessful party to reject an offer made before trial.[15] In the end, the fact that the party who was successful at the end of the litigation had failed at trial is only one factor relevant to considering the reasonableness of the other party in not accepting an offer of settlement made before that trial.
[14](2014) 252 CLR 331, 335 [6] (Crennan, Kiefel, Bell, Gageler and Keane JJ).
[15]Miwa Pty Ltd v Siantan Properties Pte Ltd [No 2] [2011] NSWCA 344 [19] (Basten JA; McColl and Campbell JJA agreeing); Crossman v Sheahan [No 2] [2016] NSWCA 351 [21] (Basten, Ward and Payne JJA).
In our opinion the appellants’ offer warranted very serious consideration. In many respects the respondent’s position in the litigation was weak. Several of the arguments he was pursuing were ultimately abandoned. There was a very plausible, and ultimately successful, allegation that the estate agent was the ‘agent’ of the respondent for the purpose of s 31(3), in part because the agent’s email address appeared in the contract as a means of communicating with the respondent. At the same time, as already noted, that argument was accompanied by a related argument which failed, to the effect that this result flowed from the proper construction of s 31(3), irrespective of the surrounding circumstances.
The offer itself was a very modest one. It has not been suggested that the offer demanded a capitulation by the respondent, but it manifestly conveyed that the respondent’s case was, in the appellants’ view, very likely to fail. In our opinion, it would not have been unreasonable for the respondent to take a different view and to regard his prospects of success as warranting a more substantial discount by way of settlement. Even if he did so, however, there is no suggestion that the respondent made any counter-offer. Had he done so, and had his counter-offer not been accepted, his position as to costs would now be stronger.
The reasonableness or otherwise of the respondent’s failure to accept the appellants’ offer must be evaluated with regard to all the circumstances. In the present case, two factors stand out. The first is that there was a live issue as to agency, as to which both parties were entitled to consider that they had some prospect of success. In the result, the appellants succeeded on their factual argument and failed on their related statutory construction argument. The second is that the offer represented only a small discount on the appellants’ overall claim. Together, those circumstances cause us to conclude, on balance, that it was not unreasonable for the respondent not to accept the offer.
It follows that the appellants’ application for indemnity costs should be refused. However, the respondent should pay the appellants’ costs of the trial on a standard basis. For the reasons given, there is no substance in the respondent’s argument that he should have his costs as a result of the successful argument having not been run at the trial.
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