Mackie Group Pty Ltd v Reading Properties Pty Ltd (No. 2)

[2010] VSC 205

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION

No. 9121 of 2005

MACKIE GROUP PTY LTD (ACN 006 524 456)	Plaintiff
v
READING PROPERTIES PTY LTD (ACN 071 195 429)	Defendant

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JUDGE:	BYRNE J
WHERE HELD:	Melbourne
DATE OF HEARING:	13 May 2010
DATE OF JUDGMENT:	21 May 2010
CASE MAY BE CITED AS:	Mackie Group Pty Ltd v Reading Properties Pty Ltd (No. 2)
MEDIUM NEUTRAL CITATION:	[2010] VSC 205  (FIRST REVISION 21/05/2010)

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PRACTICE AND PROCEDURE – costs – plaintiff successful – plaintiff’s Calderbank offer – whether special cost order should be made against defendant – whether defendant’s refusal of offer unreasonable – whether defendant in a position to assess offer – whether plaintiff entitled to interest for period of delay with respect to the trial date caused by its late amendment – whether plaintiff entitled to costs with respect to irrelevant issues raised in its pleadings.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr M. Goldblatt, with Mr P. Bingham	Khor & Burr
For the Defendant	Mr M. Sifris SC, with Mr M. Wise	Minter Ellison

HIS HONOUR:

1. On 16 April 2010, I published my reasons[1] following a trial of this proceeding.  I concluded that the plaintiff, Mackie Group Pty Ltd, should recover $1 million plus interest plus costs.  The parties have returned to debate the terms of the orders to be made. 

   [1][2010] VSC 131.

Interest

1. The first issue here is whether interest should be allowed on the sum recovered during the period from 15 September 2009 to 17 March 2010.  This period represents the time from the date the case was given a tentative trial date to the date on which the trial actually commenced.  It was said that the September 2009 trial date was lost because of late amendments made by Mackie Group. 

1. I will not so order.  First, the trial date was only tentative and it was abandoned a month previously.  Second and more importantly, it has long been held that the award of interest is not punitive.  It is an attempt by the court to adjust the real loss of the successful plaintiff and to compensate the plaintiff for not having the use of the money until judgment.[2]

   [2]See Marsh v Ruby [1975] VR 191 at 193, per Gowans J.

1. Interest has been calculated at $528,205.45 as at 13 May 2010.  There will be a minor adjustment of this to allow for the extra days to this date. 

Basis of Taxation of Costs

1. The principal area of contest concerned the claim of Mackie Group that its costs should be taxed on a party and party basis to 1 July 2008 and thereafter on an indemnity basis.  This raises the familiar issue of the effect of an unaccepted Calderbank offer. 

1. A very important matter to be noted in this case is that the claim of the plaintiff was payment of an agreed sum of $1 million.  The only issue in the case was whether, in the circumstances, the event, upon which this sum was to be paid, had occurred.  In terms of settlement negotiations, therefore, the only uncertainty was whether the defendant, Reading Properties Pty Ltd, was liable or not.  A consideration of any offer, therefore, must reflect the offeree’s assessment of this risk. 

1. The proceeding was commenced on 4 November 2005.  In the course of its preparation for trial, the parties made no less than 11 Calderbank offers and Offers of Compromise, as appears from the following table:

Date	Party	Form of Offer and Terms
1.	11.09.07	Defendant	Offer of Compromise.  Will pay $150,000.  Pursuant to SCR 26.03(7) offer also carries party/party costs.
2.	23.06.08	Defendant	Calderbank.  Will pay $350,000 inclusive of interest and costs.
3.	1.07.08	Plaintiff	Calderbank.  Will accept $800,000 plus party/party costs.
4.	15.07.08	Defendant	Calderbank.  Will pay $400,000 inclusive of interest and costs.
5.	26.03.09	Defendant	Calderbank (see letter of Ralph Mackie 13.08.08 to which this was a response).  Will pay $500,000 inclusive of interest and costs.
6.	10.09.09	Plaintiff	Calderbank.  Will accept $920,000 inclusive of interest and costs.
7.	1.10.09	Defendant	Calderbank.  Will pay $625,000 inclusive of interest and costs.
8.	16.10.09	Plaintiff	Calderbank.  Will accept $870,000 inclusive of interest and costs.
9.	30.10.09	Defendant	Calderbank.  Will pay $747,500 inclusive of interest and costs.
10.	24.12.09	Defendant	Calderbank.  Will pay $870,000 inclusive of interest and costs.
11.	22.02.10	Plaintiff	Calderbank.  Will accept $1,200,000 inclusive of interest and costs.

1. The relevant offer was offer No. 3, made on behalf of Mackie Group by letter dated 1 July 2008.  The letter of offer is in these terms:

We refer to your letter dated 23 June 2008 and to the extension to the current timetable for the provision of the parties’ witness statements.

Subsequent to the extended date, and beyond, each party will no doubt spend considerable time cost and effort.  We also note that substantial affidavit material has been served in the proceeding and that the issues in the proceeding have been ventilated on numerous occasions between the parties and have been put before the Court.  We therefore consider it otiose to rehearse or analyse the issues or to comment on the chances of success of, or risks to any party.

However, the Plaintiff desires, if possible to resolve the current proceedings and in the circumstances, and in an effort to avoid incurring further costs, we are instructed by the Plaintiff to advise that the Plaintiff is willing to settle all claims between the Plaintiff and the Defendant, including all claims for interest, costs (including all outstanding orders for costs and reserved costs) in the said proceedings on terms that the Plaintiff accepts, and the Defendant also agree to the following:

1.A payment by the Defendant to the Plaintiff of $800,000 to it within 28 days of this offer being accepted by the Defendant;  and

2.Payment by the Defendant of the Plaintiff’s party-party costs in the proceeding, determined by taxation up until the date of acceptance of this offer;

3.The parties mutually release each other from all claims.

Clearly the sum of $800,000 represents a commercial compromise/resolution of litigation discount, and, given that it effectively reduces the Plaintiff’s interest as well as factoring in expected future costs and giving a further commercial discount for early settlement, is a figure that we trust is acceptable to your client.

This offer remains open to be accepted for a period of 14 days from the date of receipt of this letter by the Defendant.

Our client’s offer is made in accordance with the principles applied in Calderbank v Calderbank [1975] 3 All ER 353 and subsequently applied in the Supreme Court of Victoria by His Honour Justice Byrne in Mutual Community Limited v Lorden Holdings Pty Ltd.

Yours faithfully

KHOR & BURR

The solicitors for Reading Properties rejected the offer by letter dated 15 July 2008 in which they made offer No. 4. 

1. Given the all or nothing nature of the claim, a successful plaintiff might have sought a special order for costs by offering to accept the full amount claimed plus interest plus costs less a very small discount.  This was not such an offer.  In all the circumstances, I read this letter as a genuine attempt at compromise based on a realistic assessment of the plaintiff’s chances of success.

1. The law relating to offers of this kind has been authoritatively stated by the Court of Appeal in Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No.2).[3]  The question for me is whether I am persuaded that Reading Properties acted unreasonably in rejecting the offer.  Relevantly, for present purposes, the focus of the question in this case is whether Reading Properties, and those advising it, were then able at that time to form an assessment of their prospects of resisting the Mackie Group claim.

   [3](2005) 13 VR 435.

1. It was put on behalf of Reading Properties that it was not in a position to make such an assessment given the confusing state of the plaintiff’s pleadings and the irrelevant and inadmissible content of the plaintiff’s affidavits filed to that date.  No witness statements had then been delivered.

1. It should be noted that in essence the plaintiff’s case was a straightforward one.  This is not to say that, as pleaded, its success was inevitable;  it is simply that the event upon which the $1 million was to be paid had occurred.  The statement of claim at that time was a simple one comprising 17 paragraphs.  The complexities, and ultimately the irrelevancies, arose in a later amendment to that pleading.

1. A defence was filed on 16 December 2005, essentially raising issues with respect to the proper interpretation of the agreement and, in paragraph 19, alleging that when the first notice was given on 29 July 2005 there were no negotiations then on foot. 

1. In mid-2006, Mackie Group brought an application for summary judgment.  For this purpose, two affidavits were sworn and filed by Mr Duckitt, a director of Mackie Group, and three in response by Mr Farrell, Mr Axup and Mr Altson.  Each of the parties filed an outline of argument in that application.  These outlines shed a good deal of light on the positions adopted by the parties at that time, November 2006. 

1. Following the dismissal of the summary judgment application, Reading Properties filed an amended defence dated 23 November 2006.  In this pleading, further positive assertions were raised in addition to an enlargement of the paragraph 19 allegations in the earlier pleading.

1. It appears that, at this time, the issues raised involved principally a textual analysis of the agreement in writing upon which Mackie Group relied.  There was evidence, too, of the matrix of facts, including previous discussions and correspondence between the negotiators.  All of this appeared in the affidavits. 

1. Apart from this, the factual contest arose from issues raised by Reading Properties as to changes in the project which had the consequence of discharging the agreement and as to the adequacy of notices given by Mackie Group to trigger their entitlement to the payment, and as to the parties’ abandonment of the agreement.

1. This, then, is not the case of a plaintiff who may be taken to know its case making a claim upon a defendant which may be ignorant of it.  Apart from the issues which turn on the construction of the documents, the factual issues were raised in the defence and were within the knowledge of the defendant. 

1. I reject, therefore, the protestations made on behalf of Reading Properties that it was not on 1 July 2008 in a position to assess the strength of the Mackie Group case.  I add one further consideration, too, if this be relevant, given the onus of proof which lies upon Mackie Group.  It is that no person, whether officer or lawyer on behalf of Reading Properties, was prepared to state on oath that at the relevant time they were not in a position to assess the case against that company.

1. I am satisfied that the rejection of the offer was unreasonable in the sense that this word was given in the Hazeldene Chicken Farm case.  Since the unreasonable act of Reading Properties in rejecting the offer occurred on 15 July 2008, the special order for costs will run from that date.  I will order that the plaintiff’s costs after 15 July 2008 be paid by the defendant on an indemnity basis.

Costs of the Reply

1. It is said that the reply filed on 19 December 2007 on behalf of Mackie Group was difficult to understand and it raised issues that went nowhere or were doomed to fail.  This may be the case.  The pleading does not, for all that, obscure the real issues exposed in the statement of claim and the amended defence. 

1. Nevertheless, it was said that the allegations made in the reply had to be answered and, to this end, additional costs in witness statements and in discovery were needlessly incurred.  The allegations which gave rise to these costs were those that Reading Properties had abandoned the project and that the project failed by reason of matters including the defendant’s inability to obtain finance.

1. I must confess that, while it does appear that the reply contained allegations about reasons for the failure of the project, I do not see in the witness statements much to indicate that a great deal of evidence was to be led as to this issue.  Nevertheless, a large number of documents were discovered by affidavit sworn 12 June 2009 which were said to bear only upon these matters which were not pursued at trial.  Many of these documents found there way into the Court Book at the request of Reading Properties. 

1. I agree with counsel for Reading Properties that these costs were incurred needlessly.  I will therefore exclude from the plaintiff’s costs those incurred by it in dealing with that affidavit of documents and those of the further affidavit of Mr Farrell sworn 25 June 2008 in which he proves those documents and also those costs of including those documents in the Court Book.

Conclusion

1. In the course of argument, Counsel for the defendant sought a stay of 30 days to enable consideration of the appropriate course following this judgment.  The time prescribed for appeal is 14 days.  I will grant a stay of that period.

1. Accordingly, I propose to make the following orders:

1.There be judgment for the plaintiff in the sum of $1 million, together with damages by way of  interest in the sum of $530,506.83.

2.The defendant pay the costs of the plaintiff, including reserved costs, such costs to be taxed on a party and party basis up to 15 July 2008 and thereafter on an indemnity basis.  These costs are not to include the plaintiff’s costs with respect to the defendant’s affidavit of discovery sworn 12 June 2009, the plaintiff’s costs with respect to the affidavit of Mr Farrell sworn 25 June 2008, and the plaintiff’s costs of gathering and including in the Court Book the documents discovered in the defendant’s affidavit of documents sworn 12 June 2009.   

3. There be a stay of 14 days upon the judgment and orders herein made.

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