Manassen Holdings Pty Ltd v Commercial & General Corporation Pty Ltd (No 2)

[2019] SASC 183

SUPREME COURT OF SOUTH AUSTRALIA

(Civil)

MANASSEN HOLDINGS PTY LTD & ANOR v COMMERCIAL & GENERAL CORPORATION PTY LTD (NO 2)

[2019] SASC 183

Judgment of The Honourable Justice Doyle

31 October 2019

PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - COSTS - TAXATION AND OTHER FORMS OF ASSESSMENT - GST CONSIDERATIONS

PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - JUDGMENTS AND ORDERS - INTEREST ON JUDGMENTS

PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - COSTS - INDEMNITY COSTS - PARTICULAR CASES

PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - COSTS - OFFERS OF COMPROMISE, PAYMENTS INTO COURT AND SETTLEMENTS - OFFER OF COMPROMISE OR OFFER TO SETTLE OR CONSENT TO JUDGMENT PURSUANT TO RULES - WHAT CONSTITUTES VALID OFFER

The plaintiffs succeeded at trial in establishing an entitlement to $600,000 by way of additional commission from the defendant under the Underwriting Agreement between the parties. However, the plaintiffs failed in their second, third and fourth claims, being claims under a purported Extension Agreement, promissory estoppel and conventional estoppel.

Following judgment in this matter (Manassen Holdings Pty Ltd & Anor v Commercial & General Corporation Pty Ltd [2019] SASC 171) various issues have arisen between the parties in relation to GST, interest and costs.

Held (per Doyle J):

1.       The additional commission of $600,000 was not consideration for a taxable supply and hence not subject to GST.

2.       Interest is payable on the unpaid commission at the contractual rate.

3.       The plaintiffs have a contractual right to the recovery of costs on a solicitor/client basis. However, as that right is confined to the recovery of costs “in connection with” a breach or default under the Underwriting Agreement, and some costs were referable only to the plaintiffs’ unsuccessful claims, the plaintiffs are only entitled to recover 70 per cent of their costs on this basis.

4.       The plaintiffs’ filed offer dated 1 August 2017 was a complying offer for the purposes of r 188F of the Supreme Court Civil Rules 2006 (SA). As the plaintiffs recovered a judgment that was no less favourable to them than the terms of that offer, they are entitled to recover their costs of action incurred after 15 August 2017 on an indemnity basis.

Supreme Court Civil Rules 2006  (SA) rr 187, 188A(1), 188(5) 188F(1), 188F(2), 188F(3; Supreme Court Civil Supplementary Rules 2014 (SA) r 208; A New Tax System (Goods and Services Tax) Act 1999 (Cth) div 142, referred to.
Chen v Kevin McNamara & Son Pty Ltd (No 2) [2012] VSCA 229; Taree Pty Ltd v Bob Jane Corporation Pty Ltd [2008] VSC 228; Russo v Buck (No 2) [2007] SASC 157; Abigroup Ltd v Sandtara Pty Ltd [2002] NSWCA 45; Testel Australia Pty Ltd v KRG Electrics Pty Ltd [2013] SASC 91; Irani v St George Bank Ltd (No 3) [2005] VSC 456; Kheirs Financial Services Pty Ltd v Aussie Home Loans Pty Ltd [2010] VSCA 355; Essential Beauty Franchising (WA) Pty Ltd v Pilton Holdings Pty Ltd (No 2) (2014) 120 SASR 433; Ouwens Casserly Real Estate Pty Ltd v Harcourts South Australia Pty Ltd [2017] SASCFC 69; Harcourts South Australia Pty Ltd v Ouwens Casserly Real Estate Pty Ltd (No 2) [2017] SADC 45, discussed.
Manassen Holdings Pty Ltd v Commercial & General Corporation Pty Ltd [2019] SASC 171; Citibank Savings Ltd v Nicholson & Ors [1998] ANZ Conv R 442; Rumball v Mortimore [2000] WASC 126; Commonwealth Bank of Australia v Aspenview Productions Pty Ltd [2001] VSC 499; Kyabram Property Investments Pty Ltd v Murray [2005] NSWCA 87; Gomba Holdings (UK) Ltd v Minories Finance Ltd (No 2) [1993] Ch 171; Re Adelphi Hotel (Brighton) Ltd [1953] 2 All ER 498; Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service (No 3) [2010] NSWSC 1139; Gray v Sirtex Medical Ltd (2011) 193 FCR 1; Clarence Property Corporation Ltd v Sentinel Robina Office Pty Ltd [2019] QSC 13; Jana Pty Ltd v Ezistripdemo Pty Ltd [2017] NSWSC 1286; Perpetual Trustees Australia Ltd v Barker [2004] SASC 58; Micarone v Perpetual Trustees Australia Ltd (No 2) [1999] SASC 533; Westpac Banking Corporation Ltd v Haynes [2017] SASC 23; Irani v St George Bank Ltd (No 3) [2005] VSC 456; Bayford v St George Bank Ltd (No 2) (2003) 229 LSJS 59; Catto v Hampton Australia (2008) 257 LSJS 245; Carter v Brine (No 2) [2016] SASC 36; United Petroleum Pty Ltd v Skorpos (No 2) [2012] SASC 215; Skorpos v United Petroleum Pty Ltd [2013] SASCFC 117; Spartalis v BMD Constructions Pty Ltd (No 2) [2015] SASCFC 28; Davies v Chicago Boot Co Pty Ltd (No 2) [2011] SASC 197; Dighton v The Nominal Defendant (No 4) [2012] SADC 24, considered.

MANASSEN HOLDINGS PTY LTD & ANOR v COMMERCIAL & GENERAL CORPORATION PTY LTD (NO 2)
[2019] SASC 183

Civil

1. DOYLE J:    On 30 September 2019, I delivered my reasons for judgment in this matter.[1]  I held that the plaintiffs were entitled to judgment against the defendant for the amount of $600,000.  It remains for me to address the issues that have arisen in relation to GST, interest and costs. 

   [1]    Manassen Holdings Pty Ltd v Commercial & General Corporation Pty Ltd [2019] SASC 171.

2. The detail of the background to my consideration of these issues is set out in my earlier reasons, and these reasons should be read in conjunction with those earlier reasons.  In summarising the matters that are significant for present purposes, I have adopted the defined terms from those earlier reasons.

3. The proceedings involved a dispute in relation to the commission payable to the plaintiffs by the defendant under the Underwriting Agreement.  As explained in my earlier reasons,[2] the plaintiffs advanced four claims:

   1.   A claim under the Underwriting Agreement for $600,000 in additional commission for the 30 day period from 1 November 2016.

   2.   A claim under the alleged Extension Agreement for $440,000 (or in the alternative $280,000) in further additional commission for the period from 30 November 2016 through to 22 December 2016 (or in the alternative through to 14 December 2016).

   3.   A claim based upon promissory estoppel by way of alternative to the second claim.

   4.   A claim based upon conventional estoppel by way of an alternative to the first and second claims.

   [2]    Manassen Holdings Pty Ltd v Commercial & General Corporation Pty Ltd [2019] SASC 171 at [6]-[8].

4. Each of these claims was denied by the defendant.  The plaintiffs ultimately succeeded on the first of these claims, but were unsuccessful in respect of the remaining three claims.

5. It is convenient to commence my consideration of the issues that have arisen in relation to GST, interest and costs by setting out the provisions of the Underwriting Agreement in relation to these matters and recounting the terms and timing of the various invoices rendered by the plaintiffs. 

   Relevant provisions of the Underwriting Agreement

6. The matter of GST was addressed in clause 13 of the Underwriting Agreement, in the following terms:

   13.     GST

   13.1   Interpretation

   In clause 13, a word or expression defined in the A New Tax System (Goods and Services Tax) Act 1999 (Cth) has the meaning given to it in that Act.

   13.2   GST gross up

   Any consideration payable or to be provided for a supply made under or in connection with this agreement does not include any amount on account of GST. If the Underwriter makes a supply under or in connection with this agreement in respect of which GST is payable, the consideration for the supply but for the application of this second sentence of this clause 13.2 (GST exclusive consideration) is increased by an amount equal to the GST payable on that supply and that additional amount is payable at the same time as the other consideration for that supply.

   13.3   Exclusion of GST from calculations

   If a payment is calculated by reference to or as a specified percentage of another amount or revenue stream, that payment will be calculated by reference to or as a specified percentage of the amount or revenue stream exclusive of GST.

   13.4   Reimbursements

   If a party must pay, reimburse or indemnify another party for a loss, cost or expense, the amount to be paid, reimbursed or indemnified is first reduced by any input tax credit the other party is entitled to for the loss, cost or expense, and then increased in accordance with clause 13.2.

   13.5   Tax invoice

   The Trustee is not required to make a payment for a taxable supply made by the Underwriter under or in connection with this agreement until the Underwriter has given the Trustee a tax invoice for the supply to which the payment relates.

7. The accrual of interest on amounts payable under the Underwriting Agreement was addressed in clause 15.15:

   15.15 Interest on overdue amounts

   (a)     If a party fails to pay any amount payable under this agreement on the due date for payment, that party must pay interest on the amount unpaid at 15% per annum.  For the avoidance of doubt, this clause will not apply to the payments referred to in paragraph 4 of Schedule 6.

   (b)     The interest payable under clause 15.15(a):

   (i)accrues from day to day from and including the due date for payment up to the actual date of payment, before and, as an additional and independent obligation, after any judgment or other thing into which the liability to pay the amount becomes merged; and

   (ii)may be capitalised by the person to whom it is payable at monthly intervals.

8. The plaintiffs have advanced a claim for costs pursuant to the contractual indemnity under clause 15.16 of the Underwriting Agreement, which was in the following terms:

   15.16 Indemnity

   (a)     The Trustee must indemnify the Underwriter and each of the Underwriter Associates holding any Preference Units (each an Underwriter Indemnified Person) against, and must pay each Underwriter Indemnified Person within 5 Business Days of demand the amount of, all losses, liabilities, fees, costs and expenses (including legal fees, costs and expenses) (together with GST thereon) suffered or incurred by the Underwriter Indemnified Person in connection with any breach of or default under this agreement by the Trustee or any warranty or representation made or given by the Trustee under this agreement being incorrect or misleading in any respect.

   (b)     The Underwriter must indemnify the Trustee and each of the parties to the Contract for Sale (excluding the Minister for Transport and Infrastructure) (each a Trustee Indemnified Person) against, and must pay each Trustee Indemnified Person within 5 Business Days of demand the amount of, all losses, liabilities, fees, costs and expenses (including legal fees, costs and expenses) (together with GST thereon) suffered or incurred by the Trustee Indemnified Person in connection with any breach of or default under this agreement by the Underwriter or any Underwriter Associate or any warranty or representation made or given by the Underwriter under this agreement being incorrect or misleading in any respect.

   The invoices rendered by the plaintiffs

9. As recounted in my earlier reasons,[3] by email dated 4 November 2016, the plaintiffs sent the defendant two invoices dated 3 November 2016.[4]  Those invoices included a claim for underwriting commission under the Underwriting Agreement in the amount of $1.5 million (plus GST).  The $1.5 million consisted of $1.2 million by way of base commission under paragraph 1(a) of Schedule 5, and $300,000 by way of additional commission under paragraph 1(b) of Schedule 5.  The additional commission of $300,000 was calculated by reference to the daily fee of $20,000 per day for each day from 1 November to 15 November 2016, this latter date being the date upon which it was at that time expected that the Transaction under the Sale Contract would settle.  There was no response to this invoice, by way of payment or otherwise.

   [3]    Manassen Holdings Pty Ltd v Commercial & General Corporation Pty Ltd [2019] SASC 171 at [62].

   [4]    That is, one for each plaintiff.

10. Settlement did not occur on 15 November 2016, and the plaintiffs subsequently provided the defendant with two further invoices dated 12 December 2016.  Those invoices included a claim for underwriting commission in the amount of $2.06 million (plus GST).  The $2.06 million consisted of $1.2 million by way of base commission under paragraph 1(a) of Schedule 5, $600,000 by way of additional commission under paragraph 1(b) of Schedule 5, and $260,000 by way of further additional commission.  The $600,000 by way of additional commission was calculated by reference to the daily fee of $20,000 per day for each of the 30 days from 1 November 2016.  The $260,000 by way of further additional commission consisted of the daily fee of $20,000 per day for the next 13 days through to the date of the invoices.  Again, there was no response to these invoices.

11. By email dated 19 December 2016, the plaintiffs demanded payment of the outstanding invoices, and announced a claim for interest under clause 15.15(a) at 15 per cent per annum if they were not paid by 21 December 2016.  The email also attached amended invoices dated 18 December 2016.  The invoices had been amended to (i) remove the claim for $2.0 million previously included on account of the minimum Preference Unit Income Entitlement (on the basis that this sum had only been payable in the event the Transaction settled); (ii) include an amount of $20,000 (being an additional daily fee for 14 December 2016); and (iii) include an amount of $400,000 by way of reimbursement of the Four Hats Capital fee claimed under clause 6.3(c) (which claim was later abandoned and not pressed in these proceedings).

12. By email dated 22 December 2016, the defendant responded (through Mr Cooke) to the effect that it would arrange payment of $1.8 million (plus GST) by way of underwriting commission under the Underwriting Agreement, being the base commission of $1.2 million and additional commission of $600,000, by 15 February 2017.

13. Following some further correspondence between the parties that is not in evidence, the defendant’s solicitors wrote to the plaintiffs’ solicitors by letter dated 8 February 2017 challenging the plaintiffs’ invoices.  The defendant contended that it was only liable for the base commission of $1.2 million.  It also challenged the claim for GST in respect of this amount.  Relying upon the Commissioner of Taxation’s public rulings (including item D41 of Schedule 2 of GSTR 2002/2), the defendant contended that, as a matter substance, a substantial proportion of the services provided by the plaintiffs for the underwriting commission were input taxed for GST purposes, and hence not a taxable supply.

14. While the basis for this contention as to the GST payable on the underwriting commission was not elaborated upon in the letter dated 8 February 2017, it is apparent from the reference to GSTR 2002/2 in the letter that the defendant intended to draw a distinction between the supply of broking or underwriting services involving the ordinary underwriting activities of attempting to place securities with others (or undertaking a book build), and an agreement to subscribe for securities that are not placed.  The former is a taxable supply, whereas the latter is an input taxed supply.  As such, GST is payable on the former, but not the latter.  As GSTR 2002/2 and GSTR 2004/1 indicate, a typical underwriting agreement will involve a mixed or composite supply, resulting in the need for the underwriting commission to be apportioned between its taxable and input taxed components. 

15. Returning to the defendant’s letter dated 8 February 2017, it indicated the defendant’s preparedness to pay GST on 10 per cent of the base commission of $1.2 million and sought the agreement of the plaintiffs, as the relevant supplier, to that allocation between the taxable and input taxed components.  The defendant requested that the plaintiffs withdraw their invoices and issue a valid invoice for the amount of $1.2 million (plus GST on 10 per cent of this amount) for the base commission, which it said it would then pay. 

16. The plaintiffs’ solicitors responded by letter 10 February 2017. The plaintiffs maintained their claim under the Underwriting Agreement for both the base commission of $1.2 million and the additional commission of $600,000.  However, the plaintiffs attached two fresh invoices dated 10 February 2017, one for each of these amounts.  Further, apparently in confirmation of their acceptance of the defendant’s contentions in relation to GST, these new invoices claimed GST on only 10 per cent of the commissions claimed.  Both invoices contained a notation that “[t]he supply is a mixed supply of which 10% of the corresponding underwriting commission is consideration for a taxable supply.”

17. On 22 February 2017, the defendant paid the plaintiffs’ 10 February 2017 invoice for the base commission of $1.2 million plus GST of $12,000.[5]  It did not ever pay the invoice for the additional commission of $600,000 plus GST of $6,000.[6]

    [5]    Being GST at the rate of 10 per cent on the 10 per cent of the base commission apportioned as a taxable supply, or 1 per cent of the total base commission. 

    [6]    Being GST at the rate of 10 per cent on the 10 per cent of the base commission apportioned as a taxable supply, or 1 per cent of the total additional commission.

    Goods and Services Tax

18. In their statement of claim, the plaintiffs’ claim in respect of additional commission under paragraph 1(b) of Schedule 5 sought judgment in the amount of $600,000 plus GST.

19. However, despite having been successful in establishing their entitlement to additional commission in the amount of $600,000, and despite having invoiced and claimed an amount by way of GST on this sum, the plaintiffs do not now seek any provision for GST in the judgment to be entered in their favour.  They do not seek recovery of an amount for GST, and nor do they seek any provision for the recovery of any GST by way of some declaratory order or other relief indemnifying them in respect of any GST that might be payable.

20. By way of explanation for this change in their position, the plaintiffs tendered a copy of a private ruling dated 4 September 2017 that they obtained from the Commissioner of Taxation.  This private ruling was provided in response to an application by the plaintiffs which was made by letter dated 19 April 2017.[7]

    [7]    cf the reference in the private ruling to an application made on 2 May 2017.

21. The plaintiffs’ application for a private ruling contained a summary of the key provisions of the Underwriting Agreement, and attached a copy of that agreement.  It also attached some of the other key documentation, including the Funding Notice dated 11 October 2016, the Notice of Revocation dated 20 December 2016, the Notice of Termination of Underwriting Obligations dated 22 January 2017 and the two tax invoices dated 10 February 2017. The application sought a private ruling in respect of the GST payable in respect of both the base commission of $1.2 million and the additional commission of $600,000.

22. The private ruling was to the effect that both amounts were consideration for input taxed supplies, and not taxable supplies. 

23. In reaching this conclusion, the ruling drew upon passages from GSTR 2002/2 and GSTR 2004/1.  The essential reasoning underpinning this conclusion was that underwriting agreements ordinarily involve both an agreement to provide the service of facilitating the placement of the securities being underwritten, and an agreement to take up the securities in the event that they are not otherwise placed.  The former involves a taxable supply (of the service of facilitating placement), whereas the latter involves an input taxed supply (of the acquisition of the securities). 

1. In respect of the Underwriting Agreement the subject of these proceedings, the ruling noted the plaintiffs’ agreement to subscribe for Preference Units up to the value of $40 million.  It made reference to the clause 2.1 articulation of the plaintiffs’ underwriting obligations in terms that:

   The Underwriter will, subject to the satisfaction … of the Conditions … subscribe for, or procure subscribers for (provided that such subscribers are Underwriters Associates) … such number of Preference Units in the Trust with an aggregate issue price equal to the Maximum Underwritten Amount.

2. The ruling concluded that other than the agreement to subscribe for Preference Units, the plaintiffs (as the Underwriter) were not required to provide any other goods or services under the Underwriting Agreement.  As such, the amounts of $1.2 million by way of base commission, and $600,000 by way of additional commission, were consideration for an input taxed supply that would not attract GST.

3. In respect of the base commission of $1.2 million, however, the ruling went on to explain that by reason of Division 142 of the A New Tax System (Goods and Services Tax) Act 1999 (Cth), which operates to deem certain activities to involve a taxable supply where the supplier has treated them as a taxable supply and GST has been passed on to the recipient, the supply was deemed to be taxable to the extent of 10 per cent (as provided for in the 10 February 2017 invoice in respect of the $1.2 million). However, as the 10 February 2017 invoice in respect of the additional commission of $600,000 remained in dispute, and no GST amount had been paid by the defendant, the ruling concluded that Division 142 did not apply to the amount in that invoice. Accordingly, no GST was payable on the $600,000.

4. In circumstances where the plaintiffs no longer seek any relief in relation to any GST that might be payable on the $600,000, I do not propose making any order in relation to GST.  While ordinarily that would be the end of the matter, the matter has been complicated by the defendant’s submissions in relation to interest and costs.  Both raise matters arising out of the plaintiffs’ initial claim for GST.  As will be seen, in the context of interest, the defendant contends that to the extent the commission claimed by the plaintiffs was consideration for a taxable supply, then interest did not commence to accrue until it received a valid tax invoice; that is, an invoice for the correct sum, including the correct amount of GST.  And in the context of costs, the defendant made some submissions as to what it contends was the uncertainty associated with plaintiffs’ reference in its filed offer to an offer to accept judgment in the sum of $595,000 “excluding GST”.

5. I accept that consideration of the defendant’s submissions in relation to interest require determination of whether or not the additional commission of $600,000 was consideration for a taxable supply.  In this respect, the defendant correctly points out that the private ruling does not bind it, and indeed could not be relied upon by the plaintiffs to the extent that the true facts or circumstances differed materially from those relied upon in the private ruling.

6. In contending that the private ruling was, or might be, incorrect in concluding that the entirety of the underwriting commission was in respect of an input taxed supply, the defendant challenged the conclusion that the only service provided by the plaintiffs under the Underwriting Agreement was to subscribe for the Preference Units.  The defendant contended that this was wrong as a matter of construction of the Underwriting Agreement, and wrong as a matter of fact.  It was wrong, according to the defendant, because it overlooked the clause 2.1 reference to “or procure subscribers for (provided that such subscribers are Underwriter Associates[8])”, and the fact that the plaintiffs had procured the investment of both Mr Uzcilas (through Forward Movement Pty Ltd) and Mr Nasuti (through Nasuti Pty Ltd).[9]

   [8]    ‘Underwriting Associate’ was defined in clause 1.1 to mean “an associate of the Underwriter which agrees to be bound by the Unitholders Agreement and the Trust Deed and which is approved (in writing) by the Trustee (acting reasonably).”

   [9]    Manassen Holdings Pty Ltd v Commercial & General Corporation Pty Ltd [2019] SASC 171 at [45].

7. The defendant accepts that the private ruling made express reference to the terms of clause 2.1, and to the parties’ agreement in correspondence to the supply being a mixed supply, with only 10 per cent of the commission being consideration for a taxable supply.  However, the defendant points out the ruling did not refer to, and was apparently prepared without knowledge of, the plaintiffs’ involvement of the entities of Mr Uzcilas and Mr Nasuti.

8. In the absence of detailed submissions from the parties on this issue, I have found it difficult to form a clear view.  However, I have decided that it is appropriate to proceed on the basis set out in the private ruling, namely that the $600,000 was consideration for an input taxed supply, and not a taxable supply. 

9. Having considered the relevant passages of GSTR 2002/2 and GSTR 2004/1 (in relation to underwriting services), and GSTR 2001/8 (in relation to the treatment of mixed and composite supplies), it seems to me that the essential character of the services provided by the plaintiffs under the Underwriting Agreement was to subscribe for the Preference Units, and not to undertake any placement or facilitation services of the sort often contemplated under an ordinary underwriting agreement. 

10. This was not a situation where the plaintiffs agreed to place the securities, and to only subscribe themselves in the event they were not able to place the securities with others.  Rather, the arrangement between the parties was in substance an opportunity for the plaintiffs to invest in the Trust assets to the extent called upon to do so by the defendant.  That is, while styled as an underwriting agreement, it was in substance a contingent investment or funding agreement.  While the Underwriting Agreement in clause 2.1 contemplated that the plaintiffs might procure subscribers, this was not something that the plaintiffs were required to do.  Indeed, the confinement of this potential subscription by others to the limited class defined as the Underwriter’s Associates supports the agreement’s characterisation as merely affording the plaintiffs’ the flexibility of investing with or through associated entities, rather than contemplating some placement or facilitation service provided by the plaintiffs to the defendant.  Further, as explained in my earlier reasons, the involvement of Mr Uzcilas and Mr Nasuti came about merely as a result of the standing arrangement between Mr Manassen and those men as co-investors, and not as a result of any particular work or steps undertaken by the plaintiffs in respect of this particular investment opportunity.

11. I acknowledge that in reaching their apparent agreement to treat the supply under the Underwriting Agreement as a mixed supply, and in allocating 10 per cent of the commission to a taxable supply, the parties likely had in mind the matters referred to above (namely, the contemplation and fact of subscription by Mr Uzcilas’ and Mr Nasuti’s entities as Underwriter’s Associates).  However, I do not think that these matters were sufficient to detract from the essential character of the plaintiffs’ services as the subscription for the Preference Units.  To the extent that the involvement of Mr Uzcilas’ and Mr Nasuti’s entities as Underwriter’s Associates was material at all to the characterisation of the plaintiffs’ services, I do not think it was sufficient to require the treatment of those services as separate services giving rise to a mixed supply requiring an allocation between the taxable and input taxed components of that supply.  In my view, that involvement was better viewed as either irrelevant to the characterisation of the services provided by the plaintiffs, or in the nature of a merely ancillary or incidental aspect of a composite supply not requiring separate treatment from a GST perspective.

12. An additional consideration when characterising the service to which the additional commission of $600,000 (as opposed to the base commission of $1.2 million) related is that this portion of the underwriting commission related only to the services provided during the 30 days from 1 November 2016 as a result of settlement of the Transaction having been delayed beyond the Relevant Date.  Thus, even if some portion of the base commission of $1.2 million might be said to have been referable to the involvement of the Underwriter’s Associates contemplated by clause 2.1, it does not necessarily follow in my view that the same can be said of the $600,000.

13. In any event, for the reasons set out, I am satisfied it is appropriate to proceed on the basis that both the base commission of $1.2 million and the additional commission of $600,000 were consideration for an input taxed supply and not a taxable supply.  It follows that it is appropriate to proceed on the basis that no GST was payable on either of these amounts.

    Interest

14. The plaintiffs seek interest in respect of both the base commission of $1.2 million and the additional commission of $600,000.

15. In relation to the base commission of $1.2 million, the plaintiffs seek interest on this sum under clause 15.15 of the Underwriting Agreement at the rate of 15 per cent per annum for the 56 days from 1 November 2016 through to 22 February 2017, giving an amount of $56,697.  The plaintiffs also seek interest at the rate prescribed under the Supreme Court Civil Rules 2006 (SA) from 23 February 2017 through to the date of judgment.

16. The defendant’s only opposition to this claim was based upon the provision in clause 13.5 of the Underwriting Agreement that it was not required to make a payment for a “taxable supply” until given a tax invoice.  Further, on the premise that the $1.2 million related to a taxable supply, the defendant contended that it did not receive the invoice contemplated by clause 13.5 until 10 February 2017.  While it had received earlier invoices (including the invoices of 4 November 2016 and 10 December 2016) that included a claim for the $1.2 million, the defendant contended that these were not valid invoices for the purposes of clause 13.5 because they included claims for additional amounts to which the plaintiffs were not entitled, and in any event also sought an incorrect amount of GST in respect of the $1.2 million.

17. I would have been inclined to treat the earlier invoice of 4 November 2016 as sufficient for the purposes of clause 13.5.  However, I do not need to reach a concluded view about this because I have rejected the premise of the defendant’s submissions in this respect; namely, that the $1.2 million related to a taxable supply.  The defendant accepted that if I were to reject this premise, then the interest sought by the plaintiffs would be payable. 

18. On the basis of my earlier reasons,[10] and the terms of paragraph 1 of Schedule 5 to the Underwriting Agreement, the base commission of $1.2 million payable under paragraph 1(a) of that Schedule fell due for payment on the Relevant Date, being 31 October 2016. It follows that the plaintiffs are entitled to contractual interest at the rate of 15 per cent per annum, calculated in accordance with clause 15.15 (that is, with monthly rests), for the period 1 November 2016 to 22 February 2017. The defendant does not contest the plaintiffs’ calculation of this interest in the sum of $56,697. I propose to award interest in that amount.

    [10]   Manassen Holdings Pty Ltd v Commercial & General Corporation Pty Ltd [2019] SASC 171 at [125].

19. As for simple interest at the Supreme Court rate on this amount from 23 February 2017 through to the date of judgment (31 October 2019), this was not opposed by the defendant, and I award further interest of $8,300[11], giving a total of $64,997 in interest in respect of the base commission.

    [11]   Using the rates under Supreme Court Civil Supplement Rules 2014 (SA) r 208 of 5.5 per cent for approximately two years four months, and 5.25 per cent for approximately four months, giving approximately $8,300.

20. Turning to the plaintiffs’ claim for interest on the additional commission of $600,000, again the defendant’s only opposition to this claim was based upon the premise that it related to a taxable supply.  As I have rejected that premise, I consider it appropriate to order the interest sought.  The plaintiffs seek interest from 4 November 2016 in respect of the first half of the additional commission, and from 12 December 2016 in respect of the second half of the additional commission.  They have thus confined their claim to interest from the date these amounts were first invoiced rather than pursuing their strict contractual right to seek interest on this amount from the slightly earlier Relevant Date of 31 October 2016. 

21. The plaintiffs provided me with a figure for this interest (calculated in accordance with clause 15.15) through to 15 October 2019,[12] which was not contested by the defendant.  Having rolled this out to the date of judgment (31 October 2019), and allowing for some minor rounding, I propose to award pre-judgment interest on the unpaid additional commission of $600,000 in the amount of $330,000.

    [12]   Being $323,576, comprising $165,374 in respect of the first half of the additional commission, and $158,202 in respect of the second half of the additional commission.

22. For the reasons set out above, I propose to order that the defendant pay a total of $394,997 (being $64,997 plus $330,000) in pre-judgment interest.  I do not think it is necessary or appropriate for me to deal with the issue of post-judgment interest.

    Costs

23. The plaintiffs seek their costs of these proceedings on the basis that they were the successful party.  Their primary submission is that they are entitled to those costs on an indemnity (or solicitor/client) basis pursuant to clause 15.16(a) of the Underwriting Agreement.  Their alternative submission is that, by reason of their having achieved a more favourable outcome than their filed offer dated 1 August 2017, they are entitled to those costs on a party/party basis until 15 August 2017, and thereafter on an indemnity basis.

24. The defendant accepts that as the successful parties the plaintiffs are entitled to a costs order in their favour.  However, it contends that the plaintiffs should be confined to party/party costs, and further that they should only be entitled to a proportion of those costs given that the plaintiffs were unsuccessful on three of the four claims they pursued.

    The plaintiffs’ contractual right to costs

25. I have earlier in these reasons set out the terms of the plaintiffs’ right to be indemnified under clause 15.16(a) of the Underwriting Agreement.  That provision relevantly required that the defendant “indemnify [the plaintiffs] … against, and must pay [the plaintiffs] … the amount of, all losses, liabilities, fees, costs and expenses (including legal fees, costs and expenses) (together with GST thereon) suffered or incurred by [the plaintiffs] in connection with any breach or default under this agreement by [the defendant]”.

26. In their statement of claim, the plaintiffs pleaded a contractual right to recover their costs on an indemnity basis, albeit under the right of reimbursement for expenses in the similarly worded clause 6.3, rather than under the right of indemnity in clause 15.16(a).

27. Under clause 6.3(a) of the Underwriting Agreement, the defendant was required to “pay to and reimburse [the plaintiffs] for any legal fees, costs and expenses (together with any corresponding GST and disbursements) incurred by [the plaintiffs] in connection with this agreement”.  And, under clause 6.3(c), the defendant was also required to “pay to and reimburse [the plaintiffs] the amount of all fees, costs and expenses (including legal fees) (together with any corresponding GST) incurred by [the plaintiffs] in connection with any actual or proposed enforcement of any rights under this agreement.”

28. The parties both proceeded on the basis that despite the plaintiffs’ reliance upon a contractual right to costs on an indemnity basis, any such right was nevertheless subject to the Court’s general discretion in relation to the issue of costs.  There are certainly several passages in the authorities that support, or at least appear to support, this approach.  However, upon closer examination, I do not think that this is strictly correct; at least not in a case where the successful party has pleaded a contractual right to recover costs.  

29. An authority often cited in the present context, and relied upon by the parties in this case, is the decision of the Victorian Court of Appeal in Chen v Kevin McNamara & Son Pty Ltd.[13]When considering a clause with some similarities to the present one, Redlich JA (with whom Maxwell P and Robson AJA agreed) said:[14]

    An agreement to pay costs will be construed as an agreement to pay costs on a party and party basis, unless it is plain from its terms that costs are to be paid on a ‘special basis.’[15]  Where the terms plainly and unambiguously provide for costs to be assessed on some special basis, the court will take such a provision into account[16] but it is not bound to give effect to any extra-curial contract as to costs.[17]  An agreement to pay costs on a ‘special’ basis is only a factor informing the exercise of the court’s discretion, but not requiring the exercise of that discretion in a particular way.[18]  Generally however, where the parties have unmistakeably agreed to the making of a special costs order, such a term will be given effect[19] to unless there is some other discretionary consideration that militates against the making of such an order.[20]

    [13]   Chen v Kevin McNamara & Son Pty Ltd (No 2) [2012] VSCA 229.

    [14]   Chen v Kevin McNamara & Son Pty Ltd (No 2) [2012] VSCA 229 at [8].

    [15]   Kheirs Financial Services Pty Ltd v Aussie Home Loans Pty Ltd [2010] VSCA 355.

    [16]    Citibank Savings Ltd v Nicholson & Ors [1998] ANZ Conv R 442, 444; Rumball v Mortimore [2000] WASC 126, [14]; Commonwealth Bank of Australia v Aspenview Productions Pty Ltd [2001] VSC 499 (McDonald J); Kyabram Property Investments Pty Ltd v Murray [2005] NSWCA 87 (Beazley JA with whom Hodgson and Ipp JJA agreed).

    [17]   For a discussion of relevant authority see Taree Pty Ltd v Bob Jane Corporation Pty Ltd [2008] VSC 228 (Vickery J).

    [18]   Russo v Buck (No 2) [2007] SASC 157.

    [19]    Gomba Holdings (UK) Ltd v Minories Finance Ltd (No 2) [1993] Ch 171.

    [20]    Re Adelphi Hotel (Brighton) Ltd [1953] 2 All ER 498; Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service (No 3) [2010] NSWSC 1139.

30. I acknowledge that in the above passage Redlich JA said that the Court “is not bound to give effect to any extra-curial contract as to costs”.  However, properly understood, I consider that this observation was confined to circumstances in which a party seeks a costs order pursuant to the Court’s general discretion to make orders in relation to costs (albeit relying upon the existence of a contractual right as being relevant to the exercise of that discretion), and did not extend to circumstances in which the plaintiff seeks to recover costs based directly upon its contractual right to recover those costs. 

31. I note in this respect that the claim for costs in Chen v Kevin McNamara & Son Pty Ltd (No 2) sought an exercise of the Court’s general discretion as to costs under s 24 of the Supreme Court Act 1986 (Vic), and not a direct contractual claim for costs. Further, in the above passage, Redlich JA cited two authorities as supporting the Court’s retention of a discretion as to costs even in the face of a contractual right to recover costs; namely, the decision of Vickery J in Taree Pty Ltd v Bob Jane Corporation Pty Ltd[21] and the decision of Doyle CJ in Russo v Buck (No 2).[22] Properly understood, these authorities, and others, while recognising that a contractual right to recover costs will be relevant to, but not determinative of, the exercise of the Court’s general discretion in relation to costs, nevertheless also recognise the existence of an independent contractual right that might be separately pursued. 

    [21]   Taree Pty Ltd v Bob Jane Corporation Pty Ltd [2008] VSC 228.

    [22]   Russo v Buck (No 2) [2007] SASC 157.

1. In Taree Pty Ltd v Bob Jane Corporation Pty Ltd, the successful party sought a special costs order as an exercise of the Court’s general discretion in relation to costs, and contended that this discretion should be informed by that party’s contractual right to costs on a special basis under the franchise and guarantee agreements between the parties.  It was in that context that Vickery J held that where a contract provides for the recovery of costs, the Court continues to have a discretion in relation to the making of orders for the payment of costs.[23]

   [23]   Taree Pty Ltd v Bob Jane Corporation Pty Ltd [2008] VSC 228 at [38]-[41], citing Kyabram Property Investments Pty Ltd v Murray [2005] NSWCA 87 at [12]-[13], and Russo v Buck (No 2) [2007] SASC 157.

2. However, it is noteworthy that Vickery J went on to consider a submission from the successful party that a reason for exercising the discretion in a manner that conformed to the contractual right was to avoid the prospect that that party would otherwise be required to pursue a separate contractual claim (which it said, relying upon the decision of the New South Wales Court of Appeal in Abigroup Ltd v Sandtara Pty Ltd,[24] would not be precluded by an Anshun estoppel). 

   [24]   Abigroup Ltd v Sandtara Pty Ltd [2002] NSWCA 45.

3. In then considering Abigroup Ltd v Sandtara Pty Ltd, Vickery J noted that that case had involved a subsequent contractual claim for costs on an indemnity basis by a party which had earlier obtained an award for party/party costs in its favour.  In upholding that subsequent claim, the New South Wales Court of Appeal not only acknowledged the existence of the independent contractual right to recover legal costs, but also held that there was no estoppel preventing subsequent reliance upon that right.  It is instructive to set out the relevant passage from the reasons of Stein JA in Abigroup Ltd v Sandtara Pty Ltd:[25]

   [25]   Abigroup Ltd v Sandtara Pty Ltd [2002] NSWCA 45 at [7]-[14].

   The appellant submitted that because s 76 of the Supreme Court Act says that costs shall be in the discretion of the court and Part 52A rule 8 of the Supreme Court Rules says that a party cannot recover costs except under an order of the court, the Act and rules displace any contractual entitlement to recover costs.  Even if that not be correct, it submitted that   once the Supreme Court has spoken on costs, that is an end of the issue, thus removing any right to recover costs on any other basis.  In other words, it submitted that any contractual right is extinguished or overridden.  Further, it was open to Sandtara to seek indemnity costs in the Supreme Court on the basis of cl 18.02, indeed on one occasion it did so, but unsuccessfully.

   Reliance was placed by the appellant on the English Court of Appeal decision in Gomba Holdings Ltd v Minories Finance [1993] Ch 171. In that case the court held that under the terms of a mortgage the defendants were entitled to recover their actual costs and expenses and that they were contractually entitled to payment on an indemnity basis. The court said that normally the court’s discretion as to costs should be exercised to correspond with the contractual entitlement. My reading of Gomba, however, does not assist the submission of the appellant.  It certainly does not support the proposition that the power to make an order for costs or the making of an order for costs in a court extinguishes or overrides a contractual right to costs.

   It is, of course, correct that a court is not bound to give effect to any extra curial contract as to costs when exercising its discretion to award costs.  It does not follow, however, that the discretion takes over from the contract and the exercise of discretion against giving effect to the contract precludes enforcement of the contract as to costs.  As Salter J said in Mansfield v Robinson [1928] 2 KB 353 at 359, agreements as to costs are common practice and perfectly valid and enforceable. Gomba did not overrule Mansfield, as seems to have been suggested by the appellant.  Although Scott LJ noted that some of the dicta in Mansfield was not easily reconcilable, the judgment of the court is consistent with Mansfield, see for example at 194 – 195. For other relevant examples see In Re Shanahan (1941) 58 WN (NSW) 132 at 134; Maher v Network Finance Ltd (1986) 4 NSWLR 694; and Elders Trustee & Executor Co Ltd v Eagle Star Nominees Ltd (1986) 4 BPR 9205. The contractual right simply stands independently of the curial power and order.

   In so far as enforcement of the contractual provision as to costs is concerned, there is no issue on the costs judgments in the Supreme Court proceedings which is capable of giving rise to a res judicata.  The validity or enforceability of the indemnity provision as to costs in cl 18.02 was never an issue in the Supreme Court.  Moreover, the contractual claim for costs had not crystallised until the conclusion of all of the Supreme Court proceedings.  Following judgment, there still may have been costs and expenses which would have been incurred by the respondent within cl 18.02.  The respondent would have been unable to claim any such costs prior to the conclusion of the Supreme Court proceedings.  Accordingly, I can see no basis for any suggestion that Sandtara’s contractual rights merged into the judgments for costs made in the Supreme Court.

   No Anshun estoppel or abuse of process

   The appellant’s submission that the respondent’s failure to proceed upon its contractual right under cl 18.02 in the Supreme Court proceedings estopped it from so doing in later proceedings is, in my view, misconceived.  As I have already mentioned, Sandtara’s right to enforce its contractual right in court had not crystallised before the Supreme Court proceedings were completed. Accordingly, it could not proceed in those proceedings to enforce its contractual indemnity.  Therefore, it did not fail to bring all of its claims in those proceedings. It was not, in my estimation, in breach of the principles discussed in Anshun (at 602 – 603).  The possibility of conflicting judgments does not arise because no judgment in the Supreme Court pronounced on the respondent’s rights to indemnity under cl 18.02.  As such, it is not relevant that in one case (before Hodgson J as he then was) Sandtara asked for the contractual indemnity to be taken into account in the exercise of the costs discretion.

   The authorities discussed earlier make it clear that Sandtara’s contractual right of indemnity for all costs remains independently of the court’s orders.  By seeking costs in the Supreme Court, the respondent did not lose or surrender its contractual rights.

   Nor can the respondent’s proceedings in the District Court be seen as an abuse of process.  The proceedings did not seek to reverse the decisions of the Supreme Court, contrary to the appellant’s submission, but merely sought to enforce the respondent’s contractual rights.  The respondent’s contractual right was simply not an issue before the Supreme Court.

   In my view, Patten DCJ was correct to dismiss the appellant’s submissions on the effect of s 76 and res judicata, Anshun estoppel and abuse of process.

4. Both Giles JA and Young CJ in Eq agreed with the reasons of Stein JA, with the latter adding some additional observations in support of a contractual right to the recovery of costs having an existence which is independent from any exercise of the Court’s general discretion as to costs.

5. Returning to the situation in Taree Pty Ltd v Bob Jane Corporation Pty Ltd, Vickery J held that the contractual right relied upon by the successful party in that case was not plain or unambiguous in its terms, and that his Honour would in any event exercise his discretion to confine the successful party to an order for party/party costs.[26]  As to this last proposition, his Honour emphasised that if the successful party had intended to claim costs on other than a party/party basis it should have done so in its pleadings – both so as to provide fair notice of the other party’s potential exposure to a special costs order, but also so as to give it an opportunity to mount any challenge to that contractual right in the context of the trial.[27]

   [26]   Taree Pty Ltd v Bob Jane Corporation Pty Ltd [2008] VSC 228 at [47]-[49].

   [27]   Taree Pty Ltd v Bob Jane Corporation Pty Ltd [2008] VSC 228 at [50]-[56].

6. Vickery J expressly acknowledged the successful party’s entitlement to make a fresh claim in a separate and subsequent proceeding for its additional costs on a contractual basis,[28] but expressed the view that such claim would in the circumstances of that case (and unlike in the circumstances of Abigroup Ltd v Sandtara Pty Ltd) likely be prevented by an Anshun estoppel.  Vickery J concluded:[29]

   Even if I am wrong about the principles of Anshun being enlivened to estop the defendants from pursuing their contractual claim in a further and subsequent proceeding, this would not render any order I would make against the plaintiffs to pay costs of the first defendant on a party and party basis futile.  As is made clear in Abigroup Ltd v Sandtara Pty Ltd, whatever contractual rights the first defendant may have to claim costs against any of the plaintiffs on an indemnity basis, are independent of orders as to costs which are made by the Court under its Rules.  The possibility of the first defendant pursuing any rights to claim additional costs on an indemnity or other basis founded on contractual terms in a subsequent proceeding, would not thereby render the making of a costs order on the usual basis under the Rules in these proceedings futile.

   [28]   Taree Pty Ltd v Bob Jane Corporation Pty Ltd [2008] VSC 228 at [60], citing Abigroup Ltd v Sandtara Pty Ltd [2002] NSWCA 45.

   [29]   Taree Pty Ltd v Bob Jane Corporation Pty Ltd [2008] VSC 228 at [61].

7. In Russo v Buck (No 2)[30] the successful party sought an order for costs on an indemnity basis.  The order was sought pursuant to the Court’s general discretion as to costs, but with reliance placed upon a contractual provision that entitled the recovery of costs on a solicitor and own client basis.  Doyle CJ held that while this contractual provision was a factor supporting the exercise of the Court’s discretion in favour of the order sought, it did not require that the discretion be exercised in this way.  However, immediately following this statement his Honour observed that “[w]hether [the successful party] could make a separate claim against [the unsuccessful party] under the relevant provision of the mortgage is another issue.”[31]

   [30]   Russo v Buck (No 2) [2007] SASC 157.

   [31]   Russo v Buck (No 2) [2007] SASC 157 at [22], citing Gomba Holdings UK Ltd v Minories Finance Ltd (No 2) [1992] 4 All ER 588 at 605-607.

8. In light of the above authorities, and as an application of first principles, I consider that the plaintiffs have a contractual right to the recovery of costs unaffected by the Court’s general discretion in relation to costs.  In particular, I agree with the reasoning of Stein JA (in the passage from his Honour’s reasons in Abigroup Ltd v Sandtara Pty Ltd set out above) that the existence of the Court’s general discretion does not displace or extinguish the contractual right.  And I do not consider that the enforcement of that right is otherwise subject to any discretion on the part of the Court.  Assuming the relevant contract is valid and binding, it is capable of being enforced in accordance with its terms.  The enforcement of a contractual right to costs would not fall foul of the general prohibition against the recovery of legal costs as damages.[32]  The claim would be one for debt, in respect of a sum due under the contract, and not a claim for damages assessed by reference to legal costs that have been incurred.

   [32]   Gray v Sirtex Medical Ltd (2011) 193 FCR 1 at [15].

9. There are two potential obstacles to the enforcement of a direct contractual right to costs at the end of a trial.  The first of these arises where the party’s intended reliance upon that contractual right has not been pleaded.[33]  If the lack of fair notice of the party’s intended reliance upon this right occasions prejudice (for example, by depriving the other party of the opportunity to challenge the validity or enforceability of the relevant contract during the trial) then the party may be forced to bring separate proceedings to enforce that contractual right.

   [33]   See, for example, Clarence Property Corporation Ltd v Sentinel Robina Office Pty Ltd [2019] QSC 13 at [10]-[12], applying Kyabram Property Investments Pty Ltd v Murray [2005] NSWCA 87 at [15]-[17].

10. However, this potential obstacle does not arise in the present case because the plaintiffs did plead an intention to seek recovery of their costs under the Underwriting Agreement.  While the plaintiffs now rely upon a different (but similarly worded) clause in the agreement, the defendant has not suggested any prejudice in this respect.

11. The second potential obstacle is a more technical one; namely, the view that the contractual claim to the recovery of costs does not crystallize until the conclusion of the proceedings, with the consequence that it cannot properly be pursued in those proceedings.  While there is some support for this view in the passage from the reasons of Stein JA in Abigroup Ltd v Sandtara Pty Ltd set out above, I favour a more practical or pragmatic approach.  Assuming fair notice of the intention to rely upon the contractual provision has been provided, I see no need or utility in requiring that the matter be pursued in separate proceedings; at least not in circumstances where the contract that contains the right to the recovery of the costs has been an integral part of the proceedings.  To the contrary, requiring the pursuit of separate proceedings in such circumstances would seem to me to involve an unfortunate elevation of technicality and form over substance that would serve only to add a further layer of delay and cost to the final resolution of the issues between the parties.

12. I note that the approach I have suggested is consistent with, and supported by, the approach adopted by Blue J in Testel Australia Pty Ltd v KRG Electrics Pty Ltd.[34]In that case, his Honour construed the relevant clause within the franchise agreement between the parties as permitting the recovery of costs on an indemnity basis.  Further, because the claim for costs of the action on an indemnity basis had been pleaded, his Honour permitted the recovery of those costs as a contractual debt within the same action.

    [34]   Testel Australia Pty Ltd v KRG Electrics Pty Ltd [2013] SASC 91 at [146]-[151], [155]; see also Jana Pty Ltd v Ezistripdemo Pty Ltd [2017] NSWSC 1286.

13. For these reasons, I would be prepared to permit the plaintiffs to rely upon their contractual rights under clause 15.16(a) of the Underwriting Agreement without any discretionary overlay. That said, the issue is not ultimately of any significance here because, in my view, to the extent that this clause entitles the plaintiffs to recover their costs of the action on anything greater that the ordinary party/party scale, I would exercise my general discretion in relation to costs to give effect to this clause. There is ample authority to the effect that the Court will generally exercise its discretion in this way,[35] and I do not think there is anything in the circumstances of the present case that would incline me to exercise the discretion in any different manner.

    [35]   For example, Chen v Kevin McNamara & Son Pty Ltd (No 2)[2012] VSCA 229 at [8]; Perpetual Trustees Australia Ltd v Barker [2004] SASC 58 at [20]; Ouwens Casserly Real Estate Pty Ltd v Harcourts South Australia Pty Ltd [2017] SASCFC 69 at [2].

14. It thus remains for me to construe clause 15.16(a).

    Construction of the plaintiffs’ contractual right to recover costs

15. Two issues have arisen in relation to the construction of the plaintiffs’ contractual right to recover costs under clause 15.16(a) of the Underwriting Agreement.  The first is whether that clause provides for the recovery of costs on some higher basis (such as a solicitor/client or indemnity basis), or whether it is confined to the recovery of costs on a party/party basis.  The second is whether, regardless of the basis upon which costs are recoverable, they are to be confined to a proportion of the plaintiffs’ costs on the basis that those costs that are referable to the issues upon which the plaintiffs were unsuccessful were not costs incurred “in connection with” any breach or default on the part of the defendant. 

16. The courts are often called upon to construe contractual rights to the recovery of costs.  It regularly occurs in the context of defaults under a mortgage or lease, but is not confined to these categories of cases.  Clauses permitting the recovery of costs, or providing an indemnity in respect of costs, have arisen, and have been considered by the courts, in a range of contexts. 

17. It has been said that such clauses should be construed on the basis that they are generally a mere reference to, and reminder of, the relevant party’s ordinary right to the recovery of party/party costs, and that they will only be construed so as to permit the recovery of costs on some special or higher basis when “plain and unequivocal” in their meaning.[36]  While this may be broadly accurate, I do not understand it to be the expression or result of some principle unique to this field of legal discourse.  Rather, it is simply a reflection of an application of the usual principles of contractual interpretation in a particular context.  In construing a contractual right to recover costs, the task remains one of determining the parties’ objective intention as manifested in the relevant contract. 

    [36]   ReAdelphi Hotel (Brighton) Ltd [1953] 1 WLR 955 at 960; applied in numerous subsequent authorities including in this jurisdiction in Micarone v Perpetual Trustees Australia Ltd (No 2) [1999] SASC 533 at [32]; Essential Beauty Franchising (WA) Pty Ltd v Pilton Holdings Pty Ltd (No 2) (2014) 120 SASR 433 at [29]; and Westpac Banking Corporation Ltd v Haynes [2017] SASC 23 at [32]. See also the reference to “plain and unambiguously” in Chen v Kevin McNamara v Son Pty Ltd (No 2) [2012] VSCA 229 at [8], as applied in a number of subsequent authorities.

18. It is trite to observe that each case will ultimately turn upon the terms of the particular clause in the context of the relevant contract.  As such, there is a limit to the significance that may be attached to the construction of similar words or phrases in other cases.  However, as Redlich JA observed in Chen v Kevin McNamara & Son Pty Ltd (No 2),[37] there may be nevertheless be some general assistance to be gained from a consideration of the approach taken in other such cases. Indeed, in that case, Redlich JA undertook a useful survey of a number of authorities,[38] to which I have had regard.

    [37]   Chen v Kevin McNamara & Son Pty Ltd (No 2) [2012] VSCA 229 at [9].

    [38]   Chen v Kevin McNamara & Son Pty Ltd (No 2) [2012] VSCA 229 at [10]ff.

19. Having considered a number of the authorities construing contractual clauses entitling one party to recover costs from the other, it is fair to say that it is difficult to discern a consistent approach, even in respect of relevantly very similar wording.  However, I make the following observations about those authorities that have informed my approach in a general way.

20. The courts have generally been prepared to construe clauses as permitting the recovery of costs on a higher basis when the clause has included express reference to the entitlement to recover costs on a “solicitor/client” or “indemnity” basis.  However, in the absence of clear words to this effect the courts have varied as to what word or words might be construed as supporting an indication that parties intended or contemplated the recovery of legal costs on a higher than party/party basis.

21. In Abigroup Ltd v Sandtara Pty Ltd,[39] a guarantee required the guarantor to “unconditionally indemnify” the landlord from “all costs and expenses”.  This language was held to be sufficient to indicate an intention to permit recovery on a solicitor/client basis.  In so holding, the Court emphasised that ordinarily an indemnifier would be liable for the full costs as between solicitor and client.[40]

    [39]   Abigroup Ltd v Sandtara Pty Ltd [2002] NSWCA 45.

    [40]   Abigroup Ltd v Sandtara Pty Ltd [2002] NSWCA 45 at [15]-[17].

1. In Chen v Kevin McNamara & Son Pty Ltd (No 2), the relevant contractual clause required that the owner pay the builder “any costs and fees incurred” by the builder in enforcing its rights under the agreement.  While the builder relied upon the similarity between these words and the reference to “all costs and expenses” in Abigroup Ltd v Sandtara Pty Ltd, Redlich JA distinguished that decision on the basis that the subject clause did not specify that the owner shall “indemnify” the builder.  His Honour considered that the subject clause did not contain language which might signify that the costs contemplated were solicitor/client or indemnity costs.[41]

   [41]   Chen v Kevin McNamara & Son Pty Ltd (No 2) [2012] VSCA 229 at [20].

2. In Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service (No 3), the lease agreement between the parties provided that the tenant “indemnifies the Landlord against any liability or loss arising and any reasonable cost incurred”. Nicholas J acknowledged that the word “indemnifies” implies making payment for the whole of the costs incurred, but said that the clause in question qualified this implication through the reference to “reasonable” costs.  While his Honour thus concluded that the entitlement to recover costs did not extend to those costs which were unreasonably incurred, his Honour nevertheless held that it did permit the recovery of costs on substantially the same basis as an order for indemnity costs.[43]

   [42]   Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service (No 3) [2010] NSWSC 1139.

   [43]   Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service (No 3) [2010] NSWSC 1139 at [21], [28], [39].

3. While these three decisions thus each attached some significance to the expression of a right of recovery in terms of an obligation to indemnify, it would seem that this expression is not necessarily determinative of the scale or basis upon which that indemnity applies in respect of legal costs. 

4. I refer in this respect to the decision of Whelan J in Irani v St George Bank Ltd (No 3).[44]In that case the guarantors agreed to indemnify the lender against all costs in exercising its rights to recovery of the guaranteed money.  In declining to exercise his discretion to award costs on higher than the ordinary basis, Whelan J noted that in the absence of any express reference to legal costs in the terms of the indemnity, the position was not as clear or unequivocal as in some other cases.  For reasons that included, but were not confined to, this lack of clarity, his Honour declined to order costs on a higher basis, albeit that his Honour also concluded by observing that on the basis of the analysis in Abigroup Ltd v Sandtara Pty Ltd, the lender could separately pursue the contractual recovery of any entitlement to indemnity under the guarantee.[45]

   [44]   Irani v St George Bank Ltd (No 3) [2005] VSC 456.

   [45]   Irani v St George Bank Ltd (No 3) [2005] VSC 456 at [18]-[22].

5. In Kheirs Financial Services Pty Ltd v Aussie Home Loans Pty Ltd,[46] the clause required the appellant to “indemnify” the respondent “against all or any loss, damages, claims, costs and expenses” incurred by the appellant by reason of it failing to observe the provisions of the agreement.  The Court construed this clause as confined to the recovery of costs on a party/party basis.  However, it would seem that in concluding that there was no plain or unequivocal language indicating an intention to permit the recovery of costs on a higher basis, the Court was influenced by the contrasting reference in another clause of the relevant agreement to the recovery of legal costs on a solicitor and client basis.[47]

   [46]   Kheirs Financial Services Pty Ltd v Aussie Home Loans Pty Ltd (2010) 31 VR 46.

   [47]   Kheirs Financial Services Pty Ltd v Aussie Home Loans Pty Ltd (2010) 31 VR 46 at [117].

6. I refer also to two decisions of this Court of some assistance in construing contractual rights to the recovery of legal costs.

7. The first is the decision of Blue J in Essential Beauty Franchising (WA) Pty Ltd v Pilton Holdings Pty Ltd (No 2).[48] The franchise agreement in that case contained a clause requiring the franchisee “to pay the reasonable costs and expenses which [the franchisor] may in any way incur arising from any default by [the franchisee] in the performance of its obligations under this Agreement.”  Blue J noted that the definitions of both party/party costs and solicitor/client costs under the Supreme Court Civil Rules 2006 (SA) include reference to “costs reasonably incurred”, the difference being that the former are determined on the basis of reimbursement by reference to the scale of costs under the Rules, whereas the latter are to be determined on the basis of full reimbursement for costs reasonably incurred.  His Honour held that the wording of the relevant clause was consistent with both definitions and thus ambiguous.  His Honour ultimately concluded the relevant clause should be construed as providing only for party/party costs as there was not a sufficient basis to construe it as entailing solicitor and client costs.[49]

   [48]   Essential Beauty Franchising (WA) Pty Ltd v Pilton Holdings Pty Ltd (No 2) (2014) SASR 433.

   [49]   cf Bayford v St George Bank Ltd (No 2) (2003) 229 LSJS 59, where Besanko J held that the reference to “reasonable” costs warranted a confinement to the recovery of solicitor/client costs but did not confine recovery to party/party costs.

8. The second is the decision of the Full Court in Ouwens Casserly Real Estate Pty Ltd v Harcourts South Australia Pty Ltd.[50]The franchise agreement in that case provided that the franchisee “shall bear all costs and expenses, including legal costs and any other professional fees and disbursements incurred by the Franchisor” in connection with the enforcement of its rights.  It also provided that the franchisee “indemnifies … the Franchisor … against all causes of action … costs, liabilities and expenses” arising from any breach of the agreement. 

   [50]   Ouwens Casserly Real Estate Pty Ltd v Harcourts South Australia Pty Ltd [2017] SASCFC 69.

9. The trial judge had awarded costs on a solicitor/client basis.[51]  In so doing, his Honour accepted that the reference to costs “incurred” suggested an intention to refer to the amounts actually expended by a party.[52]  His Honour also attached significance to the description of the contractual obligation in terms of an obligation to indemnify.[53]  However, his Honour considered that the clause confined the franchisor to the recovery of the costs that it demonstrated were reasonably incurred (that is, solicitor/client costs) rather than placing any onus on the franchisee to demonstrate that the costs were unreasonably incurred (indemnity costs).

   [51]   Harcourts South Australia Pty Ltd v Ouwens Casserly Real Estate Pty Ltd (No 2) [2017] SADC 45 at [30]-[53], referring inter alia to the awards of solicitor/client costs in both Catto v Hampton Australia (2008) 257 LSJS 245.

   [52]   Harcourts South Australia Pty Ltd v Ouwens Casserly Real Estate Pty Ltd (No 2) [2017] SADC 45 at [35], relying upon Catto v Hampton Australia Ltd (in liq) (2008) 257 LSJS 245 at [32].

   [53]   Harcourts South Australia Pty Ltd v Ouwens Casserly Real Estate Pty Ltd (No 2) [2017] SADC 45 at [45], relying upon Chen v Kevin McNamara & Son Pty Ltd (No 2) [2012] VSCA 229.

10. In refusing leave to appeal from this decision in relation to costs on the basis inter alia that the proposed appeal had insufficient prospects of success, the Full Court reasoned:[54]

    In our view the application has insufficient prospects for success.  The provision is that the franchisee must pay the costs ‘incurred’.  That expression plainly means something more than party/party costs.  Of course, it is arguable that clause 11.27 is impliedly qualified by the concept of reasonableness.  However, an order for solicitor/client costs requires the party in whose favour the order is made to prove reasonableness.  Clause 11.27, even so qualified, therefore plainly and unambiguously provides for costs, at least, on a solicitor/client basis even though that term is not used.  We note that the respondent has cross-appealed on that very issue contending that indemnity costs should have been ordered.  The cross-appeal is pressed only if permission is granted.

    [54]   Ouwens Casserly Real Estate Pty Ltd v Harcourts South Australia Pty Ltd [2017] SASCFC 69 at [5].

11. Turning to the construction of clause 15.16(a) in the Underwriting Agreement the subject of the present proceedings, there are several textual considerations that I have taken into account in concluding that the clause provides for the recovery of costs on a higher than party/party basis.

12. First, the clause is expressed in terms of an obligation to indemnify.  Secondly, the clause expressly refers to not only legal costs, but legal fees.  The latter is perhaps more naturally referable to the amounts charged by lawyers, rather than some quantification of costs in accordance with a court-imposed scale.  Thirdly, the clause is expressed by reference to costs and fees “incurred”, which is again more consistent with the amount in fact expended rather than an amount determined by reference to a court-imposed scale.  Next, the clause refers to “all” costs and fees, and hence is not expressly confined in any way.  And finally, there is nothing else in the balance of the agreement that, by way of contrast or otherwise, suggests that the right of recovery should be confined to party/party costs.  To the contrary, the contractual context and terms of the provision suggest an objective intention that the underwriter plaintiffs be protected from any financial loss as a result of any breach or default by the defendant.

13. While the cumulative effect of the above is sufficient to persuade me that clause 15.16(a) permits the plaintiffs to recover costs at higher than the usual party/party basis, I do not think that the clause was intended to provide a literal or absolute indemnity.  The clause should be construed as being subject to some implicit qualification to the effect that the costs to be recovered were reasonably incurred.  As to whether this implied qualification results in a right to recover costs on a basis more akin to solicitor/client or indemnity costs is difficult to determine.  While there is often little practical difference between the two, having accepted an implied qualification of reasonableness, I see no reason to relieve the plaintiffs of the onus of establishing the reasonableness of those costs.  I thus consider that the clause entitles the plaintiffs to recover their costs on a solicitor/client rather than indemnity basis.

14. The next issue that arises as to the construction of clause 15.16(a) is whether, even assuming recovery on a solicitor/client basis, the clause entitles the plaintiffs to recover the entirety of their costs on that basis.  The defendant contends that as the right of recovery under clause 15.16(a) is limited to legal costs and fees “in connection with any breach of or default under this agreement” by the defendant, it extends only to the costs associated with the plaintiffs’ first claim, and not to the costs associated with their second, third and fourth claims.  While accepting that the costs of the first claim were incurred in connection with a breach or default under the Underwriting Agreement, the defendant contends that as the other claims did not arise under the Underwriting Agreement itself, and were in any event unsuccessful, the costs incurred in pursuing those claims fell outside of clause 15.16(a).

15. I accept the defendant’s submission.  In my view clause 15.16(a) permits recovery only of the plaintiffs’ costs “in connection with” their first claim.  While I would construe this right of recovery relatively broadly given the use of the words “in connection with”, I do not consider that it permits recovery of those costs only referable to the second, third and fourth claims.

16. While the most conceptually accurate way of giving effect to this construction would be to make an ‘issues-based’ costs order, such orders often do little more than create more scope for disagreement between the parties during any subsequent assessment or taxation of costs.  For this reason, I propose to make a ‘percentage-based’ order.  The parties acquiesced in, if not encouraged, me taking this approach.

17. In arriving at an appropriate proportion or percentage of the plaintiffs’ costs, the exercise is necessarily to be determined in a relatively broad brush manner, and is largely a matter of impression.  The approach I adopt is closely analogous to the approach that I would have taken in determining whether, and to what extent, the plaintiffs should be subjected to a reduction in the recovery of their costs as a matter of the Court’s general discretion as to costs on account of the defendant’s success on the plaintiffs’ second, third and fourth claims.[55]

    [55]   That is, in accordance with the principles summarised by Blue J in Carter v Brine(No 2) [2016] SASC 36 at [8]-[14].

18. The second, third and fourth claims undoubtedly added to the work undertaken by the plaintiffs in pursuing the proceedings through to judgment.  It was those claims that required the evidence in relation to the meeting of 30 November 2016, and as to the detail of the dealings between the parties and the subjective states of mind of Mr Uzcilas and Mr Manassen.  At the same time, the proceedings in their entirety were conducted efficiently and remained narrow in compass.  The trial lasted only two days, and involved only limited oral evidence.  It is true that there was a significant volume of documentary evidence, and that a significant proportion of it was not strictly relevant to the construction issue in the plaintiffs’ first claim.  At the same time, even if the proceedings had been confined to the first claim, a proportion of this documentary evidence would still have been necessary to put the contract in its proper context.

19. Bearing all of the above in mind, and wielding the broad axe that it is appropriate that I wield in this context, I consider that clause 15.16(a) entitles the plaintiffs to recover 70 percent of their costs of the action on a solicitor/client basis.

    Significance of the plaintiffs’ filed offer

20. The plaintiffs seek an order entitling them to recover their costs incurred after 15 August 2017 on an indemnity basis.  They do so based upon the operation of r 188F(3) of the Supreme Court Civil Rules, and their having obtained a judgment that is no less favourable to them than the terms of their filed offer dated 1 August 2017.

21. While I have already concluded that the plaintiffs are entitled to recover a significant proportion of their costs on a solicitor/client basis, it remains necessary to consider the plaintiffs’ filed offer because the plaintiffs contend that they are entitled to an order permitting them to recover the entirety of their costs incurred after 15 August 2017, and on an indemnity basis.

22. Rule 188F(3) provides as follows:

    (3)When a complying offer is made by a plaintiff and not accepted by a defendant and the plaintiff obtains judgment on the claim to which the offer relates no less favourable to the plaintiff than the terms of the offer—

    (a)     the costs incurred in respect of the claim up to 14 days after service of the formal offer are unaffected by the making of the formal offer;

    (b)     the plaintiff is entitled to an order against the defendant for the plaintiff's costs of action in respect of the claim to which the complying offer relates thereafter on an indemnity basis.

23. An entitlement to costs on an indemnity basis under this rule is thus contingent upon the plaintiffs establishing both that they made a “complying offer”, and that they obtained “judgment on the claim to which the offer relates no less favourable to the plaintiff[s] than the terms of the offer”.  Under r 188F(2), the entitlement is also subject to the overriding discretion of the Court.

24. The defendant opposes the plaintiffs’ claim for costs on an indemnity basis under r 188F(3) on the grounds that (i) their offer was not a complying offer; (ii) they have not established an entitlement to a judgment that would be no less favourable to them than the offer; and (iii) the Court should in any event exercise its overriding discretion to decline to award costs on that basis.

25. By way of background and context to my consideration of the parties’ respective submissions in relation to indemnity costs under r 188F(3), these proceedings were issued by the plaintiffs in May 2017.

26. By letter dated 21 July 2017 from the plaintiffs’ solicitors to the defendant’s solicitors, the plaintiffs made an offer[56] to settle the proceedings on the following basis:

    The defendant pays to the plaintiffs the sum of $800,000 within 28 days from the date of this correspondence;

    The sum referred to in paragraph 1 above excludes GST, which is to be governed by clause 13 of the Underwriting Agreement; …

    [56]   Or at least repeated the terms of an offer apparently made during a settlement conference.

27. The offer also provided for the proceedings to be discontinued upon payment of the sum in paragraph 1 above, for the terms to be confidential, and for there to be mutual releases (in accordance with an attached draft settlement agreement).  The offer was expressed to remain open until 25 July 2017.  The letter was marked “without prejudice, save as to costs”. 

28. By letter dated 24 July 2017, the defendant through its solicitors rejected the plaintiffs’ offer of settlement.

29. On 1 August 2017, the plaintiffs filed a formal offer under r 187 to settle the proceedings in terms of a judgment to be entered upon acceptance by the defendant as follows:

    1.   Judgment against the defendant in the sum of $595,000 (excluding GST);

    2.   The defendant is to pay interest on the judgment sum in paragraph 1 above, to be calculated in accordance with the Supreme Court Supplementary Rule 208; and

    3.   Defendant to pay the plaintiffs’ costs on a party-party basis up until the acceptance of this offer.

30. The offer was expressed to remain open for a period of 15 days after service.  The plaintiffs served this filed offer under cover of a letter from their solicitors to the defendant’s solicitors dated 1 August 2017.  That letter foreshadowed an intention to seek indemnity costs both under the Underwriting Agreement and by reason of the operation of r 188F.

31. On 15 August 2017, the defendant filed and served a response to the plaintiffs’ formal offer in conformity with r 188A, stating that the plaintiffs’ offer was not accepted.

32. By letter dated 27 November 2018, and so well over a year later and only shortly prior to trial, the defendant offered to settle the proceedings by paying the plaintiffs the sum of $400,000 within 21 days of acceptance of the offer.  The offer contemplated the discontinuance of the proceedings following payment, with no order as to costs.  It also contemplated the usual mutual releases in the form that had been included in an earlier draft settlement agreement.  The offer did not include any amount in respect of interest.

33. As set out in my earlier reasons, I have concluded that the plaintiffs are entitled to judgment in the sum of $600,000. And in these reasons I have concluded that the plaintiffs are also entitled to interest and costs.

    Whether the plaintiffs’ filed offer was a ‘complying offer’

34. Under r 188F(1), a complying offer is relevantly defined as follows:

    complying offer means a formal offer that—

    (a)     complies with rule 187;

    (b)     involves a genuine compromise;

    (c)contains a term either that the defendant on the relevant claim is to pay the costs of the plaintiff on the relevant claim on a party and party basis or that the parties will submit to any order the Court may make in the exercise of its discretion;

    (d)     … ; and

    (e)was filed at least 21 clear calendar days before the commencement of the trial of the claim to which it relates or such later date as may be specified by the Court on application for an extension of time made before the formal offer is made.

1. In contending that the plaintiffs’ filed offer was not a complying offer, the defendant relied upon the reference in the plaintiffs’ offer to a judgment sum of $595,000 “excluding GST”. The defendant contended that this reference rendered the offer inherently ambiguous and thus not a complying offer. 

2. I accept that there may be circumstances in which an ambiguity in a filed offer may result in it being a non-complying offer.  The first limb of the definition of complying offer set out above requires compliance with r 187, and hence if the ambiguity were such that the plaintiff could not establish compliance with that rule, then the offer would be non-complying. 

3. However, there are two difficulties with the defendant’s contention that the plaintiffs’ offer in this case was not a complying offer on account of the ambiguity of which it complains. 

4. The first difficulty is that I do not consider that any ambiguity in the reference to judgment in the amount of $595,000 “excluding GST” was sufficient to render the offer non-complying. 

5. It is true that the reference to “excluding GST” left it unclear whether the plaintiffs were intending to reserve to themselves the possibility of separately claiming any GST that might ultimately have been payable on the judgment sum. I accept there was some room for confusion in this respect given that the plaintiffs’ earlier offer (by letter dated 21 July 2017) appeared to treat the reference to “excluding GST” as leaving the issue of GST to be determined in accordance with clause 13 of the Underwriting Agreement, rather than resulting in the abandonment of any claim to recover, or be indemnified against, any GST payable on the judgment sum.

6. Ideally the plaintiffs ought to have made the position clear by expressing their offer in terms of the judgment it was prepared to accept being for a sum that was “plus GST” or “inclusive of GST”.  However, I am not ultimately persuaded that the potential uncertainty in relation to GST rendered the offer ambiguous in a sense that was fatal to its compliance with r 187.  I accept the plaintiffs’ contention that the inclusion of the words “excluding GST” made it plain that the judgment the plaintiffs were offering to accept would not include any provision for GST.  In my view, that was sufficient to achieve compliance with r 187, and hence to make the offer a complying offer. 

7. The second difficulty is that even if the offer was ambiguous and non-complying, the defendant did not take this point at the time of responding to the offer.  Under r 188A(1), a party to whom a formal offer has been made must respond within 14 days of service with a response either (a) accepting the offer; (b) not accepting the offer; or (c) contending that the offer does not comply with rule 187 and explaining why that is so.  Further, under r 188A(5), “[u]nless the Court otherwise orders in exceptional circumstances, an offeree is not entitled on an application for costs under rule 188F … to contend that an offer does not comply with rule 187 … other than on any grounds identified in  a formal response served in compliance with subrule (1)”.

8. In other words, if the defendant wished to rely upon an ambiguity in the offer, the time for taking that point was when the defendant filed its response under r 188A.  In filing its response under that rule, the defendant did not take the point, and in my view this is fatal to its ability to take the point now.  While the defendant suggested that I might consider dispensing with the need for it to comply with r 188A(5), I do not consider that any proper basis for me doing so has been identified.

   Whether the plaintiffs obtained a judgment that was ‘no less favourable’

9. The next issue to consider is whether the plaintiffs have established an entitlement to a “judgment on the claim to which the offer relates no less favourable to [them] than the terms of the offer”.

10. Rule 188F(3) does not make clear the way in which the Court should determine whether the judgment obtained is “no less favourable” to the plaintiffs than their offer.  In particular, it does not make plain whether it requires a comparison confined to the principal relief, or whether it requires comparison of all components of the offer and judgment (and hence including not only GST and interest, but also costs).  And if the latter, it does not make plain whether the judgment must be no less favourable in respect of each component, or whether it is sufficient that it is no less favourable upon a holistic assessment.

11. There are some authorities under the predecessor to r 188F(3) that held that the issue is to be determined by reference only to a comparison between the principal relief offered and obtained, and without having regard to the adequacy of the offer in relation to costs. [57]  However, that predecessor rule (r 188(6)) was differently worded and indeed made express reference to the principal relief.

    [57]   United Petroleum Pty Ltd v Skorpos (No 2) [2012] SASC 215 at [16], upheld on appeal in Skorpos v United Petroleum Pty Ltd [2013] SASCFC 117 at [11], [51].

12. In my view, r 188F(3) requires a holistic comparison that takes into account each of the components of the judgment and offer.

13. Considering first the principal relief offered and obtained, the plaintiffs have established an entitlement to judgment on their claim ($600,000) that was more favourable to them than their offer ($595,000).

14. Turning to the issue of GST, as I understand the defendant’s submission in this respect, it was to the effect that the ambiguity in the reference to “excluding GST” in the offer prevented any determination that the judgment obtained by the plaintiffs is no less favourable to them. I do not accept this submission. Even if the plaintiffs’ offer is properly to be construed as having left open to the plaintiffs the possibility of them separately seeking to recover GST from the defendant under clause 13 of the Underwriting Agreement, I do not think that the fact that I have not made any order permitting the recovery of GST means that the judgment is less favourable to the plaintiffs than their offer. Properly understood, the plaintiffs have not failed to establish a contractual right to the recovery of any GST payable by them. That right plainly exists. Rather, it is just that as a result of the private ruling that they obtained in September 2017, the plaintiffs have formed the view that there is no GST payable on the additional commission and hence no need to seek any relief in respect of GST.

15. On the issue of interest, the plaintiffs offered to accept interest on the judgment sum of $595,000 in accordance with supplementary rule 208.  I have held that the plaintiffs are entitled to interest on both the base commission of $1.2 million (for a short period of time) and the additional commission of $600,000, and that this interest is payable at the significantly higher contractual rate.[58]  Even by the date of the offer, which is the relevant date for the comparison,[59] the differential between what was offered and what was obtained by way of interest was significant.

    [58]   Save for the interest on the unpaid interest in respect of the base commission, which is only payable at the rate prescribed by supplementary rule 208.

    [59]   Spartalis v BMD Constructions Pty Ltd (No 2) [2015] SASCFC 28 at [13]-[14], applying Davies v Chicago Boot Co Pty Ltd (No 2) [2011] SASC 197 at [30].

16. Turning finally to the issue of costs, the defendant contended that if I were to accept its submission that the plaintiffs should only be entitled to an order for the recovery of a proportion of its costs (because they failed on their second, third and fourth claims), then it would follow that the plaintiffs would not have achieved an outcome that was no less favourable than their offer given that their offer assumed an entitlement to an order in respect of the entirety of their costs.

17. While I have accepted the defendant’s submission that the plaintiffs should only recover a proportion of their costs, it does not necessarily follow in the circumstances of this case that the plaintiffs have failed to obtain a judgment that is no less favourable to them. 

18. The position is complicated in the circumstances of the present case because while I have confined the plaintiffs to the recovery of 70 per cent of their costs, I have concluded that under clause 15.16(a) of the Underwriting Agreement, they are entitled to that proportion of their costs on a solicitor/client basis.  It is difficult for me to determine whether or not the plaintiffs have achieved a no less favourable outcome in dollar terms on the issue of costs.  However, in my view, the relevant date for comparison purposes is the date of the relevant offer.  And given the very early timing of the offer in this case, I am satisfied that to the extent that a party/party recovery of 100 per cent of the plaintiffs’ costs to that date might have exceeded a solicitor/client recovery of 70 per cent of the plaintiffs’ costs to that same date at all, it could not have done so by much. 

19. This last conclusion is significant because in undertaking a holistic comparison of the plaintiffs’ judgment and offer, I am satisfied that any negative differential in respect of costs to the date of the offer would be more than offset by the positive differential in respect of the plaintiffs’ entitlement to principal relief and interest.  As mentioned, in addition to the $5,000 difference in the principal relief, the plaintiffs’ offer only sought interest under the Supreme Court Civil Rules on $600,000, whereas the plaintiffs have established an entitlement to interest at the higher contractual rate both in relation to the base commission of $1.2 million (for a short period of time) and the additional commission of $600,000.  On my calculations, even by the date of the plaintiffs’ offer, the plaintiffs’ entitlement to interest exceeded their offer in relation to interest by an amount of in excess of $100,000.

20. Assuming I am right that it is appropriate to undertake the comparison on this holistic basis, then I am satisfied that the plaintiffs have obtained a judgment on their claims that is no less favourable to them than their filed offer.  But even if s 188F(3) does not permit such an approach, and instead requires that the plaintiffs achieve a more favourable outcome in respect of each component of the judgment, then I would, for reasons elaborated upon below, have exercised my general discretion in relation to costs to give effect to this approach by awarding the plaintiffs their costs after 15 August 2017 on an indemnity basis in any event.

    Overriding discretion

21. Finally, I do not consider that there is any basis upon which I should exercise the Court’s overriding discretion under r 188F(2) to not give effect to the plaintiffs’ otherwise entitlement to recover its costs after 15 August 2017 on an indemnity basis.  

22. While there is authority to suggest that the Court might subject a party’s entitlement to costs under r 188F(3) to a percentage reduction on account of its lack of success on particular issues,[60] in my view a Court should not lightly do so.  I do not think the Court should do so as readily as it might do so in the context of an ordinary exercise of the Court’s discretion to make a differential or proportional costs order to reflect the parties’ success on different issues.[61] To do so would risk undermining the effectiveness of r 188F(3) in encouraging the parties to resolve their disputes.

    [60]   Dighton v The Nominal Defendant (No 4) [2012] SADC 24 at [27]-[31].

    [61]   That is, in accordance with the principles summarised by Blue J in Carter v Brine (No 2) [2016] SASC 36 at [8]-[14].

23. Thus, while I have earlier concluded that the plaintiffs’ lack of success on its second, third and fourth claims does require a reduction in its contractual entitlement to costs (and, for similar reasons, would have resulted in the same or similar reduction in any entitlement to party/party costs in the absence of a contractual right to costs), I do not think this warrants any reduction in the plaintiffs’ costs entitlement under r 188F(3).

24. The plaintiffs, through their offer, indicated a preparedness at a very early stage of the proceedings to resolve the proceedings on a basis that would have given them slightly less than their contractual right to additional commission, but with them agreeing to not only abandon any recovery based upon the contractual uplift in their entitlements to recover interest and costs, but also to effectively abandon their second, third and fourth claims.  In my view, the subsequent judgment they have obtained has vindicated the reasonableness of this offer, and the unreasonableness of the defendant’s rejection of it.  The defendant’s best offer ($400,000 without any allowance for interest or costs) was not made until shortly before trial and fell well short of a reasonable offer given the outcome in the proceedings.  In my view, given the success that the plaintiffs have achieved relative to their offer, the fact that they nevertheless failed on their second, third and fourth claims (which their offer indicated a preparedness to effectively abandon) does not alter this conclusion. 

25. For these reasons, whether under r 188F(3), or as an exercise of the Court’s general discretion in relation to costs in light of the plaintiffs’ offer, I would permit the plaintiffs to recover their costs on the basis contemplated under r 188F(3); that is, for the period up to 15 August 2017 on a basis that is unaffected by the making of the filed offer, and thereafter on an indemnity basis.

    Outcome in relation to costs

26. For the reasons set out, I have concluded that the plaintiffs have both a contractual right to recover 70 per cent of their costs of action throughout on a solicitor/client basis, and a right under r 188F(3) of the Supreme Court Civil Rules to recover the entirety of their costs incurred after 15 August 2017 on an indemnity basis.  I consider that the plaintiffs are entitled to an order reflecting the combined benefit of these two rights in relation to their costs, with the result that I should order that they be entitled to recover 70 per cent of their costs up to 15 August 2017 on a solicitor/client basis, and the entirety of their costs thereafter on an indemnity basis.

    Conclusion and Orders

27. For the reasons set out above, I propose to make the following orders:

    1.   Judgment for the plaintiffs in the sum of $600,000 plus pre-judgment interest in the sum of $394,997.

    2.   The defendant is to pay 70 per cent of the plaintiffs’ costs of the action through to 15 August 2017 on a solicitor/client basis, and the entirety of the plaintiffs’ costs thereafter on an indemnity basis.