Manicured Muttz v Roycar Investments (No 2) - [2019] VCC 323

IN THE COUNTY COURT OF VICTORIA

AT MELBOURNE

COMMERCIAL DIVISION
GENERAL LIST

Revised
Not Restricted
Suitable for Publication

Case No. 18-02211

MANICURED MUTTZ PTY LTD	Plaintiff
v
ROYCAR INVESTMENTS PTY LTD	First Defendant
and
ROY SMITH	Second Defendant

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JUDGE:	HER HONOUR JUDGE MARKS
WHERE HELD:	Melbourne
DATE OF HEARING:	On the papers
DATE OF RULING:	22 March 2019
CASE MAY BE CITED AS:	Manicured Muttz v Roycar Investments & Anor (No 2)
MEDIUM NEUTRAL CITATION:	[2019] VCC 323

REASONS FOR RULING
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PRACTICE AND PROCEDURE – Interest – Whether sum certain recovered in proceeding such that section 58 of the Supreme Court Act 1986 applied.

PRACTICE AND PROCEDURE – Interest – Whether interest should be awarded calculated on basis of instalment payments due under contract where claim in proceeding was for lump sum.

PRACTICE AND PROCDURE – Costs – Offer of compromise by plaintiff – Rule 26.08(2) County Court Civil Procedure Rules 2008 – Plaintiff obtained judgment on the claim ‘no less favourable than the offer of compromise’ – Whether plaintiff entitled to indemnity costs as a result or whether Court should ‘otherwise order’ – Whether offer of compromise was a reasonable compromise

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APPEARANCES:	Counsel	Solicitors
For the plaintiff	Mr J Rudd	DSA Law
For the first and second defendants	Ms M Paszkiewicz	Phaedonos Law

HER HONOUR:

Introduction

On 7 February 2019 I delivered reasons for judgment in relation to the trial of this matter: Manicured Muttz v Roycar Investments & Anor [2019] VCC 64 (February reasons). This decision as to costs follows on from those reasons, and I refer to the parties by the same names as used in those reasons.
I found that Roycar and Roy owe Muttz the sum it claimed, $69,415 plus interest: see February reasons [12]. I found that Roycar had not established its counterclaim. I directed the parties to consider the orders that should be made as a result of the reasons.
Subsequently, the parties filed written submissions as to what orders they say should follow on both interest and costs. They do not seek a hearing.

Orders

For the reasons which follow, I will make the following orders:
1.     There be judgment for the plaintiff, and the defendants pay the plaintiff $69,415 plus interest of $13,540.68.
2.      The defendants’ counterclaim be dismissed.
3.      The defendants pay the plaintiff’s costs on the standard basis up to 11am on 7 November 2018 and thereafter on an indemnity basis, to be assessed by the Costs Court in default of agreement.

Interest

The first area of dispute is the amount of interest to be awarded:
· Should it be awarded from the date demand was first made by Muttz, or from the date of the issue of proceedings?
· Should it be calculated by reference to the lump sum awarded or the instalment payments that were not made under the relevant contract?
I find that interest should be awarded calculated from the time the lump sum awarded of $69,415 was demanded by Muttz, on 10 April 2017, until judgment.
I reject Roycar and Roy’s submission that interest should only be paid from the commencement of the proceeding, under section 60 of the Supreme Court Act 1986.
Section 58 of the Supreme Court Act provides:
(1) If in a proceeding a debt or sum certain is recovered, the Court must on application, unless good cause is shown to the contrary, allow interest to the creditor on the debt or sum at a rate not exceeding the rate for the time being fixed under section 2 of the Penalty Interest Rates Act 1983 or, in respect of any bill of exchange or promissory note, at 2% per annum more than that rate from the time when the debt or sum was payable (if payable by virtue of some written instrument and at a date or time certain) or, if payable otherwise, then from the time when demand of payment was made.
…
(3) A debt or sum payable or a date or time is to be taken to be certain if it has become certain.
The amount of $69,415 I ordered to be paid in the February reasons was a ‘sum certain’ – as referred to in section 58 – as at the date of demand on 10 April 2017.
The interest on $69,415 from 10 April 2017 to today (the date of judgment) is $13,540.68.
I also reject Muttz’ submission that it is appropriate to order interest under the Supreme Court Act 1986 on the ‘unpaid amounts’ under the contract from the time that each accrued.
Whilst instalment payments were due under the contract, Muttz’ claim was pleaded and run on the basis of the claim for $69,415 being sought as a lump sum.
This matter commenced by way of a complaint filed in the Magistrates’ Court, and at no stage was an amended pleading filed for Muttz. That complaint claimed damages rather than claiming a debt. At [8] of the complaint those damages were alleged to include:
· Remaining instalments unpaid: a shortfall of $69,415.
· Interest on outstanding instalment payments, particularised as interest in the amount of $5,218.55 and accruing at $19.02 per day.
It is unclear how Muttz calculated the interest claimed in [8] of the complaint, of $5,218.55, or the alleged amount accruing of $19.02 per day.
As it was not a relevant matter on the pleadings, or how the case was run, I have not made any findings as to when specific amounts were due under the contract, other than in relation to the lump sum of $69,415 sought. It is appropriate to order interest on $69,415.

Offer of compromise

There is no dispute that Roycar and Roy, having been unsuccessful in the proceeding, must pay Muttz’ standard costs of the proceeding.
The issue in relation to costs is whether they should also pay indemnity costs from two days after the date of an offer of compromise served by Muttz (which offer was obviously not accepted by Roycar and Roy).
The offer of compromise served by Muttz on 3 November 2018 pursuant to Order 26 of the County Court Civil Procedure Rules 2008. It stated:
TAKE NOTICE that the Plaintiff offers to compromise this proceeding as follows:
1. The Plaintiff will accept from the First and/or Second Defendant:
a. the sum of $75,000.00 (inclusive of interest) in full and final settlement of its claim; and
b. the Plaintiff's costs are to be paid in addition to the offer.
Rule 26.08(2) states the costs consequences for failing to accept an offer of compromise served under Order 26:
Where an offer of compromise is made by a plaintiff and not accepted by the defendant, and the plaintiff obtains a judgment on the claim to which the offer relates no less favourable to the plaintiff than the terms of the offer, then, unless the Court otherwise orders, the plaintiff shall be entitled—
…
(b)in the case of any other claim of the plaintiff, to an order against the defendant for the plaintiff's costs in respect of the claim before 11.00 a.m. on the second business day after the offer was served, taxed on the ordinarily applicable basis and for the plaintiff's costs thereafter taxed on an indemnity basis.
Here Muttz obtained a judgment on the claim no less favourable than the terms of the offer.
It obtained judgment for $69,415 plus interest.
On 2 November 2018 it offered to accept $75,000 inclusive of interest.
Rule 26.08(5) provides:
Where a plaintiff obtains judgment for the recovery of a debt or damages and–
(a) the amount for which the Court pronounces judgment includes an amount for interest or damages in the nature of interest; or
(b) by or under any Act the Court awards the plaintiff interest or damages in the nature of interest in respect of the judgment amount–
for the purpose of determining the consequences as to costs referred to in paragraphs (2) and (3) the Court shall disregard so much of the amount recovered by or awarded to the plaintiff for interest or damages in the nature of interest as relates to the period after the day the offer of compromise was served.
In other words, in order to compare the amount Muttz offered to compromise the proceeding for on 3 November 2018, with the amount awarded to it, it is necessary to calculate the interest due to Muttz as at 3 November 2018 (disregarding interest which has accrued since then).
The amount of interest under s58 of the Supreme Court Act on $69,415 from 10 April 2017 until 3 November 2018 is $10,897.20.
Adding $69,415 to $10,897.20, as at 3 November 2018 Muttz was entitled to $80,312.20. It offered to accept $75,000.
Pursuant to rule 26.08(2), ‘unless the Court otherwise orders’, Muttz is entitled to be awarded indemnity costs from 11am on the second business day after the offer of compromise was served.
I am not satisfied that I should exercise my discretion in the circumstances to ‘otherwise’ order.
Roycar and Roy submit that their rejection of the offer was not unreasonable.
They submit:
[6]The present proceeding involved a claim and counterclaim. The Offer made no mention of the counterclaim; it merely sought an amount in full and final settlement of the plaintiff's claim. Even if the defendants were to have accepted the Offer, it would not have dispensed with the counterclaim.
[7] Although the Offer was not required to take into account the counterclaim, the claim and counterclaim involved allegations of fact that were closely related and ought both have been accommodated in the Offer; both the claim and counterclaim concerned the entering into of the contract for purchase of the Petorium business, with the counterclaim alleging vitiating factors to formation of the contract as well as alleging breaches by the plaintiff of the Australian Consumer Law in relation to entering the contract.
[8] In circumstances where the Offer contained a modest discount to the amount the plaintiff sought in its claim (factoring in statutory interest) but was silent regarding the defendants' counterclaim for which pleadings sought a significantly higher monetary amount, it was not unreasonable for the defendants to reject the Offer. Without an offer by the plaintiffs to compromise the defendants' counterclaim, the defendants were reasonably entitled to reject the Offer and proceed to a hearing of both the claim and counterclaim. In the defendants' submission, where the rejection of the Offer was reasonable the costs presumption in rule 26.08(2)(b) ought not follow.
However, rule 26.02(2) provides:
An offer of compromise in respect of a claim may be on terms that take into account any other claim made in the proceeding between the parties.
I am satisfied that the offer of compromise in question took into account the counterclaim as well as the claim. It stated at the outset that the plaintiff ‘offers to compromise this proceeding as follows’ (italics added). This proceeding, by definition, includes the defendants’ counterclaim as well as the plaintiff’s claim.
Roycar and Roy also submit that Muttz should not be entitled to indemnity costs from the date of the offer, because they argue the offer of $75,000 ‘offered only a modest discount to the amount Muttz sought in its claim, and was silent regarding the defendants’ counterclaim for which pleadings sought a significantly higher monetary amount’. They say it was not unreasonable for them to reject the offer in those circumstances.
The difference between $80,312.20. and $75,000 is $5,312.20, which is a 6.6 per cent discount on what it was owed to Muttz at the time.
I am satisfied the offer of compromise – made over a month before the trial commenced – was a reasonable, and realistic, offer of compromise, and it was unreasonable of the defendants to reject it. In those circumstances, the party rejecting the offer should ordinarily bear the costs of the litigation: see Grbavac v Hart [1997] 1 VR 154 at 164-165 where Hayne JA referred with approval to the statement of the New South Wales Court of Appeal in Maitland Hospital v Fisher (No 2) (1992) 27 NSWLR 721.
Muttz’ claim for $69,415 was a strong one, supported by a written contract. Whilst the defendants’ counterclaim claimed loss of $169,886 ‘from the first defendant’s ownership of the plaintiff’s business to 30 June 2017’, it did so without giving any particulars of how that amount was made up. The allegations in the counterclaim were first made when the defence was filed in the proceeding in September 2017, some two years after the representations allegedly relied on by Roycar in entering the relevant contract were said by it to have been made. It was reasonable for Muttz to give the counterclaim very little weight in assessing the amount of the offer of compromise.

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Certificate

I certify that these 7 pages are a true copy of the reasons for ruling of her Honour Judge Marks, delivered on 22 March 2019.
Dated: 22 March 2019
Samantha Marinic
Associate to Her Honour Judge Marks