Maronich v Top Oak Pty Ltd (No 2) - [2015] SASC 167

SUPREME COURT OF SOUTH AUSTRALIA
(Civil: Application)
MARONICH v TOP OAK PTY LTD & ORS (No 2)
[2015] SASC 167
Judgment of The Honourable Justice Parker
23 October 2015
PROCEDURE - COSTS - DEPARTING FROM THE GENERAL RULE - CONDUCT OF PARTIES - DEMAND, OFFER AND CONSENT
PROCEDURE - COSTS - DEPARTING FROM THE GENERAL RULE - ORDER FOR COSTS ON INDEMNITY BASIS
The defendants in a commercial dispute sought an order for costs, on a party/party basis for the period up until an offer of settlement was made by the defendants, and on an indemnity basis thereafter. The Court had dismissed the claim against the defendants on all grounds. The defendants had made several offers to settle prior to the filing of the statement of claim and an offer under r 187 of the Supreme Court Rules 2006 during the proceedings. The plaintiff had rejected each offer. The plaintiff argued that it should only be required to meet a percentage of the defendants’ costs on the basis that that the plaintiff had been successful on over half of the points dealt with at trial. The plaintiff argued against indemnity costs being awarded on the basis that the dispute at trial had fundamentally changed from that to which all but one of the settlement offers related.
Held, awarding indemnity costs from the date of the filing of the statement of claim:
1. Evidence of offers made at a settlement conference and mediation was not admissible.
2. Whereas the settlement offer made on 28 December 2011 was not an effective Calderbank offer, the subsequent offer made on 5 April 2012 was.
3. Rule 188(6) of the Supreme Court Rules will not assist a defendant that is found at trial not to be liable in any respect. While r 188(6) does not operate in the present case, the offer filed under r 187 on 6 November 2013 should be treated as an informal offer under the Calderbank principle.
4. Any apportionment of costs needs to be done on a broad brush basis and not by applying a formula based upon the counting of paragraphs as the plaintiff suggested. As the plaintiff lost on the decisive issues in the proceedings the Court is not persuaded that there should be an apportionment of costs.
5. The Court was not able to make orders for costs in respect of matters that preceded the filing of the first statement of claim on 20 December 2012.
6. There was in substance only one dispute being the disagreement about the plaintiff’s withdrawal from the business.
7. The defendants are entitled to the benefit of the Calderbank offer and they should have their costs on an indemnity basis from the date of the filing of the first statement of claim on 20 December 2012.
Supreme Court Act 1935 s 65(6); Evidence Act 1929 s 67C; Defamation Act 2005 (NSW) s 40; Federal Court of Australia Act 1976 (Cth) s 43; Corporations Act 2001 s 233, s 237, s 461, referred to.
Hockey v Fairfax Media Publications Pty Ltd (No 2) [2015] FCA 750; Hughes v Western Australian Cricket Association Inc [1986] ATPR 40-748, applied.
Cavanagh-Lang v O'Callaghan [2000] SASC 187; Whitehead v Maas (No 2) (1991) 56 SASR 362; Cretazzo v Lombardi (1975) 13 SASR 4; Waters v PC Henderson (Australia) Pty Ltd (1994) 254 ALR 328; Bowen Investments Pty Ltd v Tabcorp Holdings Ltd (No 2) [2008] FCAFC 107; Dodds Family Investments Pty Ltd v Lane Industries Pty Ltd (1993) 26 IPR 261; Commissioner of Australian Federal Police v Razzi (No 2) (1991) 101 ALR 425; James v Surf Road Nominees Pty Ltd (No 2) [2005] NSWCA 296; Dukemaster Pty Ltd v Bluehive Pty Ltd [2003] FCAFC 1; Pirrotta v Citibank Ltd [1998] SASC 6922, considered.

WORDS AND PHRASES CONSIDERED/DEFINED
"Calderbank offer"

MARONICH v TOP OAK PTY LTD & ORS (No 2)
[2015] SASC 167
Civil: Application

PARKER J: On 11 June 2015 the Court dismissed the claim by Mr Maronich against the three defendants on all grounds. I pronounced an order that Mr Maronich pay the costs incurred by the second and third defendants, i.e. Optima and Mr Alvino. However, at the request of their counsel, Mr Mark Douglas, I deferred fixing the scale upon which costs were to be determined. That matter was the subject of further submissions made on 10 August 2015. In addition to the question of the scale to be applied, a further question has been raised. Mr Maronich has now submitted that I should set aside the costs order made on 11 June 2015 and substitute an order that he should only be required to pay a percentage of the costs.
The application to set aside the costs order
Immediately after judgment was published on 11 June 2015 Mr Douglas sought an order for costs in favour of Mr Alvino and Optima. That application was not opposed by Mr Maronich’s solicitor, Mr John Daenke of Andersons. His counsel, Mr Bernard O’Brien, was not present.
Mr O’Brien submitted that the costs order should be set aside on the basis that Mr Daenke had not consented to the order and had merely not opposed it as he assumed that costs should follow the event. He had not then had the opportunity to read the judgment. Mr Douglas opposed the setting aside of the order in the absence of evidence of fraud, mistake or some factual misapprehension.
Because the order that Mr Maronich must pay the costs of Mr Alvino and Optima has been pronounced but not perfected by sealing, it remains provisional. It therefore may be varied or withdrawn as the justice of the case requires.[1] However, for the reasons that follow, I do not consider it necessary or appropriate to take that course.
[1] Cavanagh-Lang v O'Callaghan [2000] SASC 187.
The offers to settle
Mr Alvino and Optima seek an order for payment of their costs on a party/party basis up until 29 December 2011 and indemnity costs thereafter. They rely upon the several offers they have made to settle the proceedings as the basis for the claim for indemnity costs.
An affidavit sworn by Kym Ryder on 3 July 2015 has been filed by Optima and Mr Alvino in support of their costs application. The annexures to Mr Ryder’s affidavit reveal the offers made by Mr Alvino to Mr Maronich in an attempt to settle their dispute.
The first offer was contained in an email message sent by Mr Alvino to Mr Daenke of Andersons at 11:05 pm on 28 December 2011. An action under the Corporations Act 2001 had been commenced on 2 December 2011. That action did not proceed to trial and judgment. I will return to that point.
The email message sent to Andersons by Mr Alvino set out in considerable detail his calculations as to the value of the Top Oak business and what he considered to be the respective entitlements of Mr Maronich and himself. He arrived at a figure of $40,000. He offered to make payment in that sum upon Mr Maronich agreeing to meet certain conditions. Those were that he transfer his share in Top Oak to Mr Alvino, meet all legal fees, apologise for making statements which were allegedly false, give an undertaking that he would not make contact with any Oak Miracle (i.e. Top Oak) customers or suppliers and return all keys. The offer was to remain open until close of business on 31 December 2011.
Self evidently, 28 December 2011 fell within the Christmas to New Year holiday period. I consider that I am entitled to take notice of the fact that very few Adelaide law firms would be operating during that period. I also note that the reference by Mr Alvino to “close of business” on 31 December 2011 is something of a misnomer. Not only was that day New Year’s Eve but also a Saturday. I would not expect a firm of solicitors to be open for business on that day.
Despite the likely difficulties occasioned by the holiday period, Andersons replied to Mr Alvino by email on Thursday 5 January 2012. The message sent by Mr Daenke referred to “my email to you of Tuesday”. I take that to be a reference to a message sent on 3 January 2012. While that message has not been annexed to the affidavit of Mr Ryder, it is clear from the text of the message sent on 5 January 2012 that Mr Daenke had indicated to Mr Alvino that he would need to obtain instructions from Mr Maronich. Mr Daenke raised in the message sent on 5 January 2012 a number of matters concerning the calculations made by Mr Alvino and also taxation issues. He indicated that he was waiting further instructions.
While the Court has not been informed as to precisely when or how the exchange between Mr Alvino and Andersons ended, no settlement resulted.
At some time on or before 11 January 2012 Mr Alvino and Optima instructed O’Loughlins Lawyers. On 15 March 2012 Andersons wrote to O’Loughlins (with an identical letter being sent again on 16 March 2012). Their letter suggested that Mr Maronich was entitled to a payment in the order of $131,000 for his shareholding.
On 5 April 2012 O’Loughlins responded to Andersons. They suggested that Mr Maronich’s share in Top Oak was worth approximately $23,000. Nevertheless, they made an offer on behalf of Mr Alvino and Optima to settle for $30,000 inclusive of interest, costs and disbursements. The offer was to remain open until 5:00 pm on Friday 13 April 2012. The letter specified that this was intended as a Calderbank offer. The offer was not accepted by Mr Maronich.
On 30 May 2012 the parties and their respective solicitors attended a settlement conference at this Court. An offer to settle was rejected by Mr Maronich. A further offer to settle was made by Mr Alvino and Optima at a mediation presided over by Judge Dart on 5 November 2013. That offer was also rejected. Mr Alvino and Optima have sought to rely upon the offers made at the settlement conference and at the mediation in support of their claim for indemnity costs.
Section 65(6) of the Supreme Court Act 1935 precludes anything said or done in an attempt to settle proceedings by mediation from being subsequently admissible in the proceedings or in related proceedings. Section 67C of the Evidence Act 1929 also provides that evidence of a communication made in connection with an attempt to negotiate the settlement of a civil dispute is not admissible. Evidence of an attempt to settle may be admissible in a costs argument if that right has been expressly reserved. It has not been suggested that the right to refer to a settlement offer had been reserved at the conference or at the mediation. However, I note that the Calderbank letter sent on 5 April 2012 did reserve that right.
I find that evidence of the offers made at the settlement conference and the mediation is not admissible in relation to the costs issue.
On 6 November 2013 Mr Alvino and Optima filed an offer under r 187 of the Supreme Court Civil Rules. The sum of $30,000 was offered in settlement together with the sum of $10,000 in respect of costs. That offer was not accepted before the time allowed under r 188 had expired.
Award of a percentage of costs
Mr O’Brien has submitted that his client should only be required to meet 44% of the costs incurred by Mr Alvino and Optima. That submission was based upon a mathematical approach. Mr O’Brien counted the number of paragraphs in the judgment that dealt with points upon which his client succeeded and used that to determine his client’s overall success at trial. Thus, for example, Mr O’Brien attached a weighting factor of 16 to the dispute as to who were parties to the relevant contract on the basis that the issue occupied 16 paragraphs of the judgment. Applying this methodology, Mr Maronich had succeeded upon points that occupied 54 of the total of 96 paragraphs that dealt with disputed matters of law or fact. Thus, according to Mr O’Brien’s submission, Mr Maronich had been successful on 56% of the points dealt with at the trial and costs should be awarded accordingly.
Mr O’Brien also placed reliance upon the approach adopted by White J to the exercise of the costs discretion under s 43 of the Federal Court of Australia Act 1976 (Cth) and s 40 of the Defamation Act 2005 (NSW) in Hockey v Fairfax Media Publications Pty Ltd (No 2).[2]
[2] [2015] FCA 750.
The former Federal Treasurer, Mr Joe Hockey, had instituted defamation proceedings alleging that three newspapers operated by the Fairfax group had defamed him in several articles, a poster and two tweets. Mr Hockey’s claims in respect of the publication of articles in print and electronic form failed. His claims succeeded in respect of the poster and two tweets. White J ordered that Fairfax was to pay 15% of Mr Hockey’s costs. In arriving at that conclusion White J noted that s 43 of the Federal Court of Australia Act conferred a wide discretion on the court with respect to costs. The discretion must be exercised judicially.
White J noted that the judgment of Toohey J in Hughes v Western Australian Cricket Association Inc is often cited in relation to the exercise of the judicial discretion as to costs. Toohey J held that:[3]
1.   Ordinarily, costs follow the event and a successful litigant receives his costs in the absence of special circumstances justifying some other order ...
2.   Where a litigant has succeeded only upon a portion of his claim, the circumstances may make it reasonable that he bear the expense of litigating that portion upon which he has failed ...
3.   A successful party who has failed on certain issues may not only be deprived of the costs of those issues but may be ordered as well to pay the other party’s costs of them. In this sense, “issue” does not mean a precise issue in the technical pleading sense but any disputed question of fact or law ...
[3] [1986] ATPR 40-748 at 48, 136.
White J added to those considerations the principle that costs are compensatory in nature and not punitive. However, Mr Douglas has submitted that the judgment of the Full Court in Whitehead v Maas (No 2)[4] establishes that under what is now r 188 of the Supreme Court Civil Rules a punitive approach is intended because the rule has been enacted as an incentive to encourage settlements.
[4] (1991) 56 SASR 362.
White J had regard to s 40 of the Defamation Act (NSW), which requires the court, when awarding costs in defamation proceedings, to have regard to certain specified matters. That NSW provision is obviously not relevant to the present matter.
White J noted that Mr Hockey had only been willing to settle his claims upon payment to him of sums well in excess of the damages ultimately awarded. He had also required that Fairfax consent to injunctions that the Court declined to grant.
At paragraphs [84] to [97] of the judgment in Hockey, White J conducted a detailed survey of the authorities dealing with the apportionment of costs where a party had partially succeeded. The authorities referred to by White J establish the following principles:
·A court should be cautious about being too ready to apportion costs on the basis of partial success.[5]
·An apportionment of costs would not be appropriate unless the issues on which the successful plaintiff failed were “clearly dominant or separable”.[6]
·If an issue by issue approach to the award of costs will produce a result that is fairer than the traditional rule that costs should follow the event, that approach should be adopted but it does not require a precise arithmetic apportionment of costs.[7]
·The demands of the community for greater economy and efficiency in the conduct of litigation may properly be reflected in a qualification of the presumption that a successful party is entitled to all its costs.[8]
[5]    Cretazzo v Lombardi (1975) 13 SASR 4, Jacobs J at 16.
[6]    Waters v PC Henderson (Australia) Pty Ltd (1994) 254 ALR 328, Mahoney JA at 330-331.
[7]    Bowen Investments Pty Ltd v Tabcorp Holdings Ltd(No 2) [2008] FCAFC 107, Finkelstein and Gordon JJ at [5].
[8]    Dodds Family Investments Pty Ltd v Lane Industries Pty Ltd (1993) 26 IPR 261, Gummow, French and Hill JJ at 272. See also Commissioner of Australian Federal Police v Razzi (No 2) (1991) 101 ALR 425, Wilcox J at 430 and James v Surf Road Nominees Pty Ltd (No 2) [2005] NSWCA 296 at [34].
I do not consider Mr O’Brien’s mathematical approach to be helpful. I also note that while his submissions relied upon Hockey, in that case White J had expressed approval for Bowen Investments Pty Ltd v Tabcorp Holdings Ltd (No2) where a precise arithmetic apportionment of costs had been specifically rejected.[9]
[9] [2008] FCAFC 107 at [5].
If there is to be an apportionment of costs it needs to be done on a broad brush basis and not by applying a formula based upon the counting of paragraphs. Mr O’Brien’s submission does not recognise that Mr Maronich failed to establish any of the causes of action that he had pleaded. More specifically, he failed in his claims based on contract, promissory estoppel, misleading and deceptive conduct, constructive trust and breach of fiduciary duty.
The decisive issues in the proceedings were the findings that Mr Maronich had repudiated the oral contract and that Mr Alvino had accepted the repudiation. Those two issues occupied 13 paragraphs of the judgment. If Mr O’Brien’s formula were to be applied to those two decisive issues (upon which his client failed) it would only result in an order that the successful defendants receive 13.54% of their costs,[10] albeit that they would receive an additional percentage for other less crucial points upon which they also succeeded. The insignificant weighting given to the two decisive points serves to illustrate the failure of the formula to recognise in any sensible fashion the true outcome of the case.
[10] (13 ÷ 96) x 100 = 13.54%.
As I have said, the decisive issues in the proceedings were the findings that Mr Maronich had repudiated the oral contract and that Mr Alvino had accepted the repudiation. The other causes of action relied upon by Mr Maronich were essentially no more than makeweights that necessarily failed when he was unable to persuade the Court on the two key issues that I have noted. In that light, and having had careful regard to the principles I have summarised at paragraph [25] above, I am not persuaded that there should be an apportionment of costs. Subject to what follows, Mr Alvino and Optima are entitled to their costs under the ordinary principle that costs follow the event.
The arguments against indemnity costs
Mr O’Brien has advanced several arguments against the application by Mr Alvino and Optima for indemnity costs from 29 December 2011. These arguments are separate to his argument about the apportionment of costs.
In Mr O’Brien’s submission, although I found that Mr Maronich repudiated the oral contract with Mr Alvino and that the repudiation was accepted, at the time Mr Alvino made the settlement offer on 28 December 2011 Mr Maronich was entitled to view the contract as still being on foot. Thus, Mr O’Brien submitted that Mr Alvino’s message should be regarded as a part of the continuing negotiations about the fate of Top Oak rather than as a settlement offer.
A further argument advanced by Mr O’Brien was based upon the history of the proceedings. The action had commenced as proceedings under ss 233, 237 and 461 of the Corporations Act. The action was based upon oppression. While there was an application to wind up Top Oak, the more critical relief sought was the buying out of Mr Maronich’s interest in the company by way of a capital reduction. That amounted to an attempt to conclude the negotiations that had occurred in March 2011. Mr O’Brien submitted that in that light the email of 28 December 2011 should be viewed as continuing the efforts to have Mr Maronich’s interest in the company bought out.
The proceedings that commenced on 2 December 2011 under the Corporations Act were ultimately transformed into the claim in contract and for other civil remedies. Mr O’Brien submitted that at this point the nature of the dispute between the parties had fundamentally changed. No longer were the parties seeking to arrive at a fair value for Mr Maronich’s interest in the company. They were now engaged in a contractual dispute.

Mr O’Brien relied upon several different dates to identify when there had been what he described as a “game changer”, i.e. when the dispute had changed fundamentally. The first such date was 20 June 2012 when Mr Alvino applied to wind up Top Oak. That action followed the failure of the settlement conference on 30 May 2012 and notice from O’Loughlins the same day that Mr Alvino would consent to the winding up of Top Oak.
The next date identified by Mr O’Brien was 21 September 2012 when Judge Withers ordered the winding up of Top Oak. Mr O’Brien submitted that at this point the initial dispute about Mr Maronich’s withdrawal from the company ended and a new dispute commenced. That new dispute was formally commenced by the filing of the statement of claim on 20 December 2012. Thereafter, the only offer made was the offer filed under r 187 on 6 November 2013.
Mr O’Brien based a further submission on r 188(6). This provides as follows:
(6)If a formal offer of settlement so far as it relates to principal relief is not accepted by the party to whom the offer is made and the Court determines the relevant action or claim on terms (as to principal relief) that are no more favourable to the party than the terms of the offer, then, subject to the Court’s order to the contrary—
(a) the party to whom the offer was made is not to be entitled to costs referable to the period falling after the relevant date; and
(b) the party that made the offer—
(i)if a defendant—is entitled to costs referable to the period falling after the relevant date; and
(ii)if a plaintiff—is entitled to the whole of the party’s costs of action on a solicitor/client basis and the defendant is not entitled to any costs not otherwise ordered.
Mr O’Brien submitted that r 188(6) draws a stark contrast between defendants and plaintiffs. He submitted that r 188(6) applies only to cases where the plaintiff succeeds in the claim for primary relief. In the present case the plaintiff had failed in its action and thus, Mr O’Brien submitted, r 188(6) does not apply. Even if the rule does apply, Mr O’Brien submitted that it could only apply to costs referable to the period after the relevant date. Moreover, the rule indicated that a plaintiff was entitled to solicitor/client costs but, by implication, a defendant was only entitled to party/party costs.
Consideration
I will first consider the several offers to settle made by Mr Alvino and then deal with the distinction that Mr O’Brien has sought to draw between a Calderbank offer and what he characterised as ongoing negotiations to resolve the fate of Top Oak.
I do not consider that the offer made by Mr Alvino on 28 December 2011 should be treated as if it were an effective Calderbank offer. The time of three days allowed for acceptance was clearly insufficient, particularly over the Christmas/New Year holiday period. The offer also sought a settlement in respect of matters well outside the scope of the present proceedings, i.e. an apology for certain remarks and a no-competition clause.
I regard the offer made on behalf of Mr Alvino and Optima on 5 April 2012 as an effective Calderbank offer. While in some cases courts have declined to act upon offers made inclusive of costs, this has been because of the difficulty of comparing an inclusive offer with the damages awarded at trial. That issue does not arise in this matter as no damages were awarded at trial. While the period of eight days allowed for acceptance was less than the 14 days allowed under r 33(4), the period was nevertheless reasonable. Given the ultimate finding by the Court that Mr Alvino and Optima were not liable to Mr Maronich in any respect, the quantum of $30,000 was also plainly reasonable. The only issue is whether the offer related to the matter resolved by my judgment.
I now turn to the offer filed under r 187 on 6 November 2013. I consider it to be clear that r 188(6) will not assist a defendant that is found at trial not to be liable in any respect. That is the present case. Rule 188(6), as presently drafted, will only assist a defendant if the Court makes a finding that is less favourable to the plaintiff than the defendant’s offer but does hold the defendant liable to some extent.[11] It will not apply if the defendant is found not to be liable at all. I note that for this reason the judges recently approved an amendment to r 188(6) so that it will apply to a defendant that succeeds entirely at trial. The amendment was not prompted by the present case. The amended r 188(6) will operate prospectively and does not apply to this matter.
[11] The same issue formerly arose under Order 23 of the Federal Court Rules: Dukemaster Pty Ltd v Bluehive Pty Ltd [2003] FCAFC 1.
While r 188(6) does not operate in the present case, I consider that the offer filed under r 187 on 6 November 2013 should be treated as an informal offer under the Calderbank principle.[12] There was clearly a genuine compromise on the part of Mr Alvino in an attempt to settle. That is consistent with the policy underlying rr 187 and 188 and Mr Alvino should therefore be given the benefit of his preparedness to compromise his position.
[12] Pirrotta v Citibank Ltd [1998] SASC 6922.
Mr Douglas has submitted that I should have regard to the Calderbank offer made on 5 April 2012, being more than eight months before the filing of the statement of claim on 20 December 2012. Mr O’Brien has submitted that I should only have regard to the offer filed on 6 November 2013.
The judgment delivered on 11 June 2015 concerned the proceedings instituted by Mr Maronich in which he sought remedies based on contract and other civil causes of action. I accept the correctness of the submission by Mr O’Brien that the judgment published on 11 June 2015 and the subsequent orders resolved the proceedings that had commenced on 20 December 2012 with the filing of the statement of claim.
The proceedings as they stood prior to 20 December 2012 were directed at the obtaining of relief under the Corporations Act and ultimately resulted in the winding up of Top Oak. In the course of those proceedings Judge Withers had made orders on 13 February 2012 restricting the right of Mr Alvino to withdraw money from the funds of Top Oak. Mr Maronich has alleged that Mr Alvino committed a contempt of court by withdrawing funds in excess of the permission that had been granted by Judge Withers. I acceded to a request by the parties that the contempt issue should be dealt with by another judge because I was required to make findings of credit in the contractual dispute. There is no information before me about the Corporations Act proceedings and the contempt allegation other than what I might establish by reading the court file and no submissions have been made to me about the costs incurred in relation to those matters. Moreover, the contempt proceedings are still on foot. I am therefore not able to make orders for costs in respect of matters that preceded the filing of Mr Maronich’s first statement of claim on 20 December 2012.
Nevertheless, I accept the correctness of the submission by Mr Douglas that there was, in substance, only one dispute. The subject matter of that dispute was the disagreement between Mr Alvino and Mr Maronich about the latter’s withdrawal from the business conducted by Top Oak.
I consider that costs should be determined on the basis that when Mr Maronich filed his first statement of claim on 20 December 2012 there had already been a Calderbank offer made by Mr Alvino on 5 April 2012. If that offer had been accepted by Mr Maronich it would have resolved his dispute with Mr Alvino about withdrawal from the Top Oak business and the statement of claim would never have been filed. As I consider that Mr Alvino and Optima are entitled to the benefit of the Calderbank offer they should have their costs on an indemnity basis. However, for the reasons that I have already given, I can only award costs with respect to the proceedings commenced by the statement of claim filed on 20 December 2012. On reflection, I should have expressly dealt with that point when I pronounced the costs order on 11 June 2015.
Conclusion
I order that Mr Maronich pay the costs incurred by the second defendant, Optima Food Developments Pty Ltd, and by the third defendant, Joseph Alvino, in the action commenced by the filing of the statement of claim on 20 December 2012 on an indemnity basis from that date