McCarthy v Saltwood Pty Ltd
[2021] TASSC 1
•2 February 2021
[2021] TASSC 1
COURT: SUPREME COURT OF TASMANIA
CITATION: McCarthy v Saltwood Pty Ltd [2021] TASSC 1
PARTIES: McCARTHY, Eunice Beverley
v
SALTWOOD PTY LTD as former trustee of The
J D McCARTHY FAMILY TRUST
A K SALTWOOD PTY LTD ATF
The AK and JL McCarthy Family Trust No 3
McCARTHY, Andrew John
McCARTHY, Karyn Lesley
McCARTHY, Karen Maree
FILE NO: 874/2016
DELIVERED ON: 2 February 2021
DELIVERED AT: Hobart
HEARING DATE: 17 September 2020
JUDGMENT OF: Brett J
CATCHWORDS:
Procedure – Civil proceedings in State and Territory courts – Costs – Offers of compromise, payments into court and settlements –Generally – Unreasonable refusal of offer – Presumption not displaced and costs consequences pursuant to r 289 to apply.
Supreme Court Rules 2000 (Tas), rr 280, 289.
Fingal Pastoral Pty Ltd v Page Seager Lawyers (No 2) [2020] TASSC 40; Leach v The Nominal Defendant (QBE Insurance (Australia) Ltd) No 2 [2014] NSWCA 391; Spaulding v Eirth (No 2) [2017] TASFC 2, referred to.
Aust Dig Procedure [1591]
Procedure – Civil proceedings in State and Territory courts – Costs – General rule: costs follow the event – General principles and exercise of discretion –Award of costs assessed on a party and party basis – Costs awarded in favour of the defendant – No award of indemnity costs.
Preston v Preston [1982] 1 All ER 41; Re Wilcox;ex-parte Venture Industries Pty Ltd (No 2) (1996) 72 FCR 151, referred to.
Aust Dig Procedure [1477]
REPRESENTATION:
Counsel:
Plaintiff: G Bigmore QC
Defendants: B R McTaggart SC
Solicitors:
Plaintiff: James Kitto
Defendants: Simmons Wolfhagen
Judgment Number: [2021] TASSC 1
Number of paragraphs: 25
Serial No 1/2021
File No 874/2016
EUNICE BEVERLEY McCARTHY v SALTWOOD PTY LTD
as former trustee of The J D McCARTHY FAMILY TRUST
SALTWOOD PTY LTD as former trustee of The J D McCARTHY FAMILY TRUST
A K SALTWOOD PTY LTD ATF The AK and JL McCarthy Family Trust No 3
ANDREW JOHN McCARTHY, KARYN LESLEY McCARTHY,
KAREN MAREE McCARTHY
REASONS FOR JUDGMENT BRETT J
2 February 2021
On 27 May 2020, I handed down reasons for my determination of some of the substantive issues in this case: McCarthy v Saltwood Pty Ltd [2020] TASSC 19. Other issues remain outstanding. It was the agreed position of the parties that upon the determination of the first mentioned issues, the parties would then attempt to resolve the remaining matters and either agree or make submissions as to appropriate orders.
The parties have not yet resolved the remaining issues. Significant among the unresolved issues is the issue of costs. The parties accept that once this issue is resolved, it is likely that they will be able to agree about the remainder. Accordingly, in order to facilitate the resolution of this matter, I have agreed to determine the costs issue on a preliminary basis. For the purpose of that determination, I will assume that the following orders will be made to resolve the action:
(a)That there be judgment for the plaintiff on the claim in the sum of $362,714. This sum is the result of the calculation contemplated in [78] of the reasons dated 27 May 2020.
(b)That orders be made in an appropriate form for the repayment by the plaintiff to the J D McCarthy Family Trust of the money currently held by the plaintiff on behalf of the trust, being the sum withdrawn by her of $455,000, less tax deducted by garnishee by the Australian Tax Office in the sum of $58,893.85, together with interest accrued on those funds from the date of withdrawal.
(c)Any other consequential order required to finalise the plaintiff's relationship with her involvement in the trust, for example the return of property and documents.
There are two discrete issues relevant to the question of costs. Firstly, there is the question of costs in respect of the plaintiff's monetary claim, together with related relief claimed on counterclaim, which constituted the subject of the trial and my reasons for decision. This issue will require consideration of the effect of an offer of compromise made by the defendants pursuant to r 280 of the Supreme Court Rules 2000. The second issue concerns the costs reserved on 7 May 2019 in respect of the issues which were resolved by order on that day. Those issues related to the lawful identity of the appointor and trustees of the trust. These issues had been raised by the defendants on counterclaim.
The offer of compromise
The action was commenced by writ on 5 April 2016, and the plaintiff's claim first particularised in a statement of claim filed and served on 17 June 2016. The endorsement on the writ claimed the sum of $967,325.17 as monies loaned to the first defendant, and this monetary claim was repeated in the statement of claim. The sum claimed was calculated having regard to the balance of the joint loan account as disclosed in the trust's financial statements. This was alleged to be $967,325.17, after certain payments which the plaintiff conceded had been made to her, were taken into account. In the defence, the defendants disputed liability for the monetary claim completely, and alleged monetary set-off of certain sums in any event. The defendants by counterclaim sought repayment of trust money alleged to be in the possession of the plaintiff, including the money withdrawn from the trust bank account, equitable damages relating to invalid distributions from the trust to the plaintiff and her late husband as recorded in the loan accounts together with certain other sums, and declarations in respect of the identity of the appointer and trustees of the trust. The pleadings and relief sought by each party thereunder, were subsequently amended on a number of occasions, but the issues as described by me were in place from the start of the action.
It was not asserted by the plaintiff during the trial, that the money withdrawn by her from the trust bank account was other than trust property, and that she was liable to repay to the trust the sum remaining after deduction of the amount recovered by the taxation authorities, together with interest earned on the account. The issues relating to the control of the trust were resolved at the commencement of the trial and orders were made by consent before the plaintiff opened her case. The issues that went to trial were the monetary claims made by each party.
The defendants' offer of compromise was filed and served on 9 May 2017. It offered to settle the claim on the following terms:
(a)Payment to the plaintiff by the trust in the sum of $850,000.
(b)The payment by the plaintiff to the trust of the net proceeds of the account which held the withdrawn monies, which at that time amounted to $396,106.15.
(c)Declarations that Andrew McCarthy is the current appointor of the trust and that Andrew and Karen are the current trustees, together with orders of delivery up of all trust property. These are essentially the orders which were made by consent at the commencement of the trial on 7 May 2019.
(d)The costs of the plaintiff of the action, taxed on a party and party basis, be paid from the trust.
It is apparent that the offer, at least insofar as it concerned the plaintiff's claim for debt, was of the nature described in r 280(3)(a), that is, by offering to pay a nominated sum of money, clear of costs, to the plaintiff. The part of the offer which dealt with the control of the trust which was raised on counterclaim, seems to me to have been made under the provisions of r 280(4)(d).
The offer was expressed to be open for 14 days after service. It was not accepted by the plaintiff.
Rule 289(2) is relevant because it is common ground, and obvious in any event, that the amount recovered by the plaintiff after trial is substantially less than $850,000. That provision provides as follows:
"Unless the Court or a judge otherwise orders, a plaintiff is entitled to an order for costs against the defendant, up to and including the day on which an offer of compromise was served, on a party and party basis and the defendant is entitled to an order for costs against the plaintiff in respect of the claim after service of the offer on a party and party basis if –
(a)the defendant has made the offer in accordance with this Part; and
(b)the plaintiff has not accepted the offer at the time of the judgment; and
(c)the judgment is no more favourable to the plaintiff than the terms of the offer."
The operation of r 289 was explained by the Full Court in Spaulding v Eirth (No 2) [2017] TASFC 2. Relevant principles derived from that case which are pertinent to the resolution of this matter include:
· Because the plaintiff did not accept the defendants' offer, and has achieved a judgment "no more favourable … than the terms of the offer", the costs consequence prescribed by the provision will apply unless I otherwise order. This has been described as a "presumptive entitlement" favouring the offeror.
· The onus of displacing the presumptive entitlement lies on the plaintiff.
· Departure from the presumptive rule is discretionary. The discretion must be exercised having regard to all of the circumstances of the case. The proper approach is that "the prima facie position should only be departed from for proper reasons, which in general would only arise in an exceptional case" (see Leach v The Nominal Defendant (QBE Insurance (Australia) Ltd) No 2 [2014] NSWCA 391, 18 ANZ Insurance Cases 62-049).
· In exercising the discretion, regard should be had to the purpose of the rule which is to facilitate and encourage the proper compromise of litigation. It is accepted that the rule provides that encouragement by placing the offeree on risk if she fails to accept the offer and proceeds with the litigation.
· The reasonableness or otherwise of the failure to accept the offer is a relevant factor. This must be assessed having regard to the position and knowledge of the offeree at the time when the offer is made and not with the benefit of hindsight.
In this case, the plaintiff based her claim on the quantum of the loan account as reflected in the financial statements of the trust and the company. It was made clear by senior counsel for the plaintiff in his opening at trial, that the plaintiff relied entirely on the financial statements of the first defendant, and asserted these as prima facie evidence of the matters stated therein by virtue of the provisions of s 1305 of the Corporations Act 2001 (Cth). As I explained in my reasons, the financial statements did not constitute conclusive evidence of their contents, and the weight of the evidence constituted by the statements was to be weighed against other evidence. The plaintiff did not give evidence herself and did not call any expert accounting evidence.
On behalf of the plaintiff, it is submitted that it was reasonable for her to reject the offer because at the time it was made, she only had available to her the financial statements for the financial years ending 30 June 2014 and 30 June 2015, and had been kept out of all of the other books of account and other financial information relevant to the trust and, in particular, with respect to the accrual of the loan account over the preceding years. It is submitted that the defendants did not make discovery until during the time that the offer was open, and did not provide up to date financial information concerning relevant financial transactions affecting the trust and the loan account subsequent to 30 June 2015. In particular, it is submitted that the defendants were aware of but did not disclose, prior to making the offer, financial documents such as P8 and P9, which demonstrated that the loan account as at 30 June 2016 had reduced to $791,698. It is argued for the plaintiff that it was not unreasonable for her to not accept the offer, until she had access to, and sufficient time to consider, the financial documents and information relevant to the trust.
The difficulty with the plaintiff's argument is that when regard is had to information which was unquestionably available to the plaintiff at the date of receipt of the offer, it was obvious that she was being offered a payment which exceeded that to which she was entitled, even on her best case scenario. The calculation of the sum claimed of $967,325.17, as disclosed in the endorsement on the writ and the initial version of the statement of claim, is as follows:
Balance of loan account as at 30 June 2014 – $1,412,231 less payments made thereafter:
Loan repayment made 30 March 2015 $180,000.00
Loan repayment made 25 September 2015 $12,870.00
Loan repayment made 31 January 2016 $252,035.83
BALANCE OWED $967,325.17
The plaintiff did not, at any time, put her case higher than that.
When the findings made by me at [22] and [23] of my reasons are taken into account, it is apparent that the plaintiff's entitlement, on information which was clearly available to her at the time of the offer, was considerably less than this. On the assumption that the plaintiff was able to establish the quantum of the loan in accordance with the 2014 and 2015 financial statements, payments which had been subsequently made to her in discharge of the loan were well in excess of those alleged in the writ and statement of claim. It is an irresistible inference that the plaintiff must have had direct knowledge of the fact that those payments had been made at the time of receipt of the offer, because they had been directly paid to her, or were disclosed in the financial statements in her possession. On the basis of my findings, the appropriate calculation is as follows:
Aggregate loan account balance as at 30 June 2015 – $1,248,385.
This included the distribution from the net income of the trust in the 2015 financial year which had been agreed at a meeting between Andrew, Karen and the plaintiff on 19 September 2015, in the sum of $80,536 to John and $80,535 to the plaintiff. On 25 September 2015, the sum of $161,072.58 was paid to the plaintiff in discharge of these distributions, leaving a net balance at 30 June 2015 of $1,087,309.42. The sum actually disclosed in the balance sheet of the trust was $1,087,313.07. Of course, one half of that distribution was found by me to be invalid, but even assuming for the moment that the plaintiff believed she was entitled to the full amount, the maximum net amount to which she was entitled on 30 June 2015, according to the financial statements of the trust and the company, was $1,087,313.07.
Then, from the sum of $1,087,313.07, there must be deducted the payments made on 8 February 2016 by Andrew and Karen directly to the plaintiff which totalled $282,486.83, see [23].
Accordingly, on the information personally known to the plaintiff at the time that the offer of compromise was made, her maximum entitlement at the commencement of the action was a net sum of $804,825.59. If it is assumed that the plaintiff had no more information available to her than this at the time that the offer was made, it is still apparent that she was being offered a sum well in excess of that to which she was entitled. Of course, it is strongly arguable that she could have done more to obtain further financial information relevant to the assessment of her claim well before the offer was made. Her absolute reliance on what she asserted was the prima facie situation arising from the financial statements provided, at best, a tenuous basis for the quantification of her claim, having regard to the matters discussed by me at [10]-[14] of my judgment. Ultimately, the onus was on the plaintiff to establish the existence and quantum of the debt, and there is no evidence placed before me to establish that she took any significant steps to obtain relevant evidence in that regard, other than the said financial statements, prior to the commencement of the action or receipt of the offer of compromise.
In any event, in my view, it is not necessary to go beyond the basic calculations described above. On the basis of what the plaintiff must have known about what was distributed to her in respect of the 2015 financial year, and what had been paid to her during that year and subsequently, the offer exceeded that to which she was entitled, assuming that she was completely successful at trial. I am satisfied that it must also have been clear to her at that time, that her position on the other issues was unsustainable. Her counsel did not seriously contend to the contrary. Accordingly, it was not reasonable for her to reject the offer. The presumption arising from r 289(2) has not been displaced by her and the prescribed costs consequences should follow in respect of the monetary claim.
The orders of 7 May 2019
It is common ground that there should be a costs order in favour of the defendants in respect of the issues that led to these orders. However, the defendants contend that these costs should be assessed on an indemnity basis from 26 March 2019. The relevance of that date is that on 25 March 2019, the defendants' solicitors wrote to the plaintiff's solicitors requesting that the plaintiff concede those issues by 4pm on 27 March 2019, and warning that unless that was done, the defendants would "commence full trial preparation in relation to these issues". The letter also advised that it would be relied upon in any future costs argument in respect of an application for indemnity costs on this issue.
In Fingal Pastoral Pty Ltd v Page Seager Lawyers (No 2) [2020] TASSC 40, Pearce J discussed in some detail the authorities applicable to a claim for indemnity costs, albeit in the context of a Calderbank offer. Although the letter written by the defendants' solicitors on 25 March did not make an offer of settlement, but rather called for complete capitulation on this issue, it is still pertinent to the determination of the application. I respectfully adopt and rely upon his Honour's discussion of the relevant principles.
An important aspect of those principles is that the onus to establish the basis on which the indemnity costs order is justified is on the party seeking that order. There must also be established some "special or unusual feature in the case to justify the Court exercising its discretion in that way": Preston v Preston [1982] 1 All ER 41; Re Wilcox; ex-parte Venture Industries Pty Ltd (No 2) (1996) 72 FCR 151.
In this case, I am not persuaded that I should exercise my discretion to award indemnity costs as claimed by the defendants. It is true that the plaintiff conceded the relevant issues at the commencement of the trial, and the defendants were undoubtedly put to extra expense in preparing these issues for trial, but the defendants will be compensated for this in the ordinary way by a costs order assessed on a party and party basis. In my view, the fact of the warning contained in the defendants' solicitors' letter is not, of itself, sufficient to justify the award of indemnity costs.
However, senior counsel for the defendants argued that I should conclude, as a matter of fact, that the plaintiff simply resisted these orders for tactical reasons in circumstances in which "she knew or should have known (her position) was without foundation". He asserted that this amounted to "gross improper conduct". The point of the argument is that such conduct, taken together with the warning, would amount to a "special or unusual feature" justifying indemnity costs.
There was little if any, evidence put before me to justify such an assertion. Because the matter was not litigated at the trial, I know very little about the respective arguments relating to these issues. The pleadings suggested although Andrew had been appointed as the appointor of the trust in J D McCarthy's will, he had also purported to appoint the plaintiff as the appointor and trustee of the trust by an inter vivos document. The defendants asserted that he lacked capacity when he signed this document. The defendants produced notes which purport to be from staff at the nursing home where the inter vivos documents were signed in support of the indemnity costs argument, but these do not, in my view, provide a sufficient basis for me to make a determination about whether or not it was reasonable for the plaintiff to maintain her position in respect of this matter until trial. At the commencement of the trial, her concession was framed by her counsel as her simply not wishing to assume the responsibilities associated with the relevant position and not wanting to fight those issues any longer. Without determining those issues on evidence, it is impossible for me to assess whether it was reasonable for the plaintiff to maintain that position after she received the defendants' solicitors letter.
There is no question that the defendant should be compensated in respect of these issues by an award of costs assessed on a party and party basis. However, I am not satisfied that there is any special or unusual feature in the case that justifies the award of indemnity costs. Accordingly, the claim for such costs by the defendants is rejected.
Conclusion
It follows that appropriate costs orders are the draft form of orders proposed by the defendants, with the exception that paragraph 1 should exclude reference to costs on an indemnity basis and simply provide for costs taxed on a party and party basis. Having made this determination, I will hear from counsel as to the orders necessary to finally resolve this action.
0
5
1