McCrohan Super Investments Pty Ltd v Ashdown (No 2)
[2018] VSC 512
•14 September 2018
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
COMMERCIAL LIST
S CI 2016 01212
| MCCROHAN SUPER INVESTMENTS PTY LTD (ACN 162 030 168) & ORS | Plaintiffs |
| v | |
| MARIA LUISA ASHDOWN & ORS | Defendants |
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JUDGE: | SIFRIS J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 7 September 2018 |
DATE OF JUDGMENT: | 14 September 2018 |
CASE MAY BE CITED AS: | McCrohan Super Investments Pty Ltd & Ors v Ashdown & Ors (No 2) |
MEDIUM NEUTRAL CITATION: | [2018] VSC 512 |
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COSTS – Calderbank offers – Not unreasonable for Plaintiffs to refuse to accept offers in the circumstances.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | R Kruse | Slater + Gordon Lawyers |
| For the First and Third Defendants | J P Slattery | Wotton + Kearney |
| For the Fourth Defendant | S R Horgan QC and P G Quinn | Nick Xenophon & Co Lawyers |
HIS HONOUR:
For the reasons set out in my written judgment dated 3 August 2018 (‘Judgment’),[1] the plaintiffs’ claims will be dismissed as against all defendants. I will assume familiarity with the Judgment. Defined terms set out in the Judgment bear the same meaning.
[1]McCrohan Super Investments Pty Ltd & Ors v Ashdown & Ors [2018] VSC 422.
Costs must follow the event and the plaintiffs did not contend otherwise. However, the plaintiffs resist the application by the first and second defendants (‘the Ashdowns’) and the fourth defendant (‘Dr Coventry’) for indemnity costs for the period following the making of Calderbank offers.[2]
[2]A second settlement offer was made by the Ashdowns under the Rules (Order 26).
I do not consider that indemnity costs should be awarded. The plaintiffs, in my view, did not act unreasonably in rejecting the various offers. They were, in the somewhat unusual and particular circumstances of this case, entitled to run their case. They lost and must pay the costs, but there is no basis for ordering indemnity costs.
The crux of the case was that the Financial Representations made by the Ashdowns and Dr Coventry (and Mr Bonvino) were false and that as a consequence they engaged in conduct that was misleading or deceptive. The basis on which it was contended that the Financial Representations were false, was that substantial amounts were owing by the Company to Dr Coventry under an alleged Consultancy Services Agreement that was not disclosed to the plaintiff investors, and had it been disclosed they would not have invested the sum of $3 million by entering into the Subscription Agreement.
By continuing to vigorously assert the existence, validity and enforceability of the Consultancy Services Agreement as pleaded and advanced in his outline of evidence, and in his case against the Company in the Supreme Court of South Australia which had not been resolved at the time that this proceeding commenced and the various offers were made, the plaintiffs had a proper basis to endeavour to establish, by this critical fact asserted by a defendant, the falsity of the Financial Representations. They were entitled to accept and rely on Dr Coventry’s evidence to support their case, notwithstanding any reservations they may have had about the agreement from a review of the relevant documents. If Dr Coventry’s evidence was accepted, both as to the alleged agreement and knowledge of the Ashdowns of such agreement, the plaintiffs would have succeeded. In making their assessment they were not obliged to simply reject Dr Coventry’s evidence, which was indeed the basis of their case.
Dr Coventry relied on a Calderbank letter dated 5 March 2018. In the letter Dr Coventry offered to settle the claim against him on the basis that the claim be dismissed (by court order) with no order as to costs. At this stage Dr Coventry’s costs and disbursements were $97,689.40 (solicitor/client) and in excess of $65,000 (party/party). It was submitted that the foregoing of costs represented a genuine endeavour to settle.
In my opinion the plaintiffs did not act unreasonably in rejecting the offer, or more precisely not responding to it. Their rejection was entirely reasonable in the circumstances for two reasons.
First, I consider that the offer was, in effect and in the circumstances, a demand to capitulate. In circumstances where, Dr Coventry as a defendant continued to assert his claim – indeed, the very basis of the plaintiffs’ claim as to falsity – the offer did not represent ‘a serious endeavour to resolve the proceeding’ and rather was ‘no more than a token offer’.[3] Although in some special cases this may be sufficient, this is not such a case. The second reason follows. The plaintiffs were entitled to use the critical evidence of Dr Coventry in an attempt to persuade the Court, that the Financial Representations were false. They were entitled to test at trial, in light of this asserted claim, Dr Coventry’s knowledge of the Financial Representations, particularly given his attendance at the Signing Meeting. They were not required to simply accept his evidence as to what transpired at the meeting. Finally, the (subsequent) findings of the Court on the evidence does not affect the position. Rather, based on the position as at 5 March 2018, the plaintiffs acted reasonably in rejecting them.
[3]Commissioner of State Revenue v Challenger Listed Investments Ltd (No 2) [2011] VSCA 398 at [17].
The Ashdowns made two offers. For similar reasons it was not, in my opinion, unreasonable for the plaintiffs to have rejected the offers.
The first offer was a ‘walk away offer’ made on 17 March 2017. Each party was to bear their own costs. At this stage the plaintiffs were entitled to be concerned about Dr Coventry’s claim. It was this claim that led – in part – to the winding up of the company less than six months earlier. There remained a legitimate question as to the effect of this asserted claim on the accuracy of the Financial Representations. If the claim was good and known to the Ashdowns – a reasonable and legitimate position to take – there was a sufficient basis to make the claim and continue the proceeding. Despite denials by the Ashdowns, Dr Coventry persisted with his claim. The plaintiffs were entitled to engage in further interlocutory steps and test the evidence and endeavour to make good their claim.
The second offer made on 2 March 2018 was for the sum of $100,000 inclusive of costs. The offer was made under Order 26 of the Rules. In my opinion, and for similar reasons, it was not unreasonable for the plaintiffs to reject the offer. Dr Coventry persisted with his claim and had filed a witness outline setting out details of his assertions as to the Ashdowns’ knowledge of the Consultancy Services Agreement, the substantial work done by Dr Coventry, and his continued assertion that he was entitled to be paid. These matters were critical to the falsity of the Financial Representations. As pointed out, the plaintiffs were entitled to use and test this evidence as part of their case. Consequently, in my opinion, properly advised they were entitled to endeavour to establish their case despite the documentary evidence. They failed after a proper assessment of all of the evidence following cross-examination and the use of permitted inferences.
The crux of the submissions made by the Ashdowns and Dr Coventry was to the effect that a perusal of all the relevant documents (known and available at the time of the second Ashdown offer and Dr Coventry’s offer) would have demonstrated conclusively that there was no Consultancy Services Agreement as alleged, the foundation of the falsity claim. Not only was there no contemporaneous note, but no note or assertion at all of the agreement as alleged in circumstances where there should have been. For obvious reasons, and with the benefit of hindsight, the argument is more attractive now than it was at the time the offers were made. The fact is that Dr Coventry, a highly qualified and respected doctor, despite the lack of supporting contemporaneous and other documents and statements, was still vigorously asserting the claim in circumstances where it was common ground that he had done a substantial amount of work for the company. Precisely how this substantial work translated into compensation was an issue in the trial notwithstanding the plaintiffs confined pleaded (of the Consultancy Services Agreement) as it was based on the pleading of Dr Coventry in the South Australian proceeding. Pleadings are amended all the time and it was by no means unreasonable for the plaintiffs to endeavour to make good Dr Coventry’s claim given the substantial work done by him, and use this claim to demonstrate the falsity of the Financial Representations. These were proper matters for trial, and in particular cross-examination of the Ashdowns and Dr Coventry.
Accordingly, in addition to dismissing the claim, I will order that the plaintiffs pay the first, second and fourth defendants’ costs on the standard basis, to be taxed in the absence of agreement.
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