McLean v Did Piling Pty Ltd (No 2) - [2014] SASC 135

SUPREME COURT OF SOUTH AUSTRALIA
(Civil: Application)
MCLEAN v DID PILING PTY LTD & ORS (No 2)
[2014] SASC 135
Reasons for Decision of The Honourable Justice Nicholson
18 September 2014
PROCEDURE - COSTS
Application by defendants, successful at trial, for the plaintiff to pay their costs of the proceedings on an indemnity basis or, in the alternative, on a solicitor and client basis. The trial commenced on Monday 19 August 2013.
Held: the plaintiff is to pay the defendants’ costs of the proceedings on a party and party basis until and including Friday 16 August 2013 but thereafter on a solicitor and client basis.
Supreme Court Act 1935 s40; Supreme Court Rules 2006 r263, r264; Corporations Act 2001 s232, referred to.
McLean v DID Piling Pty Ltd & Ors [2014] SASC 76; Copping v ANZ McCaughan [1995] SASC 4917, (1995) 63 SASR 523; Gwinnett v Day (No 2) [2012] SASC 61; House v The King [1936] HCA 40, (1936) 55 CLR 499; Colgate Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225; BHP v Parker (2012) 113 SASR 206; Morris v McEwen [2005] SASC 284, (2005) 92 SASR 281, considered.

MCLEAN v DID PILING PTY LTD & ORS (No 2)
[2014] SASC 135
NICHOLSON J.

Following a trial in this matter, I dismissed the plaintiff’s claim for damages.[1] The defendants have sought an order that their costs of the whole of the proceedings be paid by the plaintiff on an indemnity basis or, in the alternative, on a solicitor and client basis.
[1] [2014] SASC 76 (the trial judgment).
Supreme Court Rule 6R 263 provides (subject to various identified exceptions) that, as a general rule, costs follow the event. Rule 6R 264 provides the Court may, in the exercise of its discretion as to costs, award costs on any basis the Court considers appropriate. However, the general approach is that costs are to be awarded as between party and party and in accordance with the relevant scale provided under the Rules. When the Rules are read in conjunction with s40 of the Supreme Court Act 1935[2] there has been conferred on courts and judges an unfettered discretion as to costs.[3] Of course, the discretion must be exercised judicially and by having regard to relevant considerations and not relying on irrelevant considerations.[4]
[2] Section 40(1) provides – subject to the express provisions of this Act and of the Rules of court and to the express provisions in any other Act whenever passed, the costs of and incidental to all proceedings in the court, ... shall be in the discretion of the court or judge and the court or judge shall have full power to determine by whom and to what extent such costs are to be paid.
[3] See generally Copping v ANZ McCaughan [1995] SASC 4917, (1995) 63 SASR 523 at 527; Gwinnett v Day(No 2) [2012] SASC 61.
[4] House v The King [1936] HCA 40, (1936) 55 CLR 499.
In this case, the defendants submit that a special order for costs is warranted on the basis that a number of the grounds recognised as enlivening the discretion to depart from the usual order, are present in this case.[5] The defendants submit:
(i)that the proceedings were commenced or continued in wilful disregard of known facts or clearly established law;
(ii)that allegations were made which ought never have been made;
(iii)that the plaintiff unduly prolonged the case by making groundless contentions; and
(iv)that the plaintiff imprudently refused an offer of compromise.
[5] See generally Sheppard J in Colgate Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225 at 233.
In support of these contentions, the defendants relied on the fourth affidavit of Matthew John Hawke (a solicitor who assisted with the care and conduct of the matter on behalf of the defendants) sworn 1 July 2014, the court record of the interlocutory proceedings between the parties during the weeks immediately prior to commencement of trial and various findings of fact as set out in the trial judgment. The plaintiff did not adduce any evidence on the costs application and did not challenge any of the material in Mr Hawke’s affidavit. During submissions on the costs application, counsel for the plaintiff, whilst not conceding, did not put any argument in opposition to the assertions made in (i), (ii) and (iii) above. The burden of the plaintiff’s submissions, in response, was that his refusal of the defendants’ late offer of compromise should not be seen, in all the circumstances, as an imprudent refusal.
The primary claim brought by the plaintiff was an oppression claim, within the meaning of s232 of the Corporations Act 2001, against the first defendant company. Central to this claim was an allegation that the reason given for a capital raising undertaken in 2009 was false and that the true purpose of the capital raising was to bring about a reduction of the plaintiff’s interest in the company and, in effect, to drive him out of the company. In addition, a number of particularised acts of misconduct by the second and third defendants, in their capacities as director of the first defendant, were alleged.
Until only a matter of days before the trial commenced, the plaintiff persisted with a claim that each of these particularised acts also constituted acts of oppression by the first defendant or acts in breach of a fiduciary duty owed by the second and third defendants in favour of the plaintiff. During the days preceding the commencement of the trial, a number of interlocutory hearings were held and a number of pleading arguments conducted. As a consequence, and ultimately, the basis of the plaintiff’s claim was limited to the fact of and the specified reason given for the capital raising.[6]
[6] See the trial judgment at [18]-[22].
Nevertheless, the various allegations of improper conduct made against the second and third defendants were persisted with and needed to be explored at some length during the trial. The plaintiff maintained these allegations for two confined purposes. They provided background to the central allegation of oppression in the sense that they would enable a more detailed understanding of the relationship between the parties so that the Court might better appreciate the oppressive nature of the capital raising exercise and the true reasons for it. Some of the particularised alleged conduct was also pressed by the plaintiff in support of an assumption as to the true state of the company’s financial affairs which had been relied upon by the plaintiff’s accountant when preparing a (substantial) valuation of the plaintiff’s minority shareholding of which he had been deprived as a consequence of the capital raising.
Of these particularised allegations: a number were abandoned at trial, a number were completely unsupported by evidence at trial and a number were only supported by the oral evidence of the plaintiff which turned out to be inconsistent with available, relatively contemporaneous, documentary material. None of the particularised allegations was made out.
In this latter respect, it would seem that there had been no proper inspection of the defendants’ discovered documents prior to trial. The plaintiff’s allegations concerned the manner by which the second and third defendants intervened in the first defendant’s affairs in support of their own interests rather than the company’s. He endeavoured to make good these allegations on the basis of his recollection of events which took place many years ago and, in some cases, on the basis of his understanding of what he believed to be the case even though he had no direct knowledge. Once the documentary record concerning various of the events he had given evidence about was shown to him during cross-examination, it became apparent that his oral evidence in these respects was quite unreliable.
I have to say I was puzzled, at the least, as to how it was that the plaintiff came to give his evidence concerning very complex transactions involving the first defendant company without reference to any of the contemporaneous contractual or financial records that had been discovered by the defendants. As a consequence, the trial itself was unduly prolonged and significantly so by factual contentions that could not be made out.
During the costs argument, counsel for the defendants made three primary submissions. First, until only days before trial, the case pleaded by the plaintiff and prepared by both the plaintiff and the defendants was a case that, in important respects, was untenable at law. Aspects of the case had to be abandoned during the week before the trial started and the case re-pleaded. I accept this submission. So much is plain from the record of the interlocutory arguments that took place shortly before trial and from a number of my findings in the trial judgment.
Second, there were a large number of factual allegations pursued at the trial that proved to be untenable in the sense that there was no reliable evidence available to support them. As I have indicated, the inference I have drawn is that there was no proper inspection of the defendants’ documents and no proper proofing of the plaintiff bearing in mind what was revealed in some of the discovered documents.
The third (and related) primary submission relied upon by the defendants is that once the case had been reformulated, so as to conform with what might have been open to the plaintiff as a matter of law, the defendants made an informal offer of settlement that was imprudently refused.
I accept that the case was ill-conceived as a matter of law, at least until the pleadings were amended and certain aspects of the plaintiff’s case were abandoned very shortly prior to the commencement of trial, as described more fully in the trial judgment.[7]
[7] At [18]-[22].
Nevertheless, once this point had been arrived at during the week before the trial started, it should have been apparent to the plaintiff, properly advised, that the factual basis for the claim would be very difficult to establish and that the evidence relied upon in order to support the finding of a substantial loss (in the order of $500,000 as claimed) was extremely fragile, to say the least.[8]
[8] See the trial judgment at [29]-[42] for my reasons for refusing to admit the plaintiff’s accountant’s report, the only evidence going to quantum sought to be adduced (apart from some primary accounting records).
It is in these circumstances, that the defendants’ informal offer to settle and the plaintiff’s refusal of that offer need to be considered. The offer was made by letter, emailed to the solicitors for the plaintiff at 10.54am on Thursday 15 August 2013. The terms of the letter were, in part, as follows (formal parts omitted).
Your client’s claim as formulated is misconceived as a matter of both fact and law.
Until now, your client’s pleading has been untenable, as reflected in recent interlocutory arguments before the Court, and as evidenced by the need for your client’s recent amendments.
Your client’s claim remains untenable, and the relief sought by your client is not available to him.
Notwithstanding the above, in view of the significant costs to be incurred between now and the end of trial, we are instructed to make a final offer of settlement to avoid incurring unnecessary costs which might be unrecoverable.
My clients (all defendants) hereby offer to settle the matter on the basis that your client’s claim is dismissed by consent in return for payment by one or each of them to your client of the sum of $100,000 plus your client’s costs of the action to be taxed (if not agreed), less [the costs subject of certain interlocutory orders].
Given the short time between now and commencement of trial and the substantial costs to be incurred between now and then, this offer remains open till 4pm this Friday 16 August 2013.
Should this offer not be accepted, the matter proceeds to trial, and our clients achieve a better outcome than provided for in this offer, then this letter will be relied on upon the issue of costs on the basis set out in Calderbank v Calderbank [1976] 3 All ER 333.
The proposition in the second paragraph, quoted above, was a correct statement. However, the proposition in the third paragraph still needed to be demonstrated at trial (as it happened, it was). Nevertheless, it must have been plain to both the plaintiff and his advisers following the extensive argument that led to the plaintiff amending his pleading immediately prior to trial, that the plaintiff’s case was not going to be an easy one to establish. This should have been even more apparent, had the plaintiff been properly proofed with respect to his evidence in the context of the discovered documentation.
Furthermore, the plaintiff’s approach to proving loss was misconceived. Had the plaintiff and his advisers had a proper appreciation of how to approach the valuation of a minority shareholding, it should have been apparent that the evidence the plaintiff intended to rely upon was not going to support a substantial award.
In all of the circumstances, an offer of $100,000 plus costs ought to have been seen as an attractive one.
It is correct that, in a number of respects, the defendants’ informal offer did not replicate the advantages and protections that the plaintiff might ordinarily have enjoyed from an offer made in accordance with the Rules. This can be a significant consideration when deciding whether or not to make a special costs order based on the making of an informal offer.[9] However, the offer came at a time when the plaintiff and his advisers can be expected to have acquired an appreciation of the weaknesses of the case, as a consequence of the interlocutory proceedings immediately prior to trial during which the defendants’ counsel frankly laid out a number of the difficulties that faced the plaintiff. In addition, the trial was imminent, such that one can expect that the plaintiff and his advisers had completed much of the necessary preparation.
[9] Morris v McEwen [2005] SASC 284, (2005) 92 SASR 281.
In these circumstances, the lateness of the informal offer and the short time frame within which the plaintiff was permitted to respond to the offer was, in my view, justified. Indeed, the plaintiff refused the offer without comment and without making any counter-offer by email sent at 12.19pm on Friday 16 August 2013, almost four hours before the nominated deadline.
In BHP v Parker[10] Doyle CJ and White J said this:
The question is not simply whether, having regard to a Calderbank letter, a court should order the defendant to pay costs on the basis other than as between party and party. The court will be exercising a broad discretion, and the making of an informal offer of settlement is merely one of a number of matters relevant to the exercise of that discretion... . And a Calderbank letter is but one instance of how a party might make an offer which has been “imprudently refused”... . Imprudent refusal of an offer of settlement is often raised as the basis for an application for an order for costs on a basis other than as between party and party, but once again it has to be borne in mind that while “imprudent refusal” conveniently encapsulates an approach to the exercise of discretion, in the end the issue is whether the discretion should be exercised to depart from the usual basis of an order for costs.
[10] (2012) 113 SASR 206 at [265] (citations omitted).
I accept the submission of the defendants that the timing of the offer was informed to some significant degree by the lateness of the plaintiff’s application to amend its pleadings and bearing in mind the imminent trial commencement date. If the informal offer had come out of the blue, then it may well not have been sufficient, on its own, to ground a special order for costs. However, in the circumstances of this matter, the plaintiff, properly advised, ought to have realised immediately that this was a genuine and sensible offer of compromise.
I am not prepared to find that the proceedings were either commenced or continued in wilful disregard of known facts or clearly established law. The proceedings were eventually confined to a basis that was tenable in law although the factual basis for the plaintiff’s claim was always weak and ultimately not made out. Nevertheless, I am not prepared to conclude that the case should not have been brought at all or that all of the allegations should not have been made. In my trial reasons I found that the plaintiff’s allegations of misconduct had not been established by the plaintiff who carried the onus. That does not mean that they all were, necessarily, without substance. I am troubled as to whether the case proceeded in the way that it did as a consequence of obduracy by the plaintiff or simply that he was poorly advised. I can make no findings in this regard.
However, I am satisfied that the trial was unduly prolonged by the plaintiff and that the refusal to accept the defendants’ informal offer was, in the circumstances, imprudent.
I am not satisfied that an order for any of the costs to be assessed on an indemnity basis is warranted.[11] In the circumstances, the appropriate costs order is that the plaintiff should pay the defendants’ costs of the proceedings on a party and party basis until and including Friday 16 August 2013 but thereafter on a solicitor and client basis. I so order.
[11] At the very least, the difference between solicitor and client and indemnity costs involves a difference in who bears the onus of proving that costs were reasonably incurred on the one hand and unreasonably incurred on the other, SCR 6R 264(5)(a) and (b).