Mike & Shan Pty Ltd v SJ Higgins Pty Ltd (Costs)
[2023] VCC 1136
•6 July 2023
| IN THE COUNTY COURT OF VICTORIA AT Melbourne COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
Case No. CI-21-00842
| Mike & Shan Pty Ltd (ACN 104 466 211) | Plaintiff |
| v | |
| S.J. Higgins Pty Ltd (ACN 005 648 395) | Defendant |
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JUDGE: | Her Honour Judge Burchell | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | On the papers, written submissions dated 16 June 2023 | |
DATE OF RULING: | 6 July 2023 | |
CASE MAY BE CITED AS: | Mike & Shan Pty Ltd v SJ Higgins Pty Ltd (Costs) | |
MEDIUM NEUTRAL CITATION: | [2023] VCC 1136 | |
RULING
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Subject:COSTS
Catchwords: Whether costs should be paid on a standard or indemnity basis.
Legislation Cited: County Court Civil Procedure Rules 2018 r63A.30.
Cases Cited:Mike & Shan Pty Ltd v SJ Higgins Pty Ltd [2023] VCC 895; Aljade and MKIC v OCBC [2004] VSC 351; Oshlack v Richmond River Council (1998) 193 CLR 72; Colgate-Palmolive Co & Anor v Cussons Pty Ltd (1993) 46 FCR 225; IMC Aviation Solutions Pty Ltd v Altain Khuder LLC [2011] VSCA 248; BHP Billiton (Olympic Dam) Corporation Pty Ltd v Steuler Industriewerke GmbH (No 3) [2012] VSC 414; Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) (2005) 13 VR 435; Australian Competition and Consumer Commission v Australian Safeway Stores Pty Ltd (No 3) [2002] FCA 1294; Protec Pacific Pty Ltd v Steuler Services GmbH & Co KG [No 2] [2015] VSCA 123; Hannover Life Re of Australasia v Colella [2014] VSCA 205; Armory v Delamirie (1722) 93 ER 664.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | K J Naish | Corrs Chambers Westgarth |
| For the Defendant | Holding Redlich |
HER HONOUR:
Introduction
1On 3 June 2023, his Honour Judge Woodward (as he then was) gave judgment for the plaintiff (“Mike & Shan”) against the defendant (“SJH”) on its claim of $1,532,563.00 (including GST) plus interest and costs.[1]
[1] Mike & Shan Pty Ltd v SJ Higgins Pty Ltd [2023] VCC 895 (“Judgment”).
2Woodward J invited the parties to agree on the form of orders to give effect to his reasons, including on interest and costs. The parties were unable to reach agreement on the issue of costs and prepared written submissions.
3Mike & Shan submits that the appropriate order should be that SJH pay Mike & Shan’s costs (including any reserved costs) on the standard basis until 26 August 2022, and thereafter on an indemnity basis (alternatively, on a solicitor-client basis), to be taxed in default of agreement.
4SJH submits that the appropriate order should be that SJH pay Mike & Shan’s costs of the proceeding on the standard basis, to be taxed in default of agreement.
5For the reasons set out below, the appropriate costs order is that SJH pay Mike & Shan’s costs of the proceeding on the standard basis, to be taxed in default of agreement.
Relevant background
6In reaching my conclusion, I note the following events:
(a) on 16 March 2022, the parties conducted an unsuccessful mediation;
(b) on 27 July 2022, SJH offered to pay to Mike & Shan the sum of $450,000.00 in settlement of Mike & Shan’s claims;
(c) on 17 August 2022, Mike & Shan made a Calderbank counter offer of $1,400,000.00 (which comprised $1,200,000.00 damages plus $200,000.00 costs) excluding GST to SJH (“First Offer”), which was not accepted by SJH;
(d) on 31 August 2022, SJH made a second Calderbank offer of $700,000.00 to Mike & Shan;
(e) on 5 September 2022, the parties participated in a Judicial Resolution Conference (“JRC”) before me and agreed to settle several claims in the proceeding for $45,719.00 (including GST);
(f) on 5 September 2022, SJH made a third Calderbank offer of $700,000.00 to Mike & Shan;
(g) on 6 September 2022, Mike & Shan offered to accept $1,260,000.00 (comprised of $1,020,000.00 on account of claims (other than settled claims) and $240,000.00 on account of legal costs) (“Second Offer”), which was not accepted by SJH;
(h) the trial in this matter commenced on 26 September 2022.
Legal framework
7As a general rule, the Court will order costs to be taxed on the standard basis.[2] The discretion to make a special costs order is an unlimited one, though it must be exercised judicially and not unreasonably, and the circumstances should be “special”.[3] The usual order as to costs is that costs follow the event, and the successful party is entitled to an award of costs in its favour.[4]
[2] County Court Civil Procedure Rules 2018 (“Rules”) r63A.30.
[3] Aljade and MKIC v OCBC [2004] VSC 351 at [10].
[4] Oshlack v Richmond River Council (1998) 193 CLR 72 at [97].
8In Colgate-Palmolive Co & Anor v Cussons Pty Ltd,[5] Justice Shepherd set out many categories of circumstances which will warrant the making of a special costs order:
(a) the making of allegations of fraud knowing them to be false;
(b) the making of irrelevant allegations of fraud;
(c) evidence of particular misconduct that causes loss of time to the court and to other parties;
(d) the fact that the proceedings were commenced or continued for some ulterior motive or with wilful disregard of known facts or clearly established law; and
(e) the making of allegations which ought never to have been made or the undue prolongation of a case by groundless contentions.
[5] (1993) 46 FCR 225 at [23]–[24].
9In IMC Aviation Solutions Pty Ltd v Altain Khuder LLC,[6] the Court of Appeal also stated that:
“Special circumstances may be found where, for instance, the unsuccessful party has made serious unfounded allegations, pursued the proceeding for an ulterior purpose, wasted the court’s time, committed a contempt of court or engaged in some other improper conduct. But in each case it is a question to be determined in the light of the particular facts and circumstances”.
[6] [2011] VSCA 248 at [325].
10In considering whether or not a party should have their indemnity costs, the principles that guide the Court are set out in the decision of Justice Habersberger in BHP Billiton (Olympic Dam) Corporation Pty Ltd v Steuler Industriewerke GmbH (No 3)[7] as follows:
[7] [2012] VSC 414 at [59]–[67] referring to Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) (2005) 13 VR 435.
“First, the fact that a less favourable result is achieved does not give rise to a presumption of a special costs order. The making of an offer and its rejection are ‘but two albeit important circumstances’ to which the Court will have regard in the exercise of its costs discretion.
Secondly, the competing policy objectives relevant to the exercise of the costs discretion are principally the desirability of promoting settlement and reducing litigation costs as against the undesirability of discouraging potential litigants from bringing their dispute to the courts.
Thirdly, the critical question is whether the rejection of the offer was unreasonable in the circumstances. As the Court of Appeal said in Hazeldene:
‘In our view, these competing considerations can be sufficiently accommodated by applying a test of (un)reasonableness. The critical question is whether the rejection of the offer was unreasonable in the circumstances. We see no justification for a more stringent test such as “manifestly” or “plainly” unreasonable’.
Fourthly, a court considering submissions that the rejection of a Calderbank offer was unreasonable should ordinarily have regard at least to the following matters:
(a) the stage of the proceeding at which the offer was received;
(b) the time allowed for the offeree to consider the offer;
(c) the extent of the compromise offered;
(d) the offeree’s prospects of success, assessed as at the date of the offer;
(e) the clarity with which the terms of the offer were expressed; and
(f) whether the offer foreshadowed an application for indemnity costs in the event of the offeree rejecting it.
Fifthly, as the determination of whether it was unreasonable for the offeree to have rejected the offer is made “as at the time, or within a reasonably short time after, the offer” was made,[8] the Court should not too readily embrace submissions that it was inevitable that the proceedings would fail. As Hamilton J put it in Grynberg v Muller:
[8] Australian Competition and Consumer Commission v Australian Safeway Stores Pty Ltd (No 3) [2002] FCA 1294 at [21] per Goldberg J.
‘These submissions focus the bright light of hindsight. Hindsight sings a siren song of which Judges must be cautious…’
Sixthly, the onus lies on the offeror to demonstrate the unreasonableness of the offeree’s rejection of the offer. This means that it is necessary to analyse what was proposed.
Seventhly, there is no general rule that the Calderbank offer must set out with specificity the basis for the offeror’s contention that the offeree should accept the compromise. Whether there is a need to do so depends upon a consideration of all of the circumstances existing at the time of the offer.
Eighthly, it is not necessary for the applicant for an indemnity costs order to establish matters which might be relevant to other, well-recognised, grounds for indemnity costs. Such conduct is not a pre-requisite for a finding that the rejection of the Calderbank offer was unreasonable.
Ninthly, an ‘all in’ offer is permitted in a Calderbank offer”.
(Citations omitted.)
11Habersberger J’s decision was upheld on appeal to the Court of Appeal in Protec Pacific Pty Ltd v Steuler Services GmbH & Co KG [No 2].[9]
[9] [2015] VSCA 123 at [55].
12The above “principles established by Habersberger J” were referred to by the Court of Appeal in Hannover Life Re of Australasia v Colella[10] without any criticism.
[10] [2014] VSCA 205 at [91].
Mike & Shan’s submissions
13Mike & Shan submits that the First and Second Offers (“Offers”) were very significant compromises and it was unreasonable for SJH not to accept them, nothing that:
(a) Mike & Shan achieved a more favourable result at trial than it offered in the Offers, being an order for $1,568,019.99 on the claim plus interest of $355,274.67 (totalling $1,923,294.66);
(b) Mike & Shan achieved payment by settlement for $45,719.00 on minor claims and must be entitled to costs on at least a standard basis;
(c) at the time the Offers were made, the parties’ positions were abundantly clear in position papers submitted at mediation and a further quantum report submitted at the JRC;
(d) the proceeding was very advanced by the time the First Offer was made and in the shadows of the trial by the time the Second Offer was made.
14Mike & Shan states the following regarding the issues at trial:
(a) the significant issues were those of contractual interpretation and of expert evidence, which had been finalised for liability for months;
(b) the only changes to quantum evidence were extremely minor;
(c) the primary judgment reflects SJH’s unreasonable approach, which was to deny that the terms of the contract included the plans and specifications to which the building was constructed. Evidence it led at trial in support was rejected as opportunistic and not credible,[11] and Woodward J referred to “the absurdity of [its] alternative explanation” of the Contract, and its inherent inconsistency.[12] Most of the issues in dispute were resolved by that finding;
(d) on other issues in dispute, SJH did not call in evidence of its project manager, in circumstances where the judge found any evidence he may have given would not have assisted SJH’s case;
(e) the only issue that Woodward J expressed difficulty in deciding the case concerned the “falls” defect.[13]
[11] Judgment [62].
[12] Judgment [66], [67].
[13] See Judgment [2023] VCC 895 at [186]. See also the table at [257]: Defect A204 amounts + 6.6% uplift, 9% margin and 10% GST.
15Regarding the “falls” defect issue, Mike & Shan submits that:
(a) the difficult issue was not as to the proof of whether there was a defect in falls, but the extent of the problem and its quantum;
(b) Woodward J allocated $525,553.36 in damages to the “falls” defect;
(c) it is difficult to see how SJH could have bettered the First or Second Offers, even if a considerable discount had been applied to this claim;
(d) the quantum problem was that evidence was unavailable as to the state of the falls in some areas, covered by floor finishes such as Astroturf;
(e) this issue was resolved in part by the application of the path of reasoning in Armory v Delamirie,[14] that it was SJH’s flagrant conduct which had made the task of quantification “more than just difficult”, so the inference on quantum should be against it.[15]
[14] (1722) 93 ER 664.
[15] Judgment [161]-[164]; [205]–[209].
16Mike & Shan submits that it foreshadowed an application for indemnity costs in the event of SJH rejecting the Offers; it was unreasonable of SJH not to have accepted either offer; and SJH should be ordered to pay Mike & Shan’s costs on higher than the standard basis from the expiry of the First Offer.
SJH’s submissions
17SJH opposes the making of a special costs order for the following reasons:
(a) the timing of Mike & Shan’s Offers;
(b) when assessed at the time of the Offers, SJH’s case was not unarguable and the dispute largely depended on questions of contractual interpretation;
(c) Woodward J's decision relied heavily on the case of Armory v Delamirie, which was raised by Mike & Shan for the first time in its closing submissions.
18In relation to the timing of Mike & Shan’s Offers, SJH submits:
(a) the Offers were made before Mike & Shan filed and served its further amended statement of claim (“FASOC”) on 8 September 2022 during the period of acceptance of the Second Offer; and
(b) the amendments in the FASOC were not insignificant and made fundamental changes to Mike & Shan’s case, particularly in relation to rectification of the contract to include drawings and specifications.
19SJH argues that, at the time of making the Offers, its case could not be said to be without success and was sufficient to justify rejection of the Offers. SJH’s case included questions of contractual interpretation with respect to whether the drawings and specifications formed part of the contract. SJH had also put forward evidence in support of the following contentions (amongst others):
(a) SJH was not responsible for the deficiencies in the work of Mike & Shan’s previous contractor;
(b) SJH had not been expressly instructed to carry out works which form part of Mike & Shan’s case (for example, defect numbered A204);
(c) Mike & Shan’s evidence in relation to defect numbers A204 and A113 was that the finishes to the ground areas would need to be removed in order for a survey to be undertaken to determine the extent of any issues; and
(d) Mike & Shan had sought to claim for amounts which it had not paid to SJH.
20Finally, SJH submits that Mike & Shan had not raised the application of Armory v Delamirie at the time of making the Offers. Its application substantially altered the outcome of the case, particularly when applied to defect numbers A204 and A113, the highest value items constituting some 71% of Mike & Shan’s claim.
21SJH, therefore, submits that the Court should order that SJH pay Mike & Shan’s costs of the proceeding on the standard basis, to be taxed in default of agreement.
Analysis of Mike & Shan’s Offers
22The mere refusal of an offer does not automatically mean that the Court should make an order for costs on an indemnity basis where the ultimate result is less favourable than that contained in the offer.[16]
[16] Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCoverAuthority (No 2) (2005) 13 VR 435 at [18]–[20].
23I accept Mike & Shan’s submissions that the Offers were more favourable than the judgment entered. However, the principles are that there must be some unreasonableness in the refusal to accept.[17]
[17] Hobartville Stud Pty Ltd v Union Insurance Co Ltd [2004] FCA 1600 per Crennan J at [6].
24I have, therefore, analysed Mike & Shan’s Offers in accordance with the principles established by Habersberger J outlined above and find that SJH did not unreasonably refuse to accept the Offers.
25The Offers were in an appropriate form and were clear. The First Offer was open for acceptance for 9 days (offer made on 17 August 2022 with any acceptance due 26 August 2022). The Second Offer was open for acceptance for 7 days (offer made on 6 September 2022 with any acceptance due 13 September 2022, being 13 days prior to the trial date of 26 September 2022). The period for consideration was reasonable.
26Mike & Shan stated in both Offers that, “If the offer is not accepted, and Mike & Shan achieves a better outcome, it will refer to this letter on the question of costs”. Mike & Shan did not refer to it seeking indemnity costs in the event of SJH rejecting the Offers. However, SJH was legally represented and would understand the potential costs consequences of not accepting the Offers.
27I accept that the amendments to the FASOC, filed on 8 September 2022 before the First Offer was made and during the period of acceptance for the Second Offer, were not insignificant and made fundamental changes to Mike & Shan’s case. The allegations made in the proceeding were conceptually complex and the amendments were such that they had an impact on SJH’s assessment as to inform and consider the issues ultimately in dispute between the parties.
28Further, Mike & Shan did not raise the application of Armory v Delamirie at the time of making the Offers. Its application substantially altered the outcome of the case, particularly when applied to defect numbers A204 and A113, the highest value items constituting some 71% of Mike & Shan’s claim. SJH’s prospects of success, assessed at the time the Offers were made, were sufficient to justify rejection of the Offers.
29In my view, having regard to the prospects of SJH’s case as at the dates of the Offers and the amendments Mike & Shan made to its case after the Offers, it was not unreasonable for SJH to refuse to accept the Offers. Therefore, it is not appropriate to make a special costs order against SJH.
Conclusion
30For the reasons set out above, I will order that SJH pay Mike & Shan’s costs of the proceeding on the standard basis, to be taxed in default of agreement.
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Certificate
I certify that these 10 pages are a true copy of the ruling of her Honour Judge Burchell delivered on 6 July 2023.
Dated: 6 July 2023
Andrea Ko
Associate to Her Honour Judge Burchell
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