Milfoil Pty Ltd v Commonwealth Bank of Australia (No 2)
[2019] VSC 734
•5 December 2019
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
COMMERCIAL LIST
S CI 2013 05109
| MILFOIL PTY LTD | Plaintiff |
| v | |
| COMMONWEALTH BANK OF AUSTRALIA LTD (ACN 123 123 124) | Defendant |
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JUDGE: | LYONS J |
WHERE HELD: | Melbourne |
DATE OF SUBMISSIONS: | 20 and 30 September 2019 and 2 October 2019 |
DATE OF JUDGMENT: | 5 December 2019 |
CASE MAY BE CITED AS: | Milfoil Pty Ltd v Commonwealth Bank of Australia (No 2) |
MEDIUM NEUTRAL CITATION: | [2019] VSC 734 |
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COSTS – Whether successful defendant entitled to all or part of its costs of the proceeding – Whether defendant’s conduct at trial challenging credit of plaintiff’s witnesses should result in reduction of any costs awarded – No reduction justified
COSTS – Indemnity costs – Whether plaintiff unreasonably failed to accept offer of compromise made under r 26.08(4) of the Supreme Court (General Civil Procedure) Rules 2015 – Factors to be taken into account – Indemnity costs ordered
COSTS – Whether counsels’ fees in excess of scale should be allowed – Whether ‘special grounds’ arising out of nature or difficulty of proceeding – No special grounds established - Supreme Court (General Civil Procedure) Rules 2015 r 63.34
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr C R Northrop | Goldsmiths Lawyers |
| For the Defendant | Mr P J Bick QC with Dr A P Trichardt | Clayton Utz |
HIS HONOUR:
Summary
I delivered reasons for judgment in favour of the defendant on 29 July 2019.[1] I asked the parties to consider the costs orders to be made in light of Reasons No 1. In the event costs orders could not be agreed, I requested written submissions in relation to costs. I received written submissions from the CBA dated 20 September 2019, from Milfoil in response dated 30 September 2019 and from the CBA in reply dated 2 October 2019.
[1]Milfoil Pty Ltd v Commonwealth Bank of Australia Ltd [2019] VSC 504 (‘Reasons No 1’). For convenience, I will adopt the terms defined in Reasons No 1 in these reasons.
In summary, the CBA seeks all of its costs of the proceeding. It seeks those costs on an indemnity basis from 6 June 2018 as a result of the CBA serving an offer of compromise on Milfoil on 4 June 2018 for $300,000 inclusive of costs which was not accepted. It relies upon r 26.08(4) of the Supreme Court (General Civil Procedure) Rules 2015 (the ‘Rules’). It also seeks an order pursuant to r 63.34 to allow counsels’ fees in excess of the scale of costs permitted by Appendix A to the Rules.
Milfoil submitted that the CBA is not entitled to all of its costs given that the CBA did not succeed on all issues at trial. It submitted that any costs awarded to it should be awarded on a standard basis. Finally, it submitted that there is no justification to allow counsels’ fees beyond scale.
As a result, there are three main issues to determine in relation to costs. First, is the CBA entitled to all of its costs of the proceeding? Second, on what basis should costs be awarded? Third, should counsels’ fees in excess of scale be allowed? I will deal with each of these issues in turn.
The law
The relevant principles in relation to costs were set out by the Court of Appeal in Chen v Chen.[2] The Court stated:
[2][2009] VSCA 233.
(1)The general rule is that costs should follow the event. Absent disqualifying conduct, the successful party should recover its costs even where it has not succeeded on all heads of claim.
(2)The Rules of Court permit significant flexibility in determining questions of costs. In particular, the Court is entitled to examine the realities of the case and will attempt to do ‘substantial justice’ as between the parties on matters of costs.
(3)Where there is a multiplicity of issues and mixed success has been enjoyed by the parties, a Court may take a pragmatic approach in framing the order for costs, taking into consideration the success (or lack of success) of the parties on an issues basis. Generally, if such an order is made, it is reflected in the successful party being awarded a proportion of its costs but not the full amount.
(4)A Court may, when fixing costs in a claim where there has been mixed success, take into account complications which it considers will arise in the taxation of costs, as part of its consideration of the overall interests of justice.
(5)Where a Court determines to make an order apportioning costs, then it does so primarily as ‘a matter of impression and evaluation,’ rather than with arithmetical precision, having considered the importance of the matters upon which the parties have been successful or unsuccessful, the time occupied and the ambit of the submissions made, as well as any other relevant matter.
….
(7)Usually, an order for costs will be made on a party/party basis. But an order for costs on a solicitor/client or indemnity basis may be made where special or unusual circumstances have been demonstrated, for example, by establishing misconduct in the proceeding, that the proceeding was brought for an ulterior purpose, or that it was patently unreasonable to institute, or maintain, the proceeding. Special circumstances may also include the making of an allegation of fraud which is not proved.[3]
[3]Ibid [10] (citations omitted).
Since that judgment was delivered, the Rules now provide for two kinds of costs orders: on a standard basis and on an indemnity basis. I will deal with this further below.
Is the CBA entitled to all of its costs of the proceeding?
Milfoil submitted that the way in which the CBA conducted its defence significantly altered the length of the trial. Milfoil referred to significant delays in bringing the matter on for trial, including the summons filed by the CBA on 14 December 2015 seeking orders for the dismissal of the proceeding or striking out of various paragraphs of the amended statement of claim. The subsequent ruling of Hargrave J was then subject to an appeal. All of this led to the trial date that had been set being vacated.
Milfoil submitted that the principal issue on which the CBA succeeded was not based on a successful challenge to the facts: rather, it was based on an absence of accounting evidence to show which amounts to which Milfoil was entitled had been received by the CBA.
Further, Milfoil relied upon the CBA’s conduct at trial. It submitted that the CBA strenuously challenged the account of Mr Reynolds and his son, Steven, of the conversation with Mr Barbagallo of the CBA on 10 August 2009 and alleged that their account was fabricated. Milfoil submitted that this attack was based on the CBA’s witnesses’ assertions of that conversation which Milfoil submitted were inherently implausible and inconsistent with earlier versions given by those employees. Further, Milfoil noted that the defence of unclean hands which was raised just before the commencement of the trial and which was based upon alleged misconduct of Milfoil, also failed.
The CBA disputed that there should be any reduction of the costs to which it is entitled. It disputes that Milfoil failed because of a lack of accounting records. It submitted that Milfoil could not establish its claim, in particular, that the CBA knowingly received or dealt inconsistently with trust funds belonging to Milfoil.
The CBA submitted that there was nothing improper in the CBA challenging the evidence relating to the 10 August conversation: in any event, Mr Barbagallo’s account of the conversation was partially accepted. Further, it submitted that there was a proper basis to allege Mr Reynolds’ and Stephen’s evidence was fabricated at least in part.
The CBA submitted that it acted reasonably in raising the defence of unclean hands: it was entitled to do so and did not add significantly to the costs of the proceeding.
Further, the CBA submitted that Milfoil unreasonably multiplied issues. It noted that Milfoil’s claim was originally limited to stock in the RWP. On 26 February 2015, the claim was amended to include stock which was not in the RWP and which had a retail value of at least $3,090,538 i.e. the 2015 amendments. By summons dated 14 December 2015, the CBA sought orders that the 2015 amendments be stayed or dismissed. The CBA was successful at first instance but was unsuccessful on the appeal brought by Milfoil. The trial before me was conducted on the basis of the 2015 amendments until final address, after which Milfoil sought only to recover the unpaid portion of the Milfoil advance. The CBA submitted that, essentially, Milfoil reverted to its original claim on the final day of the trial after persisting with the 2015 amendments for over 4 years.
In response, Milfoil submitted that the CBA misstated the way in which Milfoil presented its case in final submissions: what was sought in closing argument was the remedy of equitable compensation, as distinct from the taking of accounts.
In determining this issue, it is important to note that Milfoil was not successful in establishing a claim for damages. This was hard fought litigation conducted over 5 years. It is true that certain aspects of Milfoil’s claim were established: for example, the terms of the Milfoil agreement and that the CBA was informed of Milfoil’s interest in the stock purchased with the Milfoil advance on 10 August 2009. However, establishing aspects of a claim is not establishing a claim.
As I set out at [9] of Reasons No 1, the underlying basis of Milfoil’s claim was always that the CBA received the proceeds of sale of the stock purchased with the Milfoil advance with knowledge of Milfoil’s interest in that stock. This was on the basis that the proceeds of sale of the stock purchased with the Milfoil advance were deposited into Mercury’s accounts with the CBA. At trial, that formed the basis of the claim for knowing receipt of, or knowing inconsistent dealing with, trust moneys belonging to Milfoil.
In Reasons No 1, I concluded that:
(1) the CBA was informed that Milfoil had an interest in stock purchased with the Milfoil advance during the 10 August conversation, but insufficient information was given to the CBA at that time to identify the proceeds of sale in any meaningful way;
(2) Milfoil had not established that all of the proceeds of sale of the stock recorded in the RWP were received by, or deposited with, the CBA;
(3) the CBA did not ‘receive’ the proceeds of sale of stock purchased with the Milfoil advance recorded in the RWP for the purpose of a claim of knowing receipt;
(4) while Milfoil had established that approximately $31,000 of the proceeds of sale of stock purchased with the Milfoil advance recorded in the RWP had been deposited with the CBA and were swept across to AHT, Milfoil had not established that the CBA made that payment ‘knowingly’ for the purposes of a claim for inconsistent dealing.
Thus, in my preliminary view, the general rule that costs follow the event should apply. I will now turn to the grounds relied upon by Milfoil as to why the general rule should not apply.
First, there is the issue of delay. In my view, there were no relevant delays on the part of the CBA relating to this proceeding. It is important to note that this proceeding was issued in 2013 and, on 26 February 2015, Milfoil filed an amended statement of claim including the 2015 amendments. As to the summary judgment application in relation to the 2015 amendments, I refer to section 16 of Reasons No 1. In my view, in light of the 2015 amendments and their nature, there was no relevant delay on the part of the CBA in prosecuting the summary judgment application. However, in any event, I do not consider the defendant’s costs of the summary judgment application and the related appeal fall within any costs orders I make in this proceeding. Those were discrete applications and the Court of Appeal made orders in relation to the costs of them.
Second, there is the way in which the CBA conducted the trial. It is true that the CBA strenuously attacked the credit both of Mr Reynolds and of Steven, particularly in relation to the 10 August conversation. For the most part, I preferred the evidence of Mr Reynolds in respect of this conversation. I refer to section 8.3.7 of Reasons No 1. However, in my opinion, while the CBA’s challenge to the credit of Mr Reynolds and his son was unsuccessful, I consider there was a proper basis for that challenge.
Third, there is the defence of unclean hands which was not necessary to decide in this proceeding. However I expressed some view on the merits of that defence in section 24 of Reasons No 1. I do not consider that there should be any reduction in the costs of the CBA relating to this defence. This is because there was a proper basis for it. Further, it was only raised shortly before trial and there were no significant costs associated with this defence. It was based upon the cross-examination of Milfoil’s witnesses and the way in which the proceeding had been conducted by Milfoil.
In all these circumstances, I consider that there should be no reduction in the costs to which the CBA is entitled. I do so on the basis that, consistent with the orders of the Court of Appeal referred to in [19] above, the costs associated with the discrete application and related appeal do not form part of any costs orders I make.
On what basis should costs be awarded?
On 4 June 2018, the solicitors for the CBA served on the solicitors for Milfoil an offer of compromise under Order 26 of the Rules. The CBA offered to compromise the proceeding on the basis that:
(1)the CBA pay Milfoil $300,000 inclusive of costs in full and final settlement of Milfoil’s claim within 7 days of acceptance;
(2) the offer was open for acceptance until 4 pm on Friday 22 June 2018.
There was no suggestion that the offer was not a valid offer of compromise for the purposes of Order 26. It is then necessary to turn to r 26.08(4), which provides:
Where an offer of compromise is made by a defendant and the plaintiff unreasonably fails to accept the offer and the claim to which the offer relates is dismissed or judgment on the claim is entered in favour of the defendant, then unless the court otherwise orders—
(a)the defendant shall be entitled to an order against the plaintiff for the defendant’s costs in respect of the claim until 11.00 am on the second business day after the offer was made, taxed on the ordinarily applicable basis; and
(b)the defendant shall be entitled to an order against the plaintiff in respect of the defendant’s costs after the time referred to in paragraph (a) taxed on an indemnity basis.
As to the law, it is clear that the onus is on the CBA to establish that Milfoil unreasonably failed to accept its offer having regard to the applicable circumstances at the time of the offer.[4] The question of whether an offer was unreasonably rejected under r 26.08(4) is a matter of judgment and impression, requiring consideration of the applicable circumstances at the time of the offer.[5] In considering whether a failure to accept an offer of compromise under r 26.08(4) was unreasonable, factors relevant to assessing reasonableness in relation to Calderbank offers are applicable.[6] Matters ordinarily relevant to that question include the stage of the proceeding at which the offer was received, the extent of the compromise offered, the offeree’s prospects of success assessed at the date of the offer and the clarity with which the terms of the offer were expressed.[7]
[4]United Petroleum Australia Pty Ltd v Herbert Smith Freehills (No 2) [2018] VSC 501 (‘United Petroleum’) [19]; Rivex Crane Hire Pty Ltd v Armquip Pty Ltd(No 2) [2019] VSC 208 (‘Rivex’) [20(a)].
[5]Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) (2005) 13 VR 435 (‘Hazeldene’s Chicken Farm’) [23]–[24], [30].
United Petroleum (n 4) [19].
[6]See, eg, Di Falco v Emirates (Ruling No 3 – Costs ruling) [2019] VSC 732 [7].
[7]Hazeldene’s Chicken Farm (n 5) [25].
Further, the onus is on Milfoil to show why the Court should ‘otherwise order’ under r 26.08(4).[8]
[8]Rivex (n 4) [20(a)].
In my view, there are two issues which arise for r 26.08(4) to apply. First, has the CBA established that Milfoil unreasonably failed to accept the offer having regard to the applicable circumstances at the time of the offer? Second, has Milfoil established that the Court should ‘otherwise order’?
The CBA submitted that, by 4 June 2018, Milfoil had received all available documents which indicated that no proceeds of the stock in the RWP had in fact been transferred to the CBA, other than $31,432.78. The documents were the only evidence that could prove what amounts had been received by the CBA and the origin of the payments given the passage of time. Milfoil should have realised then that it had no prospects of receiving judgment for more than $31,432.78, and a portion of its costs.
The CBA noted that, by 4 June 2018, the proceeding had run for approximately five years, including two mediations. The nature of Milfoil’s claim had been addressed in the summary judgment application and the following appeal. Further, Milfoil had ample opportunity to consider the offer.
Milfoil submitted that it was relevant that:
(1)the offer was made after the proceeding had been on foot for 5.5 years and after the trial of the proceeding had been fixed for the second time;
(2) the offer was expressed to be inclusive of costs;
(3)Milfoil had already incurred significant costs including the costs of the CBA’s summary judgment application and Milfoil’s successful appeal;
(4)there was no attempt to justify the amount of the offer by reference to the circumstances of the case, namely, there was no reliance on the findings that led to judgment in the CBA’s favour;
(5)in all the circumstances, the amount of the offer had all the hallmarks of an offer based on the costs of the forthcoming trial rather than a realistic attempt to compromise the plaintiff’s claim.
In reply, the CBA submitted that:
(1)the time at which the offer was made is not relevant: if it is, the timing of the offer meant Milfoil had all relevant documents to make a judgment about its prospects of success;
(2) r 26.02(4) specifically authorises an offer to be made inclusive of costs;
(3)the CBA had been ordered to pay and did pay Milfoil’s costs of the summary judgment application and the following appeal;
(4)there is no requirement that the offer of compromise explain why the offer should be accepted: the issue is whether the offeree unreasonably failed to accept it at the time;
(5) it is not true to say that it had all the hallmarks of a ‘go away’ offer based on the costs of the forthcoming trial: it represented a realistic assessment of Milfoil’s best outcome.
In my view, the CBA has established that Milfoil unreasonably failed to accept the offer of compromise. The events that gave rise to this proceeding took place in 2009. Those events were complicated by the fact that Mercury was placed into administration and, later, liquidation. It made access to documents and problems of proof more difficult.
As noted above, this proceeding was issued in 2013. In 2015, Milfoil made the 2015 amendments which substantially changed the nature of its claim to allege that the Milfoil advance was used to purchase stock other than stock listed in the RWP. The Court of Appeal concluded that this was arguable and should be allowed to go to trial.
As I set out above, at the heart of Milfoil’s claim was an allegation that the CBA received the proceeds of sale of the stock purchased with the Milfoil advance. That was relevant to the claim for knowing receipt and inconsistent dealing. Of course, any claim based on the CBA receiving the proceeds of sale of the stock purchased with the Milfoil advance faced the problem that it was difficult to identify the stock purchased with the Milfoil advance, at least prior to the preparation of the RWP in September 2009. In addition, as I set out in Reasons No 1, there were apparent inaccuracies in that document. Further, there were difficulties in identifying a link between stock supplied to customers in the RWP and money paid into the CBA accounts by those customers.
Milfoil did not suggest that it did not have all available documents by June 2018 to consider these key aspects of its claim. Indeed, the fact that the offer was made five years after the proceeding had been issued meant that Milfoil had a considerable amount of time to review the materials and consider the merits of its case before the offer was made.
As to Milfoil’s other contentions, it is true that the offer of compromise was inclusive of costs: but this is specifically allowed by the Rules. It is also true that considerable costs were incurred in the summary judgment application and the following appeal. However, as noted, these were discrete applications and the CBA had paid Milfoil’s costs of them in accordance with the orders of the Court of Appeal.
Further, in my view, there is no requirement that an offer of compromise or the letter serving it justify the amount of the offer by reference to the circumstances of the case. Nor is the fact that the offer might be seen as a ‘go away’ offer determinative: it depends on all the facts of the case.[9] The offer of compromise in this case was made was made at a time where the CBA had already incurred significant costs in defending the proceeding. Further, the offer was significantly better than the position of Milfoil after the trial had been completed.
[9]See, eg, Towie v Medical Practitioners Board of Victoria [2008] VSCA 157 [41].
I am conscious that Mr Reynolds’ version of events was challenged in this proceeding and that he had a legitimate desire to have his version of events confirmed by the Court and his reputation upheld. I can also understand, as I said in Reasons No 1, Mr Reynolds’ sense of injustice by reason of being unable to recover the funds which Milfoil advanced to Mercury in July 2009.
But, in my view, these issues do not ‘tip the scales’ in deciding whether the offer of compromise was unreasonably rejected. I consider that, once the offer was received, Mr Reynolds was required to consider that offer reasonably in light of the merits of the case on the basis of the material then available to him. In my view, if he had done so, he would have accepted the offer. Of course, Mr Reynolds and Milfoil were at liberty to pursue this proceeding, but at the risk of indemnity costs from that time.
Should counsels’ fees in excess of scale be allowed?
Item 19(4) of Appendix A of the Rules states:
Where costs are taxed pursuant to an order of the Supreme Court, Counsel’s fees in excess of scale are not to be allowed unless the Supreme Court otherwise orders, but in any other case the Costs Court has discretion to allow fees in excess of scale.
Rules 63.34(3) and 63.34(4) provide:
(3)The Court may, on special grounds arising out of the nature and importance or the difficulty or urgency of the case, allow an increase not exceeding 30 per cent of the legal practitioner’s charges allowed on the taxation of costs with respect to—
(a) the proceeding generally; or
(b) to any application, step or other matter in the proceeding.
(4)Where the Court so directs, the Costs Court shall have the same authority as the Court under paragraph (3) to allow an increase in the fees set forth in Appendix A.
The CBA sought that I make orders in accordance with r 63.34(3) or r 63.34(4) to allow an increase not exceeding 30% of scale for counsels’ fees.
This is in circumstances where senior counsel for the CBA was briefed on 8 June 2018 to advise and appear at trial. He charged $1,000 per hour and $10,000 per day[10] while the maximum scale fee for senior counsel was $854 per hour and $8,540 per day until 31 December 2018 and thereafter $877 per hour and $8,770 per day.
[10]Hereafter in these reasons, references to hourly and daily fees are exclusive of GST.
Further, junior counsel for the CBA had been briefed since 2013. He charged $545.45 per hour and $5,454.50 per day until 30 November 2015 and thereafter charged $600 per hour and $6,000 per day. During this period, the maximum scale fee for junior counsel:
(1) until 31 December 2013 was $500 per hour and $5,000 per day;
(2)from 1 January 2014 until 31 December 2014 was $529 per hour and $5,290 per day;
(3)from 1 January 2015 until 31 December 2015 was $540 per hour and $5,400 per day;
(4)from 1 January 2016 until 31 December 2016 was $551 per hour and $5,510 per day;
(5)from 1 January 2017 until 31 December 2017 was $561 per hour and $5,610 per day;
(6)from 1 January 2018 until 31 December 2018 was $569 per hour and $5,690 per day; and
(7)from 1 January 2019 until 31 December 2019 was $584 per hour and $5,840 per day.
As noted by junior counsel for the CBA, ‘special grounds’ requires ‘something more and significantly more involved than simply the conduct of heavy litigation’ and ‘something which is special in its character or very much out of the ordinary’.[11]
[11]Toomey v Scolaro’s Concrete Constructions Pty Ltd (No 3) [2001] VSC 477 [6]–[7].
The CBA submits that special grounds exist in this case given:
(1)the complexity of the proceeding including that it had run for approximately six years, that it involved events over a 10 year period, the nature of the claims and defences raised and the tracing exercise involving expert evidence and witness statements;
(2)the significance of the cross-examination at trial due to the disputed contents of the 10 August 2009 conversation.
(3)the number and importance of documents including a court book of 2,866 pages and a supplementary court book of 357 pages and the need to review invoices, shipping records, stock records and bank statements; and
(4) the amounts claimed in the proceeding.
In my view, none of these factors, alone or in combination, provide a sufficient basis for concluding that there are special grounds for allowing an increase in fees for counsels beyond scale. I accept that this was a hard fought case. However, in my view, it was not a case of great complexity. The claims made and defences raised are commonly pursued in the Commercial Court. Further, while it is true that cross-examination was important in this case, it is a very important component of many trials. I do not consider that the number of documents in this case provides special grounds for ordering costs beyond scale.
I wish to say something further about the question of costs. It is a matter for each party as to which counsel that party chooses to brief and what fees that party is willing to pay counsel. It is quite another thing to say that an opposing party should pay those fees in excess of scale in the event the opposing party does not succeed at trial. It is for this reason that the Rules require ‘special grounds’ before any increase in the scale costs should be allowed. No such special grounds are made out here.
Accordingly, the final orders I will make in the proceeding are that:
(1) The plaintiff’s claim be dismissed.
(2) The plaintiff pay the defendant’s costs of and incidental to this proceeding, including reserved costs (excluding any costs of and incidental to the defendant’s Summons filed on 14 December 2015 and/or the related appeal in proceeding S APCI 2016 0074 which were the subject of the orders of the Court of Appeal on 21 September 2017) on the following bases:
(a) on a standard basis up to 11.00 am on Wednesday 6 June 2018; and
(b) thereafter, on an indemnity basis.
In ‘other matters’ of the authenticated Order, I will note that the Court refused the application of the defendant that the Costs Court have authority under r 63.34(4) to tax the fees of senior and junior counsel of the defendant in excess of the amounts allowed in item 19 of Appendix A of the Rules.
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