Montgomery v MyFootDr (Aust) Pty Ltd (No. 2)

[2021] NSWDC 506

District Court

New South Wales

Medium Neutral Citation:

Montgomery & Anor v MyFootDr (Aust) Pty Ltd (No. 2) [2021] NSWDC 506

Hearing dates:

On the papers

Date of orders:

23 September 2021

Decision date:

23 September 2021

Jurisdiction:

Civil

Before:

Russell SC DCJ

Decision:

(1)   Subject to Orders (2) and (3) below, order the plaintiffs to pay the defendant’s costs of the proceedings on the ordinary basis.

(2)   Order the defendant to pay the plaintiffs’ costs of the plaintiffs’ Notice of Motion filed on 2 August 2021.

(3)   Order the defendant to pay the plaintiffs’ costs thrown away (if any) as a result of the defendant obtaining leave to, and filing, its Amended Defence.

Catchwords:

COSTS – Calderbank offers – whether failure to accept offers was unreasonable

Legislation Cited:

Uniform Civil Procedure Rules 2005 (NSW) rr 42.1, 42.2

Cases Cited:

Calderbank v Calderbank [1975] 3 All ER 333

Montgomery & Anor v MyFootDr (Aust) Pty Ltd [2021] NSWDC 439

Category:

Costs

Parties:

Kevin Montgomery (First Plaintiff)
Kemcare Pty Ltd (Second Plaintiff)
My FootDr (Aust) Pty Ltd (Defendant)

Representation:

Counsel:
A Crossland (Plaintiffs)
D Robertson (Defendant)

Solicitors:
Attwood Marshall Lawyers (Plaintiffs)
Colin Biggers & Paisley (Defendant)

File Number(s):

2019/380408

Judgment

Background

1. On 25 August 2021 I gave judgment for the defendant and reserved the question of costs of the proceedings, including reserved costs: Montgomery & Anor v MyFootDr (Aust) Pty Ltd [2021] NSWDC 439.

2. The parties agreed that the court should deal with the costs question on the papers, by consideration of written submissions.

3. The defendant filed the affidavit of Ms L Chapman, solicitor, dated 10 September 2021 (DX 10). This affidavit annexed copies of four separate offers made by the defendant to the plaintiffs in relation to costs.

4. The following written submissions were received:

1. Written submissions by counsel for the defendant dated 10 September 2021 (MFI 8).

2. Written submissions by counsel for the plaintiffs, undated (MFI 9).

3. Written submissions in reply by counsel for the defendant dated 21 September 2021 (MFI 10).

5. In the primary judgment I found for the defendant, on the basis that the Donlon letter dated 13 September 2019 was not a final audit of the DPPP Balance Sheet. Thus there had not been a final and binding determination of the Clawback Amount and the amount payable as the Deferred Purchase Price: see the primary judgment at pars 78-81 and 98.

6. In par 100 of the primary judgment I noted that several other defences had been pleaded. I did not deal with those defences in my primary judgment because my finding in relation to the Donlon letter dated 13 September 2019 disposed of the proceedings in favour of the defendant, without the need to consider those additional defences.

The First Offer: Letter dated 8 September 2020

7. The defendant offered to resolve the proceedings brought by the plaintiff on the following terms:

1. Judgment for the plaintiffs against the defendant in the amount of $12,773.76.

2. The plaintiffs to pay the defendant’s costs of and incidental to the plaintiffs’ claim, as agreed or assessed.

3. Judgment for the cross-claimant against the cross-defendant.

4. Cross-defendant to pay the cross-claimant’s costs of the Cross-Claim.

5. The plaintiffs agree not to enforce the judgment referred to in (1) above until a date 14 days after the costs referred to in (2) above have been agreed or assessed.

8. When that first offer was made, proceedings were also on foot between the defendant as cross-claimant and Mr Donlon as cross-defendant. The offer made by the defendant was a tripartite offer, part of which involved Mr Donlon consenting to judgment being entered against himself, and paying the defendant’s costs of and incidental to the cross-claim, as agreed or assessed.

9. The offer was expressed to be made in accordance with the principles set out in Calderbank v Calderbank [1975] 3 All ER 333.

The Second Offer: Letter dated 18 June 2021

10. The defendant offered to settle the claim brought by the plaintiffs and the cross-claim against Mr Donlon upon the following basis:

1. Judgment for the plaintiffs against the defendant for $10,000.

2. The Cross-Claim be dismissed.

3. No order as to costs.

11. Once again it can be seen that the second offer involved Mr Donlon accepting an offer as to the cross-claim. I infer that he did not agree at this time.

The Third Offer: Letter dated 4 August 2021

12. The defendant offered to settle the claim brought by the plaintiffs upon the following terms:

1. Judgment for the plaintiffs against the defendant for $15,773.76.

2. No order as to costs, to the intent that each party bear their own costs.

The Fourth Offer: Email dated 11 August 2021

13. By an email dated 11 August 2021 sent at 7.34pm, the defendant re-opened the third offer dated 4 August 2021 and left it open for acceptance until 9.00am on 12 August 2021.

Orders Sought

14. The defendant submitted that the court should make the following costs orders:

1. Order that, subject to orders 2 and 3 below, the plaintiffs pay the defendant’s costs of the proceedings, as agreed or assessed, such costs to be paid on an ordinary basis to and including 8 September 2020 and on an indemnity basis thereafter.

2. Order that the defendant pay the plaintiffs’ costs of their Notice of Motion filed on 2 August 2021, as agreed or assessed, such costs to be paid on an ordinary basis.

3. Order that the defendant pay the plaintiffs’ costs thrown away (if any) by reason of the defendant filing its Amended Defence, as agreed or assessed, such costs to be paid on an ordinary basis.

15. The plaintiffs submitted that the court should make the following orders in relation to costs:

The defendant to pay the following costs as agreed or assessed on the ordinary basis:

(1)   50% of the plaintiffs’ costs of the hearing days.

(2)   The plaintiffs’ costs of, and incidental, to their Notice of Motion filed 2 August 2021 (but not including those costs of the Notice of Motion addressed in Order 1).

Calderbank Principles

16. The parties agreed that the following principles apply to an application for indemnity costs based on a failure to accept a Calderbank offer:

1. The onus is on the party making the Calderbank offer to satisfy the Court that it should exercise the costs discretion in its favour on the basis of the offer having been made.

2. The threshold requirement for a Calderbank offer to have any possible costs consequences for the offeree is that the offeree did not accept the offer and has ended up worse off under the judgment than if the offer had been accepted.

3. The making of a Calderbank offer is one of the circumstances in which the court may exercise its discretion under UCPR r 42.1 to make some order other than that costs should follow the event, or its discretion under UCPR 42.2 to order that costs be assessed otherwise than on the ordinary basis.

4. It does not automatically follow that the court will make an indemnity costs order simply because the offer represented a genuine offer of compromise and was more favourable that the final judgment. Rather, the question is whether, in all the circumstances, the failure to accept the offer warrants departure from the ordinary rule as to costs, which is a matter to be determined having regard to the circumstances at the time that the offer fell to be considered.

5. Relevant factors in determining whether the failure to accept an offer was unreasonable include:

1. The stage of the proceeding at which the offer was received;

2. The time allowed to the offeree to consider the offer;

3. The extent of the compromise offered;

4. The offeree’s prospects of success, assessed as at the date of the offer;

5. The clarity with which the terms of the offer were expressed; and

6. Whether the offer foreshadowed an application for indemnity costs in the event of the offeree rejecting it.

Consideration of the First Offer

17. The first offer was made by letter dated 8 September 2020 sent to Mr Charles Lethbridge, solicitor for the plaintiffs, and Mr Benjamin Twomey, solicitor for the cross-defendant Mr Donlon.

18. The cross-claim against Mr Donlon was filed on 30 March 2020. It remained on foot until 9 August 2021. On that date the defendant and Mr Donlon reached a settlement in relation to the cross-claim. The terms of the settlement remain confidential. The court made orders that the cross-claim was dismissed with no order as to costs.

19. Since the terms of the settlement with Mr Donlon are confidential it is impossible to know whether, behind the scenes, there was any payment of money one way or the other.

20. Counsel for the plaintiffs submitted that it could not be said that the failure to accept the first offer dated 8 September 2020 was unreasonable, when it was a tripartite offer which depended upon Mr Donlon also agreeing to the terms of the offer. Clearly Mr Donlon did not accept that offer either.

21. If the defendant had wished to settle with the plaintiff and settle with Mr Donlon, it would have been open for the defendant to make separate offers to each litigant. That may have given the defendant an argument that it was unreasonable of the plaintiffs not to accept an offer which only concerned the claim between the plaintiffs and the defendant. When the defendant has made the offers made to the plaintiffs and the cross-defendant interdependent, it is impossible to say that the plaintiffs were unreasonable in failing to accept the offer, since the cross-defendant also did not accept the offer.

22. I also find that the conduct of the plaintiffs was not unreasonable, for reasons set out in pars 29-33 below. A judgment for $12,773.76 would have put an end to the plaintiffs’ right to seek a higher amount, if there was eventually a final audit more favourable to the plaintiffs.

Consideration of the Second Offer

23. The second offer was made by a letter dated 18 June 2021. Again it was a tripartite offer. The cross-defendant did not accept the offer. It was not a prudent or practical course for the plaintiffs to accept the offer, in the absence of the cross-defendant also accepting the offer. Acceptance of this offer by the plaintiffs might have left the plaintiffs exposed to the defendant seeking the costs of the cross-claim against the plaintiffs, or to the cross-defendant seeking costs against the plaintiffs.

24. In those circumstances it was not unreasonable for the plaintiffs to not accept the second offer dated 18 June 2021.

25. I also find that the conduct of the plaintiffs was not unreasonable, for reasons set out in pars 29-33 below. A judgment for $10,000 would have put an end to the plaintiffs’ right to seek a higher amount, if there was eventually a final audit more favourable to the plaintiffs.

Consideration of the Third Offer

26. The third offer was made by a letter dated 4 August 2021. It was an offer that there be judgment for the plaintiffs against the defendant for $15,773.76 and that each party should bear their own costs.

27. The letter dated 4 August 2021 set out the basis for calculation of the amount offered. The defendant’s expert report of Mr David Lethbridge, accountant, had offered the opinion that the appropriate Deferred Purchase Price was $12,773.76. To this was added $3,000 for Mr Donlon’s fees, giving a total of $15,773.76.

28. At a simplistic level, the third offer was an offer which would have been of advantage to the plaintiffs had they accepted it, in the sense that the plaintiffs arguably achieved a worse result at trial.

29. However, I am not prepared to find that the failure to accept the third offer dated 4 August 2021 was unreasonable. This was not a simple case where the plaintiffs sued for damages for breach of contract or for tort, and achieved a result less than that offered by the defendant. The claim of the plaintiffs was that the Donlon letter dated 13 September 2019 was a final audit of the DPPP Balance Sheet, and thus there was a binding determination of the Clawback Amount. If this argument had been accepted at trial, the plaintiffs would have been entitled to a figure of $89,072.24 in accordance with the opinion in the Donlon letter plus $3,000 for the fees of Mr Donlon, a total of $92,072.24.

30. While the plaintiffs failed at trial, because I found that the Donlon letter was not a final and binding audit of the DPPP Balance Sheet, the practical result is that the plaintiffs live to fight another day. There has been no final and binding audit and both parties are at liberty to pursue their settlement agreement and seek to finalise the audit of the DPPP Balance Sheet.

31. The primary judgment did not determine the amount owing, if any, by the defendant to the plaintiffs. Because the plaintiffs failed to establish that there had been a final and binding determination, the court did not go on to consider the opinion of Mr David Lethbridge as to an appropriate amount.

32. At one stage in oral closing submissions, counsel for the defendant submitted that the court should make such a finding and give judgment for the plaintiff for the figure put forward by Mr David Lethbridge. As was pointed out to counsel at that time, the claim brought by the plaintiff depended upon there being a final and binding assessment, rather than the taking of accounts between vendors and purchaser (a power which it is doubtful the District Court has in any event). There was no live issue to be determined as to the correctness or otherwise of the figure in the expert report of Mr David Lethbridge.

33. The court cannot say that the figure of $15,773.76 offered in the letter dated 4 August 2021 was an appropriate compromise. Further, the court cannot say that it was unreasonable of the plaintiffs not to accept that offer. If the plaintiffs had accepted that offer, true it is that they would have achieved a better result than they achieved in the primary judgment. However, the primary judgment has left alive the possibility that the plaintiffs can reinvigorate the settlement agreement and seek a final and binding audit of the DPPP Balance Sheet. Such a final audit may or may not result in a figure better than the offer made by the defendant in the third offer. Without a judicial determination of whether that figure was the appropriate outcome of a final and binding audit (a matter not considered by this court), it is impossible to say that the conduct of the plaintiffs in not accepting the third offer was unreasonable.

Consideration of the Fourth Offer

34. The fourth offer was a revival of the lapsed third offer. It was made by email at 7.23pm and was open for acceptance only until 9.00am on the next morning. That is not a reasonable time to enable the offeree to consider such an offer. In any event, the fourth offer suffers from the same problems as the third offer, as outlined above.

Costs of the Plaintiffs’ Notice of Motion filed on 2 August 2021

35. The plaintiffs filed a Notice of Motion on 2 August 2021 seeking to set aside subpoenas to Mr Charles Lethbridge (solicitor for the plaintiffs), Mr Montgomery and Mr Donlon. Mr Donlon voluntarily produced the material required of him by the subpoena. This meant that the defendant had all of the correspondence which it needed in order to run its application to amend the Defence.

36. As I remarked in my ex tempore ruling on 12 August 2021 (pp 6-7) the issue of whether there had been ex parte communications between the plaintiffs and Mr Donlon should have been explored much earlier than the late issue of the subpoenas. That having been said, there was some fault on the part of the plaintiffs which led to that matter being raised so late. The affidavit evidence filed for the plaintiffs failed to disclose the ex parte communications between the solicitor for the plaintiffs and Mr Donlon.

37. Once Mr Donlon produced the material, there was no utility in the defendant pursuing the call upon the subpoenas to Mr Charles Lethbridge and to Mr Montgomery. The plaintiffs were successful in relation to the setting aside of those two subpoenas, but the voluntary production by Mr Donlon in accordance with the subpoena served upon him, meant that the issue of whether the plaintiffs had a case to set aside the subpoena to another party (Mr Donlon) was not explored.

38. Counsel for the defendant proposed that the appropriate order would be an order that the defendant pay the plaintiffs’ costs of their Notice of Motion filed on 2 August 2021, as agreed or assessed, on an ordinary basis. I agree that that is the appropriate order. It is also the order which was sought by counsel for the plaintiffs.

Costs of Amending the Defence

39. Counsel for the defendant submitted that the appropriate order would be for costs thrown away by reason of the defendant filing its Amended Defence. Counsel for the plaintiffs submitted that the defendant should pay 50% of the plaintiffs’ costs of the three hearing days. The basis for this submission was that a considerable amount of time on the first day and the morning of the second day was taken up with debate about the application to amend the Defence.

40. The Amended Defence pleaded that the existence of the ex parte communications between Mr Charles Lethbridge and Mr Donlon vitiated the independence of Mr Donlan and cast doubt upon the calculations he made. As I have indicated above in relation to the costs of the plaintiffs’ Notice of Motion, there was some fault on both sides in the issue of ex parte communications being raised late. The defendant should have pursued an application to obtain the relevant documents at a much earlier time than just before the hearing. On the other hand, the plaintiffs really should have put all of the correspondence before the court, including the ex parte communications between Mr Charles Lethbridge and Mr Donlon.

41. If the defendant had made an appropriate application at some earlier point in time, it would have still been seeking an indulgence from the court, and the plaintiffs would have been entitled to oppose the application. Even if an application had been made at some earlier time, an appropriate order would have been for the defendant to pay the plaintiffs’ costs thrown away by reason of the amendment.

42. In my view the appropriate order is that put forward by counsel for the defendant. I cannot see a proper basis for ordering the defendant to pay the plaintiffs’ costs of the hearing days. It might have been different if Mr Charles Lethbridge had put all of the material, including the ex parte communications, into evidence at a much earlier point in time.

Conclusion and Orders

43. Before I make costs orders I wish to exhort the parties once again to attempt to reach a compromise rather than spend a lot more money on accountants and lawyers. I made on attempt to do this during the trial (Tcpt 21/41 – 26/17). That seed was cast upon barren ground.

44. There is one obvious avenue which could be explored. Mr David Lethbridge has produced an expert report dated 11 August 2021 (DX 8). Mr Donlon, while the cross-claim was still on foot, considered the views of Mr Lethbridge in pars 52–63 of his affidavit (part of PX 4). The parties could ask the two accountants to sit down together and discuss an appropriate figure to resolve the dispute about the Clawback Amount.

45. The orders of the court are:

1. Subject to Orders (2) and (3) below, order the plaintiffs to pay the defendant’s costs of the proceedings on the ordinary basis.

2. Order the defendant to pay the plaintiffs’ costs of the plaintiffs’ Notice of Motion filed on 2 August 2021.

3. Order the defendant to pay the plaintiffs’ costs thrown away (if any) as a result of the defendant obtaining leave to amend its Defence.

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Decision last updated: 23 September 2021