MT Associates Pty Ltd v Aqua-Max Pty Ltd (No 3)
[2000] VSC 163
•3 May 2000
| SUPREME COURT OF VICTORIA | |
| COMMERCIAL & EQUITY DIVISION | Not Restricted |
No. 8017 of 1994
| M.T. ASSOCIATES PTY LTD (ACN 007 045 310) | Plaintiff |
| v | |
| AQUA-MAX PTY LTD | Defendants |
| and | |
| COOK'S BODY WORKS PTY LTD (ACN 005 070 084) |
---
JUDGE: | Gillard J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 16, 22 and 23 March; 5 April 2000 | |
DATE OF JUDGMENT: | 3 May 2000 | |
CASE MAY BE CITED AS: | M.T. Associates Pty Ltd v Aqua-Max Pty Ltd & Anor (No. 3) | |
MEDIUM NEUTRAL CITATION: | [2000] VSC 163 | |
---
Costs – written offers made – Calderbank offer – Issues – Full indemnity costs sought.
---
APPEARANCES: | Counsel | Solicitors |
For the Plaintiff | Mr R.B. Kendall QC with Mr A. Phillips | Wilmoth Field and Warne |
| For the Defendants | Mr P.J. Kennon QC | Eggleston Clifton-Jones & Co |
HIS HONOUR:
Introduction
On 14 March 2000 the court delivered its reasons for judgment in the second part of the trial of this proceeding.
The court proposed an order that Sietel Ltd pay the sum of $2,772,072.10 for the 400 shares held by M.T. Associates Pty Ltd in the company Aqua-Max Pty Ltd.
The proceeding was adjourned to enable the parties to check the calculations made in the reasons for judgment, to consider the form of the judgment and to make submissions on costs.
At the adjourned hearing on 16 March 2000 the plaintiff raised a number of difficult questions and the proceeding was adjourned to 22 March 2000.
One of the difficult issues raised was the claim by M.T. Associates as plaintiff for an order for costs which included a substantial sum for premiums paid to an insurance company which funded the litigation. This is a somewhat novel claim.
However, after the proceeding was adjourned the plaintiff, M.T. Associates, abandoned that argument.
The plaintiff seeks the costs of the proceeding on a full indemnity basis. The first part of the trial was heard in 1998 and took some 53 sitting days. Having published my reasons on 18 June 1998 the court made orders on 18 July 1998 giving effect to the issues decided to that stage.
There were two proceedings heard together and orders made in the other proceeding which was No. 5966 of 1993 included orders with respect to costs of that proceeding.
However, the costs of the present proceeding were not dealt with.
Since that date two further hearings have taken place. The first concerned the cross‑summonses by the parties with respect to the referee's report and after hearing submissions on costs I ordered that each party should bear its own.
The second hearing commenced on 22 November 1999 and concluded on 15 February 2000. This was concerned with valuing the shares in Aqua-Max Pty Ltd and the amount that Sietel Ltd had to pay to purchase the shares held by M.T. Associates Pty Ltd in that company. The proceeding took 23 days.
Queries concerning reasons for judgment
In inviting the parties to consider the calculations I made it quite clear that I would not permit the parties to re-argue matters which I had decided.
A number of matters have been raised by the parties and some of them concern matters which I had already decided. Over the protest by Mr Phillips of counsel for the plaintiff I did permit Mr Kennon QC on behalf of the defendants to make submissions in respect to two of the issues which were not calculation matters.
As I indicated during the course of argument, if I made an error which could be described as an error of logic then justice and common sense demanded that it be corrected at this stage rather than leaving the matter for the parties to pursue on appeal at some expense.
The first three issues now raised concerned the compensation that the court awarded to the plaintiff for loss and damage suffered as a result of the oppression. This was the second part of the exercise in the last hearing in determining the amount that should be paid.
The first item concerned the tax losses and the compensation that should be allowed for this sum. I was of the opinion and so decided that although the tax losses were valued for the purposes of the valuation exercise at $350,000, justice and equity demanded that there should be a compensatory allowance on top of this of $150,000. Having come to that conclusion I allowed that total amount as compensation. On further reflection that was incorrect. The plaintiff owns 18.026% of the issued shares in Aqua-Max and accordingly the amount of the compensation should be 18.026% of $150,000 which comes to $27,039.
The second matter concerned the damages in the nature of interest on judgment in the other proceeding i.e. number 5966 of 1993. The total of the judgments in the other proceeding against Aqua-Max including interest was $484,000. This sum was deducted from the valuation of the shares. I was of the view that compensation be paid because Aqua-Max had to pay that amount of interest due to the oppressive conduct of Sietel and Sietel should not benefit from the deduction of the sum in the valuation exercise. Accordingly, I allowed the amount of interest, namely, $168,703.99 as compensation.
Again, on further reflection, that approach failed to take into account that M.T. Associates has 18.026% of the total shares and accordingly that amount had to be reduced. This results in a sum of $30,410.58 for compensation.
The third item raised by Mr Kennon QC concerned the amount of compensation allowed on the second exercise of $306,442 to compensate M.T. Associates for the fact that the reality was after the case had finished that the plant and equipment which was notionally transferred to Aqua-Max by Sietel for the purposes of the valuation exercise and which was paid for by Aqua-Max would still remain with Sietel. It was submitted by Mr Kennon that that was an error and that the court should not have allowed that sum because in effect it was necessary to transfer the whole amount of the property to Aqua-Max in order to effect the sale.
In my opinion that submission overlooks the fact that in the second stage of the exercise, the court is considering compensatory factors and it was in the first stage, the valuation exercise, that the sum of M$1.7 was taken off the purchase price to reimburse Sietel for the transfer of the property. That was a hypothetical sale for the purposes of valuing the shares and involved a notional transfer only. But in the second stage one must consider the reality and the reality is that the plant and equipment remains with Sietel. Hence accordingly it not only gets the benefit of the reduction of M$1.7 from the purchase price but it also retains the property. It gains by the oppressive conduct and should not be permitted to keep the benefit. In my opinion there is no error in the approach by the court in respect to this item.
Mr Kennon QC informed the court that I had misstated one of his submissions concerning the effect of Aqua-Max paying dividends in the past. The alleged error appeared at paragraph 662 of the reasons. As the paragraph is not essential to my findings the easiest course to follow is to delete it, which I have done.
This brings me to the final matter which was raised by Mr Kennon QC on behalf of the defendants.
In determining the value of plant and equipment which was still leased by Sietel from a financier and on‑leased to M.T. Associates, I disallowed in calculating the amount that Aqua-Max would have to pay for the notional transfer, the value of five motor vehicles which were still the subject of leases. I came to the conclusion that a prospective purchaser would not be interested in purchasing these vehicles.
In relation to the plant and equipment that was always owned by Sietel, in valuing that amount I also ignored the motor vehicles which were owned by Sietel and allegedly used by Aqua-Max. A perusal of the list of motor vehicles in Exhibit MTA31 shows that some of the vehicles are vehicles used for personal use of executives.
Mr Kennon QC submitted that the use of motor vehicles in the business was essential for the proper conduct of the business and accordingly the prospective purchaser would have to provide vehicles. This would be at an expense. He submitted that since the court had ignored this expense either as a depreciation item or as an ongoing expense, the valuation was flawed as a result.
This argument does raise a number of issues as to the needs of the prospective purchaser. The prospective purchaser may already have his vehicles. The prospective purchaser may also purchase vehicles and depreciate them or alternatively lease them and claim an expense. After some consideration I have come to the view that some allowance should be made to the FME to reflect this expense after taking into account the likely need of the new purchaser and discounting for the possibility of the new owner already having his own fleet.
The parties agreed that the reasons for judgment should be amended to correct these errors and accordingly I have had a number of pages re‑typed and I will distribute them to the parties. The total amount to be paid as adjusted comes to $2,483,778.69.
Cost – indemnity basis
The plaintiff being a successful plaintiff is entitled to its costs of the proceeding. No argument was advanced to me that it should not have its costs of the proceeding but Mr Kennon QC submitted that it should not have costs in relation to an issue heard late in the trial and indeed should pay the defendants' costs in relation to that issue. He also submitted that the defendants should have their costs of issues in which they were successful and also the costs of adjournments brought about the plaintiff's conduct. I will return to these matters later.
The main issue between the parties concerns the application by the plaintiff for costs on a full indemnity basis. The plaintiff seeks the costs of the first part of the trial, namely, the 53 days' hearing in 1998 and the last part of the trial which took some 23 days in the latter part of 1999 and the early part of 2000 on that basis.
The power to order costs is found in s.24(1) of the Supreme Court Act 1986. It provides –
"24(1)Unless otherwise expressly provided by this or any other Act or by the rules, the costs of and incidental to all matters in the court, including the administration of estates and trusts, is in the discretion of the court and the court has full power to determine by whom and to what extent the costs are to be paid."
The sub-section gives the Court a wide discretion. It does not set out any criterion to guide the Court in the exercise of its discretion. However, the discretion is to be exercised in accordance with Order 63 of the Rules of Court.
Like any other discretion it must be exercised judicially, that is, taking into account all relevant matters and making a decision which does justice between the parties.
Rule 63.02 provides –
"63.02The power and discretion of the court as to costs under s.24 of the Act shall be exercised subject to and in accordance with this order."
Order 63 empowers the Court to make an order that the unsuccessful party pay the costs on a solicitor-client or some other basis.
Rules 63.28 provides –
(a) a party-party basis;
(b) a solicitor and client basis; or
(c) such other basis as the Court may direct."
Some other basis would be full indemnity. This is a different basis to the other mentioned bases – see E.M.I. Records v Ian Wallace Ltd (1983) Ch 59 at p.70 and Singleton v Macquarie Broadcasting Holdings (1991) 24 NSWLR 103 at 106-07.
Even though the court is given power to award costs on different bases, the general rule is that costs should be paid on a party-party basis and this is made clear by the terms of Rule 63.31 which provides –
"63.31Except as provided by these Rules or any order of the court costs shall be taxed on a party-party basis."
There has been much criticism over the years of the general rule because there is a fair point to be made that a successful party seeking justice or improperly sued should not be out of pocket, but the fact is the party-party basis has been the general rule now for well over 100 years.
In this day and age where the gap between costs on a party-party basis and a solicitor-client basis is greater than in yesteryears, the criticism now has much greater force, but nevertheless the general rule still applies.
Accordingly, one commences with the proposition that the general rule applies and it should only be departed from for good cause.
The general approach was expressed by Nathan J in Bass Shire Council v King (unreported, 15 August 1994) when he said –
"It is undoubtedly a principle of law that costs follow the event on a party‑party basis, but that the courts are free to depart from that principle if confronted with circumstances where the conduct of one or other of the parties … would warrant the ordering of costs on an indemnity basis. There must be special circumstances which lifts the case out of the ordinary."
Quoted with approval by the Court of Appeal in Spencer v Dowling (1997) 2 VR 127 at 147 and 163.
Over the past 20 years the courts in this country have become more prepared to make orders on a basis other than party-party when cause is shown.
Usually orders are made where there is evidence of some inappropriate conduct on the part of a party although in some cases solicitor-client costs can be ordered even though a party has not been guilty of inappropriate conduct. Litigation which involves matters of public interest sometimes attract costs on a solicitor-client basis. However, the general rule which emerges from the cases is that one of the parties has behaved in an inappropriate manner and the circumstances demand that he should pay the costs on a special basis.
In Australian Guarantee Corporation v De Jager [1984] VR 483 Tadgell J ordered costs on a solicitor-client basis against a mortgagee company when it was established that the wife's signature on the mortgage as mortgagor had not been attested, yet the employees permitted the mortgage to go forward for registration knowing that fact. He held in those circumstances that their actions amounted to fraud within the meaning of the Transfer of Land Act. His Honour said –
"Upon the facts as I have found them the pursuit of the action was in my opinion a high-handed presumption. In the end it was conceded for AGC that Mrs De Jager's signature was a forgery. Having pursued the action with the knowledge of French's conduct that it had, and failed, AGC allowed itself a luxury. The court ought to do what it can to ensure that Mrs De Jager is not out of pocket over it."
(Emphasis added.)
A party who prolongs a trial by deliberately raising false defences and asserting false allegations of fact has been ordered to pay costs on a solicitor-client basis. The prolongation of proceedings by various improper means has attracted solicitor-client costs, as have proceedings brought for a collateral purpose, and proceedings which are in abuse of the process of the court.
In Colgate Palmolive v Cussons 46 FCR 225, Sheppard J after considering the principles to apply observed that the categories in which the discretion may be exercised are not closed and then conveniently at p.233 summarised some of the relevant factors which have been applied in the past by judges, justifying a special order for costs. The examples he gave concerned allegations of fraud knowing them to be false, the making of irrelevant allegations of fraud, evidence of particular misconduct that causes loss of time to the court and to the parties, the fact that the proceedings were commenced or continued for some ulterior motive or in wilful disregard of known facts or clearly established law and making allegations which ought never to have been made or the undue prolongation of a case by groundless contentions.
To this list may be added the pleading and reliance upon defences which were baseless and had no merit or prosecuting counterclaims which had no merit.
His Honour concluded by saying –
"Other categories of cases are to be found in the reports. Yet others to arise in the future will have different features about them which may justify an order for costs on the indemnity basis. The question must always be whether the particular facts and circumstances of the case in question warrant the making of an order for payment of costs other than on a party-party basis."
Another well established basis for making a special order for costs is where a party unreasonably refuses an offer to settle the case and ends up worse off by the judgment than if he accepted the offer.
If one goes back in time the only procedure open to a party in litigation was to pay a sum of money into court in satisfaction of a claim. This was only open to a party defending the claim. The plaintiff was not in a position to put the defendant at risk by making an offer to settle the proceeding.
Order 22 of the former Rules permitted a defendant to pay money into court in any action for debt or damages or in an admiralty action.
A great deal of case law grew up around these rules much of which was concerned with technical points justifying the plaintiff's refusal of the defendant's payment into court.
With hindsight this development was unfortunate because the object of the payment into court was to facilitate settlements and avoid litigation with its attendant risks, uncertainties and costs.
In 1986 the Rules were changed. Order 26 provided for an offer of compromise. This replaced the payment into court procedure under Order 22.
The new Rules permitted the plaintiff and the defendant to make an offer of compromise in the proceeding. Initially a plaintiff could only serve an offer in respect to a claim for damages for death or bodily injury but after 1 September 1999 the plaintiff and the defendant are now in the same position with respect to the right to deliver an offer of compromise.
It is clear from the Rules that an offer of compromise may be served in respect of any claim for relief. There is no necessity to make a payment into court by the defendant. The whole procedure is intended to be flexible so that a defendant could make an offer which takes into account the effect of a counterclaim. However, one matter is clear. The offer has to be certain in its terms and capable of acceptance and enforcement. This means that the offer cannot be ambiguous or uncertain in its terms or involve further negotiation between the parties prior to the compromise being effected. The offer must be capable of being accepted thereby bringing into existence a binding contract.
The Rules specifically provide for the effect of the offer, namely, that it is without prejudice, that it should not be disclosed to the court and what is to occur upon the acceptance of the offer. Once accepted the rules make provision for the payment of costs. The Rules then go on to provide the cost consequences of failure to accept. See Rule 26.08.
Where an offer of compromise is made by the plaintiff and not accepted and the plaintiff obtains a judgment no less favourable to him than the terms of the offer then "unless the court otherwise orders" the plaintiff is entitled in claims other than death or bodily injury claims to costs, after the day the offer was served on a solicitor and client basis.
A practice that grew up prior to the enactment of the 1986 Rules was the making of an offer in the form of what was known as a Calderbank letter. It was called this after the Court of Appeal decision of Calderbank v Calderbank (1976) Fam. 93 in which the court made the suggestion that where the Rules of Court were silent as to the making of offers it was appropriate for an offer to be made on the basis that it was without prejudice but with the reservation that the offer was to be produced after the completion of the trial and upon the question of costs. This practice was encouraged in England and was adopted in this country.
Early in its history an interesting question arose whether the correspondence could be admitted in evidence because it was marked "without prejudice" and was sent in the course of a bona fide attempt to settle.
The law is clear and has been for well over a century that correspondence passing between litigants and their lawyers in the course of an attempt to bona fide settle a proceeding were privileged from production and could only be adduced in evidence by the consent of the litigants. See Walker v Wilsher (1889) 23 QBD 335.
It was held in England that the marking of a letter "without prejudice save as to costs" or similar words enabled a party to adduce the document into evidence on the question of costs. See Computer Machinery Co Ltd v Drescher (1983) 1 WLR 1379 and Cutts v Head (1984) Ch 290. The courts in this country have followed the decisions.
There are dicta to the effect that if a party elects to make a Calderbank offer instead of using the procedure provided by the Rules of Court, the party runs the risk that the court in the exercise of its discretion may not give effect to the offer. I refer to John S. Hayes & Associates Pty Ltd v Kimberly-Clark Australia Pty Ltd (1994) 52 FCR 201.
In Cutts v Head, supra at p.312, Oliver LJ stated that where the rules applied they should be used and added –
"I should not, as at present advised, be disposed in such a case to treat a Calderbank offer as carrying the same consequences as payment in".
He changed his view in Corby District Council v Holst & Co Ltd (1985) 1 WLR 427 at 433 when he made it clear that it was for the trial judge to decide the effect of an offer which could have been made under the rules. In my opinion if the offer made could be made in accordance with the rules it should be. The rules are there to be followed. In addition the rules set out in detail the procedure to be followed and the consequences which flow from the happening of a particular event.
But if the offer is not made in accordance with the rules when it could have, it is still a relevant matter to take into account on the question of costs.
Any offer made in litigation should be carefully considered and a party and his solicitor ignores or rejects the offer at his peril.
In Multicon Engineering Pty Ltd v Federal Airports Corporation (1996) 138 ALR 425 Rolfe J exhaustively considered the authorities and the New South Wales Rules of Court and came to the opinion that there is no special rule concerning the Calderbank letter and that it should be given effect according to its terms.
At p.440 his Honour said –
"Whether it is correct to say that there is a general policy or whether it is, perhaps, with respect, more correct to say that normally a Calderbank letter generally will be given effect according to its terms, and thus fulfil the functions of an offer of compromise, does not seem to me to differ in substance. However all these authorities support the view which in my opinion is correct, that when an offer of compromise is made in either of the forms to which I have referred, in circumstances where there can be no doubt that if the offeree does not accept it the making of the offer will be called in aid of an application for an award of indemnity costs if the offer is not bettered and, provided the offer reflects a compromise, the court commences in its consideration of the application from the position that such an order should be made unless the offeree can persuade the court that it should not be. However, as I have said on several occasions the ultimate decision will depend on the consideration of the particular facts and circumstances in each case."
His Honour after noting what Hill J in the Federal Court said in John S. Hayes & Associates Pty Ltd v Kimberly-Clark Australia Pty Ltd, supra went on to say this –
"However, in my opinion, the evidence of a Calderbank letter, the rejection of the offer contained therein and the failure to obtain a result better than the offer, places the offeror in the position that a court should approach an application by that party for indemnity costs with a predisposition to holding that it is entitled to indemnity costs."
See p.446.
I respectfully agree with the observations of Rolfe J. In endorsing what his Honour said I hope that judges hereafter do not waste time in disagreeing on the ground that to approach an exercise of a discretion with a predisposition fetters the discretion. Much time and paper was expended on analysing what Street J said in relation to security of costs when he opined the view that the discretion should be exercised unless cause was shown in circumstances where a plaintiff company was shown to be insolvent.
Courts should encourage litigants and that means litigants on both sides of the record to make offers to compromise the litigation. The communication should be made without prejudice save as to the question of costs so that the communications can be placed before the court at the end of the trial. It is in the interests of the administration of justice that litigation should be compromised as soon as is reasonably possible. It is in the public interest to do so.
In this day and age litigation in this court is expensive. The advent of the dictating machine, the photostat machine and the costing on a six minute unit of time results in litigation being very expensive. Lawyers have an interest in the length of litigation and as professional people they should guard against the temptation of lengthy and expensive litigation. They should be encouraged to reduce costs.
In my opinion any form of offer assuming it can be adduced into evidence should be considered by the court on the question of costs and overly technical reasons given by the other party for not seriously considering an offer should be rejected.
The fact is that in litigation experienced counsel and litigation solicitors have a very good idea during the course of a trial as to what their client should receive or be expected to pay. It is not difficult in most cases to make an assessment of the risks involved and what is a fair compromise to the client. A court will always give reasonable time to the parties to consider settlement. If a proposal is put forward the litigant and his adviser receiving the proposal ignores that proposal at his peril. Some proposals will involve discussions and negotiations between the parties. But any litigant and his adviser who takes the view that the proposal or offer can be ignored on some technical ground does so at their own risk.
In days of old, points were taken justifying the refusal of an offer because of some point, but in this day and age where costs in heavy litigation are high litigants and their lawyers must consider all offers of settlement, bona fide and reasonably. By offers I include proposals, and exploratory discussions as well as offers. If the evidence is admissible on the question of costs any unreasonable conduct may result in a special order for costs.
The object of making an offer is to bring the litigation to an end and to put on notice the other side that if it refuses the offer and subsequently the offerer recovers more in the proceeding, then justice and fairness requires that a special order for costs be made.
I note that some Federal Court judges do not agree with the approach of Rolfe J. See Lindgren J in MGICA 1992 Ltd v Kenny & Good Pty Ltd (No. 4) 140 ALR 707 at 710-11.
The difference between their Honours lies in the pre-disposition to make a special order where the offeror does better as a result of the judgment. This is the Rolfe J approach. I respectfully agree with his approach.
It has the advantage of stating the proposed penalty unless the offeree shows good cause. The rules of Court reflect the same approach.
In this proceeding it is submitted on behalf of the plaintiff that there are special circumstances which warrant the court in making an order different to the usual order and ordering the defendant to pay costs on a full indemnity basis.
The circumstances relied upon can be summarised as follows –
(i) That three written offers of compromise were made by the plaintiff and the total value of the judgment exceeded the offers made;
(ii) That in November 1999 prior to the commencement of the last part of the proceeding, a letter in the form of a Calderbank offer was delivered to the defendants' solicitors offering to compromise the proceeding at a sum which was less than the amount awarded by the court to the plaintiff;
(iii) That the defences raised by the defendants in the oppression proceedings were hopeless and were aggressively presented with the result that the proceedings were prolonged;
(iv) Portions of the evidence adduced by the defendants lacked substance, should not have been put and had the effect of lengthening the trial;
(v) That the cross‑examination of Mr Rees was prolonged because of his prevarication, stonewalling and obstruction;
(vi) That the defendants were slow to provide documents and obstructed the proceedings by late delivery with the result that cross‑examination was lengthy in order to understand the documents;
(vii) Prevarication and obfuscation by Mr Rees in giving evidence prolonged the trial;
(viii) Contrivance to establish a case which had no substance in the recent hearing particularly the item of research and development.
A. Offers made
All told, on three occasions the plaintiff delivered letters to the defendants' solicitors with the object of settling the case.
The first was dated 4 March 1998, it was sent by facsimile, is marked "without prejudice" and gave the defendants' solicitors less than 24 hours to respond to the proposal.
The document is in the form of a proposal although it is extremely detailed and one might think would form a sound basis for discussion between the parties. On the other hand one could not describe it as an offer capable of acceptance forming a binding contract because it clearly contemplated negotiation between the parties. The proposal for settlement was to cover both proceedings.
The second proposal was sent on 29 June 1998, it was by facsimile and again marked "without prejudice" and gave the defendants' solicitors approximately four days to respond. This offer came after I had published my reasons in the first part of the proceeding which was on 18 June 1998. Again, the same comments can be made with respect to this document as to the first document.
The third and final offer was dated 15 November 1999 and was headed "without prejudice save as to costs". Reference was made to the case of Calderbank v Calderban, supra.
The first observation I make is that the first two proposals were not in the form of a Calderbank letter and were marked "without prejudice". In my view they were clearly covered by a privilege which belonged to all parties and the letters were not admissible in evidence unless the privilege was waived.
The defendants did not object to the production of those two letters and accordingly they were received into evidence.
The third proposal, dated 15 November 1999, was in the classic form of a Calderbank letter and in accordance with the authorities was admissible in evidence on the question of costs after the findings had been made by the court.
In considering these offers it is necessary to determine whether or not the offers represented less than the plaintiff recovered by reason of the judgment the court is about to pronounce.
The first proposal dated 4 March 1998 which was the eighteenth day of the hearing was in the following terms –
"Our proposal is that Sietel Ltd and Aqua-Max Pty Ltd pay to M.T. Associates Pty Ltd, Malz Nominees Pty Ltd (in liquidation) and Mr John Trihey (in such proportions to be agreed) a total sum of $3.1 million in full and final settlement of all claims in each proceeding including the counterclaim brought in proceeding 5966 of 1993."
It is to be noted in determining what was involved in this offer that Sietel Ltd in fact owns 7.5% of the issued capital in the plaintiff M.T. Associates Pty Ltd. It follows that any judgment in favour of M.T. Associates Pty Ltd will have the effect that the net amount over after payment of all costs will have to be divided between the shareholders and accordingly Sietel Ltd would be entitled to 7.5% of the net judgment sum.
It is noted that the settlement is M$3.1 which was to cover both sets of proceedings and was inclusive of costs.
The two pieces of litigation were issued in 1994 and the court has not been provided with any evidence as to what the likely amount of costs of the proceedings were at that point in time. As I have said it was the eighteenth day of the hearing and one could feel a degree of confidence that the total costs at that point in time were not less than $150,000. In making that observation I note that the Trihey interests had retained two counsel which in my opinion was proper in the circumstances. What does the offer amount to? In my opinion it represents an offer to settle of about $2,950,000 plus costs.
The judgments in both proceedings come to $2,967,778.69 and this sum includes $168,703.99 for interest to 18 July 1998. The relevant date is 4 March 1998 being the date of the offer and hence approximately $10,000 should come off for interest. The proposal provided that Sietel Ltd was to transfer its shareholding in M.T. Associates Pty Ltd and hence was to give up an asset of some value. This has to be taken into account in considering the monetary value of the offer. In the other proceeding there are parties other than M.T. Associates and it follows the amounts they recovered are to be deducted. I have deducted $200,000 for the purpose of the calculation. Of the balance Sietel Ltd would be entitled because of its shareholding in M.T. Associates to 7.5% of at least $2,784,817.69 which comes to $208,861.32.
It follows that if the payment back to Sietel is taken into account the plaintiff has not recovered more than the offer.
The court has not been informed as to the response of the defendants to the proposal. All the court knows is that the proposal did not result in any compromise.
It follows that the offer made does not constitute a basis for a special order for costs.
The second letter, dated 29 June 1998, was forwarded to the solicitor for the Sietel Ltd interest some ten days after I had delivered my reasons for judgment in the first part of the trial.
It is in similar form to the first letter. It is a proposal for settlement of both proceedings and it is specifically provided that the proposal is made on the understanding "that no agreement is reached until the parties have recorded the settlement in writing which has been signed by them or their duly authorised agents."
The proposal was that Sietel Ltd and Aqua-Max Pty Ltd should pay to M.T. Associates Pty Ltd, Malz Nominees Pty Ltd and John Trihey a total sum of M$4 in full and final settlement of all claims including the counterclaim in proceeding 5966 of 1993.
It was a condition of the proposal that the settlement would be on the basis "that Sietel Ltd would surrender or transfer its shareholding in M.T. Associates Pty Ltd". It was noted that the administrative aspects of the proposal would be required to be worked out in further detail and be refined in the terms of settlement.
There is no evidence as to the response by the Sietel Ltd's interests other than the court can infer that the proposal did not result in a compromise.
There is no evidence as to the amount of the costs of both proceedings as at 29 June 1998 although evidence was given by Mr Luff the solicitor for the Trihey interests that the total costs as at the end of October 1999 for both proceedings was $946,000.
In order to understand what the costs might have been back in June 1998 it would be necessary to reduce that amount of costs for the costs involved in the cross-summons concerning the special referee's report which Mr Luff put at about $35,000.
It is impossible to know what the likely level of costs was at that time and in my opinion the amount of M$4 in full and final settlement of all claims inclusive of costs was a sum greater than the likely sums that the plaintiff will receive as a result of this proceeding. In making that observation I of course have taken into account that the M$4 was in respect to both sets of proceedings.
Mr Phillips of counsel did not seriously argue that this proposal for settlement on 29 June 1998 represented a greater sum to M.T. Associates than it recovered in the proceeding. Further, it must be observed that again the amount that Sietel would recover by way of its shareholding in M.T. Associates would have to be taken into account and in my view the probabilities are that the plaintiff did not recover more than what was proposed in that settlement.
That brings me to the Calderbank letter of 15 November 1999.
This proposal was made some seven days prior to the final hearing concerning valuation and the offer was open until 4.00 p.m. on 21 November 1999. It is in these terms –
"Our client proposes, as a settlement, that the defendants pay the plaintiff a total sum of $2,600,000 in full and final settlement of all claims (inclusive of costs) in this proceeding. This offer of compromise is made on the basis that:
1.M.T. Associates Pty Ltd will transfer all of its shares in Aqua-Max Pty Ltd to Sietel Ltd or its nominee;
2.All parties in this proceeding release the opposite parties from all actions claims and demands arising out of the subject matter of the proceeding;
3.Sietel Ltd will surrender its shareholding in M.T. Associates Pty Ltd for 10 cents per share."
The letter went on to provide that it was made without prejudice except as to costs in accordance with the Calderbank decision and that the plaintiff reserved the right to produce the letter on the question of costs and that they would seek costs on a solicitor‑client basis.
It is made quite clear in the letter that the offer does not include the proceeding No. 5966 of 1993 which had concluded with judgment and orders for costs.
There are two matters to note about the offer. First of all the offer is an all in offer which could not have been made under the Rules of Court. Secondly, it was open for a period of six days whereas under the Rules of Court the offer must be open for at least 14 days.
The further matter that ought to be noted is that Sietel Ltd was to surrender its shareholding in M.T. Associates Pty Ltd for 10 cents per share which came to $7.50.
Mr Kennon QC submitted that the latter requirement was something that could not have been the subject of any relief in the court proceeding and that made the offer inappropriate in the circumstances.
I do not agree. It was appropriate that that provision should be made in the offer. Indeed, in my view it is strongly arguable that the proposal would have been permitted under the Rules of Court. It was a matter that had to be addressed to finally resolve all matters in issue between the parties. It was easy to calculate the amount involved. There was no uncertainty as to what it meant.
The fall out between Mr Trihey and Mr R. Rees and this litigation generated enormous heat and emotion. It was very clear to me that there was much bitterness existing between both men. It was absolutely vital in my view that if the matter could be compromised that all outstanding matters should be finalised.
Mr Kennon QC also submitted that the all in offer and the fact that there were only six days given to accept it made the offer an inappropriate one and entitled the defendants to ignore it.
His argument really sought to draw a distinction between what the Rules required and what this offer constituted. In my view such an argument does not entitle the defendants to ignore this offer.
Often in big litigation matters are compromised by an all inclusive offer. It is standard practice in many instances.
In this day and age, many litigants and legal practitioners prefer an all in offer because they know what a amount they have to pay thereby avoiding the uncertainties of taxation of costs. This litigation had been on foot for years. I have no doubt that the parties and their lawyers knew what their costs were at the date of the letter and would have little difficulty making a reasonable assessment of what the other sides' costs were.
Further, this litigation had been on foot by 15 November 1999 for some 21 months since the hearing commenced and some five years since it was instituted. I have no doubt that experienced counsel and the experienced solicitor acting for the defendants would have no difficulty in assessing what the offer represented and I have no doubt they could have made up their mind about whether they wished to accept within a period of less than six days.
It was submitted by the defendants that the offer was not a Calderbank offer because it was an all in offer and required the offeree to assess the likely value of the claim, the likely amount of costs and the value of the shares in M.T. Associates.
Reference was made to Spender J's judgment in Smallacombe v Lockyer (1993) 114 ALR 568 where at 573 his Honour made observations that "an all up offer" is not a Calderbank-type offer.
This raises the question of what is meant by a "Calderbank offer"? In my opinion, an offer is a Calderbank offer if it is expressed to be without prejudice save to the question of costs and an indication that the letter will be adduced into evidence on the question of costs. There are no other special features which make it a Calderbank offer.
In my opinion, it is open for a party to deliver a Calderbank letter in which the offer is made on an all inclusive basis. The mere fact that it required the offeree to determine the likely value of the claim and the likely cost to date does not alter the fact that an all inclusive offer has been made. During my experience in the law, spread over some 35 years, many cases are settled on an "all in" basis. There is little difficulty in making an assessment of the likely amount of the claim and costs.
Reference was also made to Biernacki v Klenka (1988) 80 ACTR 1. It is said that if the court is being asked to examine an extraneous issue then the offer is not a relevant one to consider. It is said that the court here is asked to examine an extraneous issue, namely, the value of the Sietel interest in M.T. Associates. I accept that the offer did require that assessment to be made. However, in the light of the evidence that was placed before me which I will consider hereafter, the offeree could be in no doubt as to the worth of the offer made.
I am satisfied that it was a Calderbank offer and that it could not have been made under the Rules of Court because it was an all inclusive offer.
The first matter to address is what the settlement involves?
Mr Luff, the solicitor for the Trihey interests gave evidence that as at 22 October 1999 the total costs in respect to both proceedings was some $946,000. He gave evidence that he thought the costs attributable to the cross-summons was somewhere in the vicinity of $35,000. This would leave some$911,000 for costs.
However, the costs covered both proceedings and the question arose as to what amount of the costs were attributable to the other proceeding. Mr Luff gave evidence that he thought that about 20% of the costs were attributable to the other proceeding.
I drew attention to the fact that in my view more than 20% of the time taken up at the hearing over 53 days was involved with the other proceeding. The other proceeding comprised some straightforward debt claims by a number of plaintiffs and the proof of these claims did not take long. However, the defendants raised a number of counterclaims which indeed did consume a considerable period of time during the trial. I have already made costs orders in relation to that other proceeding.
I reject the evidence of Mr Luff that the other proceeding involved about 20% of the total cost.
Mr Luff frankly conceded that he was only asked shortly prior to getting into the witness box to make an estimate and frankly conceded it was a guesstimate. I have no doubt if he had perused the transcript and discussed the matter with senior counsel for the Trihey interests that he would have made an assessment which was a more accurate one.
I am prepared to assume for the present purposes that about 50% of the costs were attributable to the other proceeding. However, I wish to emphasise that that is a figure only for the purposes of this judgment and that the question of the costs attributable to the other proceeding will be a matter for the Taxing Master. A close analysis of the transcript would provide evidence of substance as to the proportion of costs.
If one divides $911,000 by two the costs of the present proceeding total $455,500. I think for present purposes I should allow $500,000 for costs at 15 November 1999 and accordingly the offer can be divided into $2,100,000 plus $500,000 costs. The estimate of costs in my view favours the defendants.
An argument was put as to the difficulty that the solicitor acting for the Rees interests would have in trying to determine what amount was for costs and what amount was in settlement of the claim. In particular, because of the orders made in the other proceeding on 18 July 1998 which did provide that the costs were to be paid on a solicitor client basis that if the solicitor made an estimate of what he thought the costs were referrable to this proceeding he would leave himself open to the risk that having settled this case an effort would be made to increase the costs on the taxation in the other case.
In this regard I accept the evidence of Mr Luff that Mr Jonas is an experienced litigation lawyer and that he would not have much difficulty in determining what the offer amounted to, that is, between claim and costs and further, I am of the view that there would not be any great risk in accepting the settlement on that basis because the apportionment between the two proceedings could be made reasonably accurately by reference to the pleadings documents and the transcript of the proceeding.
Further, Mr Jonas gave no evidence on the costs questions.
The other matter of concern was the value of Sietel Ltd's shareholding in M.T. Associates. In this regard Mr Albert Trihey who is a director of M.T. Associates Pty Ltd gave evidence that it was his belief that the only asset that M.T. Associates had was in respect to the judgment in the proceeding. He was cross-examined and it was suggested to him that there may be some other assets such as tax losses. However, he stated that M.T. Associates did not trade and he had been a director since at least 1992.
In my opinion, the value of the shares in M.T. Associates would depend upon the net result from the litigation with the probability that if there are any other financial matters they are in the form of liabilities. Further, M.T. Associates may have to pay costs over and above what they may recover and accordingly an approach to the settlement on the basis of 7.5% on the amount recovered on the judgment of $2,483,778.69 is more in favour of Sietel. If one was to allow $186,283.40 for the value of the shareholding which Sietel was to surrender as a condition of the settlement the fact is that the plaintiff has recovered at least $197,000 more by proceeding to judgment that if the settlement had been accepted.
There is no evidence before me as to the response of the Sietel interest and their lawyers in respect to this offer. Neither party adduced any evidence. The court can infer that the offer was rejected by the Sietel interest.
In my opinion, the Sietel interest should have accepted that offer. In my view it was clearly a reasonable offer. Instead the defendants persisted with the proceedings and in my view were acting unreasonably.
The defendants and their lawyers were warned that if they proceeded and recovered less they did so at their expense.
Whether the test is pre-disposition to make an order throwing the onus on the defendants to prove they were not acting unreasonably or whether the plaintiff must prove they acted unreasonably the result is the same. The defendants have to pay more, substantially more by the judgment. It was not difficult to make an assessment of the effect of the all in offer and six days to make a decision was reasonable bearing in mind the length of the litigation.
It was also argued on behalf of the defendants that in assessing the offer made, it was necessary to consider the state of the evidence at that time.
The point was made that the evidence given by Mr Trihey which had a substantial effect on the outcome of the trial was given orally by him concerning the ownership of plant and equipment leased to Aqua-Max by Sietel. It is submitted that the defendants could not have foreseen at the time the offer was made what the likely evidence was in regard to this. However, it was not until the affidavit of Richard Rees sworn 18 November 1999 was delivered that it was appreciated by M.T. Associates that it was being contended that the plant and equipment was wholly owned by Sietel. In other words, it was the defendants who raised the issue and made much of it.
In my opinion, the argument that the defendants were not in a position to make an appropriate assessment in the six day period on and after 15 November is not supported by the facts.
In my opinion, the defendants were acting unreasonably in refusing the offer, and in those circumstances the defendants should pay the plaintiff's costs on and after 21 November 1999 on a solicitor – client basis. Counsel did press for full indemnity costs but the letter stated solicitor-client costs. I propose to so order.
B. Other bases for a special order
The plaintiff M.T. Associates contends that the defendants should pay the costs of the whole proceeding on a full indemnity basis because of the defences taken, their conduct in relation to the proceeding and that fact that the defendants were obstructive in the course of the proceeding and some evidence which was called was demonstrably false.
This is not a case where the defendants have positively raised defences the onus of which was upon them and which turned out to be baseless. They were defending a claim under the Corporations Law.
I have made certain findings concerning the conduct of the defendants and the way they conducted the litigation. In considering this proceeding I put to one side the other proceeding. I have in that proceeding ordered that the costs attributable to the counterclaims made by the defendants be paid by them on a solicitor client basis. One of the reasons was because of the baseless nature of the counterclaims.
It is necessary in considering this part of the submission to focus solely on the matters, facts and circumstances concerning this proceeding.
I have carefully considered the submissions made by the plaintiff but I am not persuaded that the circumstances warrant a special order for costs. Often in court cases defences are raised which fail, contested evidence results in a decision rejecting one side and on occasions the witnesses tell lies. The defendants were entitled to defend the claim and although I was somewhat critical of the obstruction with respect to documents and also the way evidence was given in my view there are no special circumstances which warrant an order for costs on an indemnity basis.
Defendants' claim for costs
Mr Kennon QC submitted on behalf of the defendants that they were entitled to their costs in relation to a number of matters which he identified. They were three and were –
(i) The plaintiff raised issues in respect of which they failed – this had the effect of prolonging the trial;
(ii) A very late allegation of fraud which necessitated the re-opening of the plaintiff's case and a further three days of evidence and submissions;
(iii) Adjournments of the proceeding at the request of the plaintiff during the trial especially in the first two weeks.
The court does have the jurisdiction in appropriate cases to order that the party who fails in respect to a particular issue but succeeds in the proceeding should pay the costs in respect to that issue. If the issue is a discrete one and took some time to investigate and determine then that may be a reason why the court should isolate out that issue for a separate order for costs. Another example would be where an issue is raised which is baseless and which should not have been pursued.
Mr Kennon QC identified a number of issues, namely, the allegation that Sietel Ltd was overcharging the company Aqua-Max in relation to rental of the premises in Moorabbin, the provision of personnel, the charges for leasing and hiring of plant and equipment and other charges made by Sietel to Aqua-Max.
Mr Kennon QC emphasised that a number of witnesses were called, namely, Messrs Galante, Vrsecki and Whight on these issues and in the end the court found that the amounts charged by Sietel were not uncommercial.
The issue whether Sietel had overcharged Aqua-Max in relation to the premises, personnel, leasing and hiring charges and the like loomed large in this case. There was a substantial suspicion that Sietel was taking advantage of Aqua-Max in relation to a number of matters including the interest charges on the loan.
Most if not all the knowledge pertaining to these issues was in the Sietel-Rees camp. In my opinion, the plaintiff and its legal representatives were well justified in querying all these accounts and requiring a full investigation of them which as things turned out could only really be done satisfactorily through the witness box. If a frank and full disclosure had been made of the facts and production of all relevant documents openly the issues may have been abandoned.
In my opinion, the plaintiff was justified in what it did and in my opinion is entitled to its costs in relation to the issues involved.
Allied to this argument was the submission that it was unnecessary for the plaintiff to call the witnesses I have just mentioned which I reject but also in the same vein a point is made that it was unnecessary for the plaintiff to call Mr Linardos to give very short evidence as to what he thought the value of Aqua-Max was. It is interesting with the benefit of hindsight that he valued the business in the vicinity of M$15. It is submitted by the defendants that they should not have to pay for the cost of Mr Linardos' report because it was unnecessary to call him in that first part of the proceeding. I agree it was unnecessary to call him in the first part of the proceeding and the plaintiff should not have its costs for his attendance. But his report is another matter. His report was necessary to enable the plaintiff to make some assessment of its likely recovery if successful. The cost should be allowed.
In a written submission forwarded to the court after oral argument had concluded, the defendants raised a number of other issues which they submit they were successful on and should have their costs.
It was said that the claim for royalties made by the plaintiff was not proven but this arose in the other proceeding. Further, the evidence of Mr Trihey concerning his removal as a director was not accepted and to some extent he failed in relation to that point.
The issue whether a successful party should pay costs in respect of issues raised by it on which it failed depends upon whether the party was acting reasonably in the circumstances. In my opinion, it was proper for the plaintiff to present his case in the way it did and in my view there is no basis for ordering the plaintiff to pay costs in respect to the issues other than the one I am about to mention.
One of the issues in the trial concerned the execution of a transfer of share form. There was a real suggestion and a suspicion of some substance that the document had been backdated. A number of times Mr Kendall on behalf of the plaintiff got very close to alleging that a number of persons, namely, Mr Rees Senior and his two sons Richard and Jeff had conspired to backdate the document. He was challenged a number of times to assert that proposition but declined to do so.
After final address had progressed for some time Mr Kendall ultimately did contend that the document had been backdated and a number of persons were involved in the fraud. At a very late stage the court permitted Mr Kendall to re-open the plaintiff's case and as a result evidence was given on Monday 27 April, the following day and concluded on Wednesday 29 April. The evidence commenced on Monday afternoon and concluded mid morning on the Wednesday. In the end the court held that the plaintiff had failed to prove that the document had been backdated.
At the time when the application was made to re-open I gave a strong indication to the parties that the issue should have been raised a lot earlier in the case which by then had gone over some three months and intimated that I would be sympathetic to an application for costs by the defendants.
In my opinion, based upon the evidence called during the actual hearing and before final addresses there was sufficient ground for the plaintiff making the allegation. There were a number of pieces of evidence which supported the view that the document had been backdated. I do not criticise the plaintiff for making the application. The mere fact that the plaintiff failed would not be a basis for ordering it to pay the costs.
However, I am very critical that it was left so late for the allegation to be made. If it had been made during the course of the hearing then the matter could have been addressed with a number of witnesses and thereby avoiding the recalling of the witnesses. Whilst it has to be accepted that if it had been raised earlier this would have prolonged the hearing I am satisfied that the time taken between 27 to 29 April was in excess of what it would have been if it had been raised at the appropriate time.
Taking into account the period during which evidence was called which in effect was one and a half days, I think the fairest order to make is that the plaintiff does not get its costs for Tuesday 28 April 1998 and that it pay the defendants' costs of that day.
The final matter concerns the adjournments at the request of the plaintiff especially during the early part of the trial.
On pp.6-7 of my reasons for judgment delivered 19 June 1998 I referred to the fact that in the first two weeks the parties were given in excess of three and a half days to properly prepare their cases. The criticism was just not aimed at the plaintiff's legal representatives but they had the carriage of the proceeding and should have been ready to commence and continue with the trial on the first day. They were not.
I am satisfied that a number of adjournments came about because of the plaintiff's lack of preparation. It is no excuse to hold up the beginning of a trial because the defendants have failed to serve their affidavits or witness statements. The plaintiff has the carriage of the proceeding and should be ready on the first day to commence. Although I do accept that there must be some criticism directed to the defendants and their advisers because of the late preparation of the very large affidavit of Mr R. Rees the fact is that the plaintiffs should have been ready to proceed.
The proceeding had to be adjourned on a number of days.
The first adjournment occurred on Monday 2 February 1998. The proceeding was to commence at 2.00 p.m. on that afternoon, but the plaintiff was not ready to proceed because the affidavit of Mr Trihey was not available. I interpolate to note that the long affidavit of Mr Richard Rees was also not available and indeed was not served until 10 February 2000. This was contrary to the directions orders made and Mr Kendall complained bitterly of the failure of the defendants to provide their material. As things turned out, Mr Trihey's affidavit was served at 12.35 p.m. on the following day, Tuesday 3 February. This was also contrary to the directions' orders.
The point is made by the plaintiff that both sides needed an adjournment to finalise their material and file and serve it. There is substance in the argument.
But the fact is that the trial was to commence on the afternoon of 2 February 1998, and the plaintiff had the carriage of the proceeding. There was no excuse for it not being ready to proceed. The fact that the defendants' material was also not available does not excuse the plaintiff not being ready to proceed. In my opinion, the plaintiff should pay the defendants' costs of 2 and 3 February 1998.
Adjournments were granted on 10 and 11 February 1998. With respect to the adjournment of 10 February 1998 this occurred late in the afternoon session of the court and I am not prepared to make any orders against the plaintiff in respect to that adjournment. As things turned out the court commenced early on the following morning to make up time.
On the afternoon of 11 February 1998 the plaintiff ran out of witnesses and sought an adjournment until 13 February 1998. A submission was put by plaintiff's counsel that the cause of their problems could be sheeted home to the failure of the defendants to provide documents and the late delivery of Mr Rees' affidavit.
I have carefully considered the circumstances and in my opinion the plaintiff should have had witnesses available for the afternoon of 11 February. On that afternoon application was made by the plaintiff to adjourn the proceeding until 13 February and I granted the adjournment but reserved the costs.
In my opinion, the plaintiff should pay the costs of the afternoon of 11 February 1998 and the costs of 12 February 1998. In my opinion, there was no excuse in the circumstances for the plaintiff's failure to have witnesses available on those days. I do not accept the submission that it was the fault of the defendants. As I said at the time, and I repeat, it was the plaintiff's case, it had been in the court over four years and the legal representatives were warned in December 1997 by me that they had to be in a position to commence on 2 February 1998 and I was assured they would be.
In my opinion fairness and justice demands that the plaintiff be deprived of its costs for 2 and 3 February 1999, the afternoon of 11 February and 12 February 1998. In my opinion, the plaintiff should pay the first and second defendants' costs of those days. The plaintiff should have been ready to proceed on those days.
Orders
Subject to submissions of counsel I propose to make the following orders -
(i) That Sietel Ltd pay to M.T. Associates Pty Ltd the sum of $2,483,778.69 for its 400 shares in the company Aqua-Max Pty Ltd such sum to be paid on or before 24 May 2000 upon M.T. Associates Pty Ltd tendering an executed share transfer in proper form and any share scrip.
(ii) Unless the defendants file and serve a notice of appeal on or before 24 May 2000 that the sum of $37,500 being part of the moneys paid into court by the defendants pursuant to the order of Master Kings made on 16 May 1997 in proceeding No. 5966 of 1993, be paid out to the plaintiff's solicitors, for the plaintiff.
(iii) The first and second defendants pay the plaintiff's costs as follows:
(a)up to and including 21 November 1999 but excluding its costs of 2 and 3 February 1998, the afternoon of 11 February 1998, 12 February 1998 and 28 April 1998 and the attendance of Mr Linardos as a witness on a party party basis;
(b)from and including 22 November 1999 including the costs of the application for costs, on a solicitor‑client basis.
(iv) That the plaintiff pay the first and second defendants' costs of 2 and 3 February 1998, the afternoon of 11 February 1998, 12 February 1998 and 28 April 1998 on a party-party basis.
(v) That the time to appeal the orders made on 17 July 1998 and these orders be extended to 4.15 p.m. on 24 May 2000.
---
61
4
0