N. Ieraci & Sons P/L - v - Nettlefold

[2013] VCC 214

Not restricted

IN THE COUNTY COURT OF VICTORIA

AT MELBOURNE

COMMERCIAL LIST
GENERAL DIVISION

Case No. CI-11-06245

N. IERACI & SONS PROPRIETARY LIMITED (ACN 004 573 871)	Plaintiff
v
MICHAEL COLIN NETTLEFOLD	Defendant

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JUDGE:	Her Honour Judge Kennedy
WHERE HELD:	Melbourne
DATE OF HEARING:	18 March 2013
DATE OF RULING:	26 March 2013
CASE MAY BE CITED AS:	N. Ieraci & Sons P/L – v – Nettlefold
MEDIUM NEUTRAL CITATION:	[2012] VCC 214

REASONS FOR COSTS RULING

APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr A. Schlicht	Efron & Associates
For the Defendant	Mr J.S. Peters SC Mr D. Luxton	Tony Hargreaves & Partners Lawyers

HER HONOUR:

1       In this proceeding the plaintiff claimed the sum of $243,145.61 against the defendant on the basis of the alleged execution of a director’s guarantee.

2       The case was listed to commence on 5 February 2013 and ran for two days prior to it being adjourned part-heard until 18 March 2013, in circumstances I will detail shortly.

3       Then, shortly prior to 18 March, (on Friday, 15 March) the plaintiff purported to file a Notice of Discontinuance (without obtaining leave to do so).[1]

[1] Pursuant to County Court Civil Procedure Rules 2008 r25.02(2)(b).

4       The plaintiff now accepts that it should pay the defendant’s costs of the proceeding as a condition of obtaining leave to discontinue this proceeding.

5       The defendant submits that leave should only be granted if an indemnity costs order is also made in respect of:

(a)      all legal costs incurred by the defendant after the provision of an expert report of Mr Neil Holland to the plaintiff on 1 May 2012; and/or

(b)      all legal costs incurred by the defendant from the service of a Calderbank letter on 5 December 2012.

6       The issue before me is therefore whether any such special costs order should be made as a condition of granting leave to the plaintiff to discontinue this proceeding.

Background

7       The proceeding was issued in December 2011. The statement of claim alleged that the defendant had ‘signed’ a director’s guarantee.

8       The evidence at trial was that the guarantee appeared at page 3 of a credit application form. Pages 1 and 2 of that credit application form contained the signatures of the defendant and a witness, Ms Kearney.

9       Although the Defence filed initially admitted the execution of the guarantee, the defendant retained a handwriting expert, Mr Neil Holland. Mr Holland thereby produced a report dated 30 April 2012, wherein he opined:

The observations made establishes that the “M. Nettlefold” signature imaged on page 2 …is the same as that on page 3 … and this signature has been copied and re-imaged on the signature line of page 3… As mentioned previously, at this stage I require the first copies of the documents before I can provide an opinion on what actual document was copied to produce the image on the document… but it is a ‘cut and paste’ fabrication (emphasis added).

10      Mr Holland was of a similar opinion in relation to the Kearney signature, although he was again unable to say from where the signature had been sourced absent ‘best copies’.

11      He concluded that the guarantee document at page 3 was a ‘fabricated document’ with the signatures imaged on that page identical to the ‘M. Nettlefold’ and ‘T. Kearney’ signatures contained at pages 1 and 2 respectively.

12      This report was served on the plaintiff on 2 May 2012 with an accompanying letter, which foreshadowed an application for summary judgment (although, in the result, no such application was made). 

13      On 5 July, 2012, the defendant then filed an amended Defence wherein he denied executing the guarantee. 

14      By correspondence dated 5 December 2012 the solicitors for the defendant then confirmed an offer of settlement to resolve the entire matter (open for 7 days) on the basis that each party would withdraw and bear their own legal costs. The letter continued:

Mr Nettlefold is not prepared to pay your client any money. Nor in our view, should he do so. There is unequivocal evidence from one of Melbourne’s leading handwriting experts that the signatures of Mr Nettlefold and the witness that appear on the Guarantee, are forgeries on the basis that they have been the product of a “cut and paste”.

15      The letter also noted that the plaintiff had not filed any expert witness statement on its own behalf.

16      No reply correspondence was tendered, despite follow up correspondence from the defendant’s solicitors of 12 December 2012 and 10 January 2013.

17      Then, by correspondence of 15 January 2013, the defendant’s solicitor confirmed that the plaintiff had rejected the defendant’s offer with the result that the trial proceeded on 5 February.

18      As indicated already, the trial proceeded for 2 days but was then adjourned part-heard in order to give the defendant an opportunity to file a supplementary report of Mr Holland.

19      Orders were also made for the plaintiff to file and serve its own expert report, and to file and serve a further amended Statement of Claim, although, in the result, neither step was taken.

20      However, the defendant filed a supplementary report from Mr Holland dated 10 February 2013 (who had by then had an opportunity to inspect the original exhibit). In that report he concluded  that the actual signature images on the two pages of the facsimile credit application document were in fact the ones that were copied and scanned to produce the fabricated document on page 3.

Special costs order from 1 May 2012

21 As a general rule the Court will order costs to be taxed on a party/party basis; Order 63A r31 County Court Civil Procedure Rules 2008. The discretion to make a special costs order is an unlimited one, though it must be exercised judicially and not unreasonably, and the circumstances should be ‘special’.[2]

[2] Aljade and MKIC v OCBC [2004] VSC 351 [10].

22      The defendant’s first submission was based on the principle that where a proceeding is continued in wilful disregard of known facts, then an indemnity costs order may be appropriate (see Colgate-Palmolive Company & Another v Cussons Pty Limited).[3]

[3] (1993) 46 FCR 225 [233].

23      Although I accept that the first report of Mr Holland made the plaintiff’s position extremely difficult, I am not satisfied that an indemnity costs order is appropriate from 1 May 2012. 

24      Thus, notwithstanding the report of Mr Holland, the defence filed as at May still contained an admission as to execution. In my view, then, the plaintiff was entitled to have an opportunity to await the formal amendment of the Defence (wherein the admission was withdrawn) and was further entitled to consider whether to retain its own handwriting expert.

25      I am therefore not satisfied that an indemnity costs order is appropriate from 1 May 2012.

Service of the Calderbank letter

26      The principles that guide me are set out in the Court of Appeal decision in Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2).[4]

[4] (2005) 13 VR 435.

27      The critical question is whether or not it was unreasonable for the plaintiff to reject the offer. 

28      The plaintiff suggested that the extent of the compromise was very small when consideration was given to the nature of the plaintiff’s case. Thus, the plaintiff submitted that there were still merits in its case even after the delivery of the first Holland report given this report allowed for the possibility that the defendant had authorised the execution of the guarantee even if he had not actually signed it.[5] It was only, then, on receipt of the supplementary report of Mr Holland that it became clear that the fabricated document originated from the plaintiff itself, at which time the case was, properly, discontinued.

[5] The plaintiff specifically cited page 4 of Mr Holland’s report dated 30 April 2012 which suggested that the header design was a product of the sending machine; that is, from the defendant’s camp.

29      The plaintiff further cited a number of cases in support of its submissions that the extent of the compromise did not warrant a special costs order.

30      It was unclear why the plaintiff should await evidence from a third party if it was indeed the source of the fabrication.  Moreover, a case based on authorisation would face many difficulties, not the least of which would be the inherent improbability that the defendant would authorise the reimaging of the signatures of both himself and Ms Kearney in order to give himself a liability.

31      In any event, no ‘authorisation’ case was ever pleaded even after the plaintiff was given an opportunity to amend its case to plead one at trial. This no doubt reflected the fact that there was little, if any, evidence to support such a case. However, whatever the reason, at all times, including as at the date of the offer, the plaintiff’s pleaded case was that the defendant had himself executed the guarantee. 

32      Seen in this light, the plaintiff faced little prospects of success with the result that the compromise offered a genuine opportunity to finalise the dispute.  

33      The other cases cited by the plaintiff also did not assist it and turned on their own facts. Thus:

·        The case of McKerlie v State of New South Wales (No. 2),[6] was concerned with a very different fact situation wherein a plaintiff claimed damages in respect of the termination of his employment by the State. This to be compared with the  present guarantee case which could only be established if execution was proven, but where there was unchallenged expert evidence that the guarantee was a fabrication;

[6] [2000] NSWSC 1159.

·        In Nolan v Nolan (No 2),[7] no reasons were set out in the relevant letter as to why the plaintiff’s claim had no reasonable prospects of success. This is to be compared with the letter of 5 December, as set out earlier;

·        Aljade and MKIC v OCBC,[8] did not assist the plaintiff.  In that case, a ‘walk away’ offer was viewed as a genuine one calling for serious consideration, the imprudent refusal of which provided an additional reason to order indemnity costs. 

[7] [2003] VSC 136.

[8] [2004] VSC 351 [80].

34      In my view, then, a compromise to ‘walk away’ without any cost penalty was an attractive compromise in the light of the uncontested opinion of Mr Holland.

35      The other Hazeldene factors also favour the defendant’s application.  Thus:

·     Stage of proceeding: the stage of the proceeding at which the offer was made was optimal. The pleadings were settled and the crucial report of Mr Holland had been provided.

·     Time allowed: the time allowed of seven days was sufficient. Moreover, it appears to have been extended into January.

·     Prospects of success: for reasons given already, I consider that the plaintiff’s prospects were extremely weak at the date of the offer.

·     Clarity: the offer itself was clear in its terms.

·     Whether foreshadowing: the offer clearly foreshadowed an application based on Calderbank principles.

36      I am therefore satisfied that the rejection of the offer by the plaintiff was unreasonable in the circumstances of this particular case. 

37      It is appropriate to make an order for indemnity costs after the date of the offer in the exercise of my discretion.

Conclusion

38      The orders of the court will be as follows:

(i)        the plaintiff has leave to file a Notice of Discontinuance;

(ii)       the plaintiff is to pay the defendant’s costs up to and including 5 December 2012 on a party/party basis and thereafter on an indemnity basis.