National Australia Bank Ltd v Rice (No 2)
[2015] VSC 147
•23 APRIL 2015
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
COMMERCIAL LIST
S CI 2012 01526
| NATIONAL AUSTRALIA BANK LIMITED | Plaintiff |
| v | |
| TIMOTHY CRAIG RICE AND JOHN ALBERT ROSE | Defendants |
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JUDGE: | ELLIOTT J |
WHERE HELD: | MELBOURNE |
DATE OF HEARING: | ON THE PAPERS |
WRITTEN SUBMISSIONS: | 9, 17 APRIL 2015 |
DATE OF JUDGMENT: | 23 APRIL 2015 |
CASE MAY BE CITED AS: | NATIONAL AUSTRALIA BANK LTD v RICE (No 2) |
MEDIUM NEUTRAL CITATION: | [2015] VSC 147 |
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COSTS – without prejudice offer save as to costs – whether successful defendant entitled to costs on an indemnity basis – application refused – costs awarded on the standard basis – Supreme Court (General Civil Procedure) Rules 2005 (Vic), rr 13.02(1)(a), 13.07(1), 63.31.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr C M Archibald (by written submission) | Minter Ellison |
| For the Second Defendant | Mr S J Minahan (by written submission) | Madgwicks |
TABLE OF CONTENTS
A.. Introduction................................................................................................................................... 1
B.. The Offer........................................................................................................................................ 1
C.. Relevant principles...................................................................................................................... 2
D.. Rose’s contentions........................................................................................................................ 3
D.1... Alleged failure to plead or acknowledge the operation of the Banking Code.......... 3
D.2... Allegedly acting contrary to NAB’s publicly stated position...................................... 7
D.3... Alleged failure to accept a reasonable offer.................................................................... 7
E... Conclusion..................................................................................................................................... 7
HIS HONOUR:
A. Introduction
On 26 March 2015, I delivered judgment (“the Principal Judgment”)[1] in favour of the second defendant in this proceeding, John Albert Rose (“Rose”). Upon delivering the Principal Judgment, the claim of the plaintiff, National Australia Bank Ltd (“NAB”), was dismissed.
[1][2015] VSC 10.
The trial was originally listed to commence on 5 August 2014. On that date, upon the application of Rose, the trial was adjourned. It was refixed for hearing on 15 September 2014, so that Rose could amend his defence to raise issues, on the pleadings[2] for the first time, concerning the Banking Code.[3]
[2]The issues had been raised in correspondence, but, according to Rose’s solicitors, an earlier application to amend was not pursued because NAB had objected to such an application being made. Rose had also asserted in correspondence that an amendment to his defence was unnecessary.
[3]Capitalised terms in this judgment have the same meaning as those terms have in the Principal Judgment.
The orders made upon delivering the Principal Judgment included that NAB was required to pay Rose’s costs, including any reserved costs. The effect of the orders was that, unless the court otherwise ordered, such costs would be taxed on the standard basis.[4] However, the costs order was stayed for 14 days, with liberty to apply, in case either party sought some other order as to costs within that time.
[4]Supreme Court (General Civil Procedure) Rules 2005 (Vic), r 63.31.
Within the 14 days, NAB notified the court it did not seek any variation of the order made. However, during that time, Rose has made application for indemnity costs in respect of some of his costs.
The application by Rose for indemnity costs is devoid of any merit. In those circumstances, I will provide only brief reasons for dismissing the application.
B. The Offer
Rose seeks indemnity costs from at least 1 August 2014, based on a letter dated 1 August 2014 sent by the solicitors for Rose to the solicitors for NAB. That letter was marked “without prejudice save as to costs”. That letter contained the following offer (“the Offer”):
[Rose] will pay [NAB] $200,000 within 30 days of execution of an appropriate deed of settlement. The offer is a genuine attempt to settle the matter without the need for trial.
Having referred to Rose’s financial position, including referring to a statement of Rose’s assets “in draft”, the Offer made reference to authorities, including Hazeldene’s Chicken Farm Pty Ltd v Victorian Workcover Authority (No 2).[5]
[5](2005) 13 VR 435.
No time was specified with respect to how long the Offer would remain open. The Offer was rejected by NAB on the same day it was sent, apparently on the basis that a draft statement of assets was unacceptable.
On 4 August 2014, the Offer was repeated. A further letter of that date (served at 6.50 pm) stated that the Offer would remain open until 10 am on 5 August 2014. The letter attached a statutory declaration by Rose to the effect that the draft statement of assets was an accurate reflection of Rose’s financial position. The Offer was not accepted by NAB, but was allowed to lapse.
C. Relevant principles
Essentially, the court is required to assess the reasonableness or otherwise of NAB rejecting the Offer in determining whether or not such conduct would provide a proper ground to award costs other than on the usual basis.[6] In so doing, the court is to take into account NAB’s knowledge of the material facts relating to the issues in the case at the time the Offer was made. The court must then consider whether NAB ought to have reasonably made an assessment that it should have accepted the Offer.[7]
[6]Hazeldene’s Chicken Farm Pty Ltd v Victorian Workcover Authority (No 2) (2005) 13 VR 435, 442 [28] (Warren CJ, Maxwell P and Harper AJA).
[7]Eshuys v St Barbara Ltd (No 2) [2011] VSC 150, [11] (Kaye J). See also Stipanov v Mier(No 2) [2006] VSC 424, [9], [12]-[13] (Hollingworth J).
Relevant matters for the court to consider, which are non-exhaustive, are:[8]
[8]Hazeldene’s Chicken Farm Pty Ltd v Victorian Workcover Authority (No 2) (2005) 13 VR 435, 440-441 [18]-[20], 442 [25].
(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 at the date of the Offer.
(5) The clarity with which the terms of the Offer were expressed.
(6)Whether the Offer foreshadowed an application for an indemnity costs order in the event of the offeree’s rejecting it.
D. Rose’s contentions
In support of his application for indemnity costs from “at least” 1 August 2014, the following was relied upon by Rose:
(1)NAB’s failure to plead or acknowledge the operation of the Banking Code and its binding force.
(2)NAB’s insistence on seeking to enforce the Guarantees in circumstances where NAB had publicly proclaimed, by the Banking Code, that NAB would not take or enforce guarantees unless it complied with the Banking Code.
(3) NAB’s failure to accept reasonable offers of settlement by Rose.
I will deal with each of these in turn.
D.1 Alleged failure to plead or acknowledge the operation of the Banking Code
Rose submitted that NAB knew or ought to have known that its conduct in obtaining the Guarantees and then seeking to enforce them against Rose constituted a “determined and continuing repudiation of its publicly stated position” that it would not take a guarantee, or enforce it, where it had not complied with the Banking Code. Having highlighted this publicly stated position, it was submitted that NAB’s case was flawed from the outset and that it was “a flaw [NAB] steadfastly refused to acknowledge”.
This submission is misconceived for a number of reasons.
First, at the times the Offer was made, no issue had been raised on the pleadings about the Banking Code. It was not until 7 August 2014, when Rose served his further amended defence pursuant to leave granted on 5 August 2014, that the issues concerning the Banking Code were squarely raised.[9] Indeed, a letter dated 30 July 2014 expressly stated that Rose did not seek to press any application to amend his defence.[10]
[9]See pars 69-79 of the further amended defence dated 7 August 2014. The document was not filed until 9 September 2014.
[10]See fn 2 above.
Under the Supreme Court (General Civil Procedure) Rules 2005 (Vic), NAB was required to plead the material facts upon which it relied to prove its claims.[11] It was not a part of NAB’s causes of action that it complied with the Banking Code. Accordingly, NAB was under no obligation to refer to the Banking Code in pleading the material facts of its claims. It was for Rose to raise clearly any issues concerning the Banking Code in his defence.[12]
[11]Rule 13.02(1)(a).
[12]Rule 13.07(1).
Secondly, the mere fact that the Banking Code may have been contravened does not automatically give rise to a defence for the guarantor in question. For reasons stated in the Principal Judgment,[13] before the Banking Code may be relied upon successfully to establish a defence, ordinarily, a defendant must show that the alleged contravention actually caused the loss claimed. When the issues regarding the Banking Code were finally pleaded, they gave rise to issues of causation which were far from straightforward.[14]
[13]At [192]-[217] and [240].
[14]Principal Judgment, [241]-[281].
Thirdly, although the evidence led by NAB at trial did not suggest it had complied with the Banking Code in all respects,[15] it is plain from the evidence led by NAB’s principal witness that NAB was proceeding on the basis that Rose had been specifically told before signing each of the Guarantees that he would be potentially liable for all of the debts of each of the borrowers (and, accordingly, at least to that extent there had been compliance with the Banking Code). It was abundantly reasonable, in the circumstances of this case, for NAB to put forward that evidence and to cross-examine Rose on these issues. It was only after a careful analysis of the evidence, including evidence given by Rose at trial, that the court formed the view that the evidence led by NAB ought to be rejected.
[15]See Principal Judgment, [223]-[239] and [251].
Fourthly, and in any event, to the extent that it may be implicit in Rose’s submission that NAB should have anticipated the defences that would be raised ultimately, neither the defence dated 7 August 2014, nor the defence filed on 30 September 2014, pleaded defences that succeeded at trial. It was only after the case had first closed and the matter was raised by the court (on 29 September 2014), that Rose ultimately pleaded a defence which was successful.[16] In short, it cannot credibly be suggested that NAB should have anticipated the defence that was ultimately filed, and was successful, in circumstances where Rose failed to plead, or even seek leave to plead, the necessary allegations until after the court first reserved its decision.
[16]See Principal Judgment, [161]-[162] and [223]-[295].
In other words, in NAB assessing its prospects of success at trial as at 1 August 2014 and 4 August 2014 (when the Offer was made and then remade), NAB would have been entitled to assume reasonably that it would have succeeded based on the state of the pleadings at those dates.
There is a further aspect of Rose’s submissions that I should refer to. Rose relied upon the position adopted by NAB at trial concerning the applicability of the Banking Code. NAB did not accept the Banking Code had contractual force until the time at which the parties put forward their closing submissions.[17]
[17]See Principal Judgment, [143]-[144].
Rose submitted that this approach by NAB caused the duration of the trial to be extended and costs to be unnecessarily incurred. As to the first matter, no additional evidentiary issues arose by reason of the approach NAB took. At all times, NAB accepted that the Banking Code was expressly referred to in the terms of each of the Guarantees. It was only a question of legal argument as to what effect the Banking Code had in the circumstances of this case.
Accordingly, the additional time spent at trial prior to the concession made by NAB was miniscule. It amounted to no more than a short statement by NAB in its opening as to its position.
Further, if additional costs were incurred by Rose by reason of the position adopted by NAB, they were negligible at most. In a trial of the size and complexity of this case, any additional costs were entirely insignificant.
For completeness, I refer to footnote 87 of the Principal Judgment. In that footnote, I made a comment about whether or not NAB’s approach, concerning the Banking Code and its contractual force, was consistent with obligations imposed on NAB under the Civil Procedure Act 2010 (Vic). As a result, further detailed written submissions were provided to the court by NAB. Having read those submissions, I indicated to the parties I intended to take the matter no further. Rose did not make any submission to the contrary in this regard.
Finally, I refer to the time spent by the court with respect to issues ultimately not pursued by Rose.[18] Any additional time and expense caused by NAB would be far outweighed by the considerable time and expense spent on issues raised by Rose that were ultimately not pursued.
D.2 Allegedly acting contrary to NAB’s publicly stated position
[18]See, for example, Principal Judgment, [2].
For the reasons stated in paragraphs 16 and 17 above, the fact that the Banking Code may have been contravened in a particular case is not, of itself, a panacea for a guarantor. Each case must be carefully considered in order to ascertain the legal consequences of any breach. As already noted, based on the pleadings up until 6 October 2014, NAB was entitled reasonably to form the view that it would have succeeded in the case. There is no evidence of any offer by Rose when, belatedly, Rose raised a defence which ultimately succeeded.
D.3 Alleged failure to accept a reasonable offer
For the reasons already stated, NAB’s conduct in rejecting the Offer was entirely reasonable. In addition to these reasons, another factor adverse to Rose’s application is the timing of the Offer. It was very late. Furthermore, the renewal of the Offer, in the terms of the letter sent after business hours on 4 August 2014, meant the Offer was only open for approximately 15 hours.
E. Conclusion
The conclusion I have reached makes it unnecessary to consider whether simply referring to relevant authorities,[19] without more, satisfies the factor referred to in paragraph 10(6) above. It is also unnecessary to consider the matters set out in paragraph 10(3) and (5).
[19]See par 6 above.
For the reasons stated above, the application is dismissed. The orders made in relation to costs, as set out in the Principal Judgment,[20] will stand.
[20]At [309].
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