Peachbulk Pty Ltd v R T Edgar Pty Ltd (No 2)
[2011] VCC 1465
•20 December 2011
| IN THE COUNTY COURT OF VICTORIA | Revised |
Not Restricted
AT MELBOURNE
CIVIL DIVISION
COMMERCIAL - GENERAL DIVISION
Case No. CI-10-01281
| PEACHBULK PTY LTD (ACN 102 656 520) | Plaintiff |
| (as Trustee of the CHRIS MOSS STAFF SUPERANNUATION FUND and as Trustee of the CHRIS MOSS FAMILY TRUST) | |
| v | |
| R T EDGAR PTY LTD (ACN 103 005 965) | First Defendant |
| and | |
| OTHERS (as per the attached Schedule) | Defendants |
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| JUDGE: | HIS HONOUR JUDGE GINNANE |
| WHERE HELD: | Melbourne |
| DATE OF HEARING: | 9 November 2011 |
| DATE OF JUDGMENT: | 20 December 2011 |
| CASE MAY BE CITED AS: | Peachbulk Pty Ltd v R T Edgar Pty Ltd & Ors (No 2) |
| MEDIUM NEUTRAL CITATION: | [2011] VCC 1465 |
| REASONS FOR JUDGMENT |
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Catchwords: COSTS – whether indemnity costs should be ordered – whether Sanderson order should be made – rights of principals for indemnity from agents – overarching obligations in the Civil Procedure Act 2010
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| APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr P Bick QC with | Norton Gledhill |
| Mr B Gibson | ||
| For the Second Defendant | Mr A Herskope | Gadens |
| For the Third, Fourth and Fifth | Mr A Rodbard-Bean | Septimus Jones & Lee |
| Defendants | ||
| For the Sixth Defendant | Ms H Tiplady | Monahan + Rowell |
SCHEDULE OF PARTIES
| PEACHBULK PTY LTD | Plaintiff |
| (ACN 102 656 520) (as Trustee of the CHRIS MOSS STAFF SUPERANNUATION FUND and as Trustee of the CHRIS MOSS FAMILY TRUST) | |
| v | |
| R T EDGAR PTY LTD | |
| (ACN 103 005 965) | First Defendant |
| and | |
| GREGORY HERMAN-MOORE | Second Defendant |
| and | |
| MICHAEL ABAY | Third Defendant |
| and | |
| KENDRA MICHELLE ABAY | Fourth Defendant |
| and | |
| KIMBERLEY JANE FLEETWOOD | Fifth Defendant |
| and | |
| R T EDGAR (TOORAK) PTY LTD | |
| (ACN 007 431 101) | Sixth Defendant |
| HIS HONOUR: |
1 These reasons need to be read in conjunction with the principal reasons delivered on 20 October 2011.[1]
[1] [2011] VCC 1370
2 I heard extensive submissions about costs on 9 November 2011. A number of issues need to be determined.
Submissions of the Purchaser
3 The purchaser, Peachbulk Pty Ltd, sought an order for indemnity costs against all defendants, other than the first and fifth defendants, indemnifying it in accordance with its liability under a costs agreement with its solicitor. Counsel for the purchaser submitted that indemnity cost orders were now more readily made. They referred to the following statement by Sheppard J in Colgate-Palmolive Co v Cussons,[2] stating that an indemnity costs order might be made in circumstances where:
“… the making of allegations of fraud knowing them to be false and the making of irrelevant allegations of fraud …evidence of particular misconduct that causes loss of time to the court and the parties…the fact that the proceedings were commenced for some ulterior motive…or in wilful disregard of known facts or clearly established law…the making of allegations which ought never to have been made or the undue prolongation of a case by groundless contentions…an imprudent refusal of an offer to compromise…and an award of costs on an indemnity basis against a contemnor … .”
[2] (1993) 46 FCR 225 at 233. Reliance was also placed in particular on Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Ltd (1988) 81 ALR 397 at 400-401
4 Although these principles are most often directed against an unsuccessful plaintiff, they are also of relevance to the conduct of a defendant.
5 The purchaser advanced the following arguments to support such an order:
(a)
The defence of the agent defendants, i.e. Mr Gregory Herman-Moore (“Mr Herman”) and R T Edgar (Toorak) Pty Ltd (“R T Edgar Toorak”), both of whom are collectively referred to as “the agents” was high- handed and presumptuous, having regard to the facts known to Mr Herman. These included knowledge of his own false statements and the context in which he made them;
(b)
The defence of the agents unjustifiably put the characters of Dr Moss and Ms John in issue;
(c)
The defence of the agents was maintained for an improper purpose, being to avoid or delay the legal consequences of their own acts of fraud and deception. The agents prolonged the litigation to an extent that was wholly unnecessary;
(d) The agents’ Defence contained false allegations of fact; (e)
On 25 March 2011, after the Civil Procedure Act 2010 had commenced, the new solicitors for the vendor, i.e. Mr Michael Abay, Ms Kendra Abay and Ms Kimberley Jane Fleetwood (“the vendors”), wrote to the purchasers’ solicitors with a copy to the agent defendants’ solicitor, stating:
“We are instructed that the Defence dated 11 November 2011 (sic) filed and served by the First, Second and Sixth Defendants materially misrepresents the facts relating to the auction and sale of the Toorak Road properties the subject of the proceeding.
Without prejudice to their denial of other allegations in the pleadings, the Third, Fourth and Fifth Defendants specifically and emphatically deny the allegations in paragraph 11(a) and the Particulars thereunder, and in paragraph 15A(e) of the First, Second and Third Defendants’ Defence that Herman received an offer to purchase the land for $2,600,000 from ‘Stuart’ (not defined in the Defence, but we take this to be a reference to Stuart Fleetwood).
The Third, Fourth and Fifth Defendants refer to paragraph 21 of their Defence dated 12 November 2010 in which the actual facts are set out.”
Paragraph 21 pleaded that the reserve price was $2,600,000, that at no time would the vendors have accepted $2,500,000 and that the vendors were not under pressure to sell.
(f)
The agents persisted in their defence, and only on the eighth day of the fifteen-day trial admitted that Mr Herman had represented that the other bid had come from “Tom”. However, they then maintained that he did not have Mr Tom Kartel in mind, but that he chose the name “Tom” randomly and that he was really referring to Stuart Fleetwood, without naming him;
(g)
The conduct of the agents beached the overarching obligations contained in the Civil Procedure Act 2010, which are aimed at achieving a just, cost-effective resolution of the dispute. The obligations breached included the obligations to further the administration of justice (s.16); to act honestly (s.17); not to make a response to any claim without a proper basis (s.18); to co-operate in the conduct of the proceeding (s.20); not to mislead or deceive (s.21) and to narrow the issues in dispute (s.23);
(h)
the agents had not used reasonable endeavours to resolve the dispute when the offers of settlement were taken into account.
6 Mr Green, the purchaser’s solicitor, in an affidavit, described background matters, including the settlement offers that had been made, the costs agreement with the purchaser and the fees of counsel.
7 The purchaser submitted that the proceeding was a test case of much material complexity and serious representational issues.
8 In the case of Ms K Fleetwood, the fifth defendant, against whom the case was dismissed, the purchaser submitted that there were no issues specifically relating to her, that did not relate to the other vendors, against whom it succeeded. She was a de facto vendor and a material witness. No fraud was alleged against her. Alternatively, it was submitted a Sanderson order should be made against the agents for any costs awarded to her against the purchaser.
Mr Herman’s Submissions
9 Counsel for Mr Herman, the second defendant, who was separately represented at the costs hearing, stated that his client could not resist a party- party costs order, but opposed the purchasers’ application for indemnity costs. He submitted that there was nothing special about the case that justified an indemnity order. The costs agreement did not strengthen the purchaser’s case. He argued that the purchaser had introduced the pleading of deceit by the amendment made on 26 May 2011.
10 Counsel pointed out the tension in the plaintiff’s submissions in arguing that the defences were hopeless and at the same time arguing that the case was complex.
11 The purchaser had taken the risk in joining the fifth defendant, Ms K Fleetwood, and should pay her costs.
Submissions of R T Edgar Toorak
12 Counsel for the sixth defendant, R T Edgar Toorak, which was also separately represented at the costs hearing, accepted that her client could not resist an order for party-party costs. However, she submitted that there was no justification for an indemnity costs order to be made against her client. Its case was not hopeless and it was entitled to defend the proceeding. There was a complex factual dispute and an arguable defence on issues, including whether the misrepresentation was actionable, whether the purchaser had proved its reliance on Mr Herman’s conduct, damages and fraud.
13 So far as the action against Ms Fleetwood was concerned, the purchaser had taken the risk of suing her and there were no grounds for a Sanderson order.
14 Counsel also submitted that Mr Herman was not acting within the scope of his employment in making fraudulent representations and R T Edgar Toorak should not be liable for the costs awarded against him. I have already decided that issue.
Submissions of the Vendors, the Third, Fourth and Fifth Defendants, Mr
Michael Abay, Mr Kendra Abay and Ms Kimberley Jane Fleetwood15 Counsel for the vendor, Ms K Fleetwood, sought orders for solicitor and own client costs, against the purchaser. They submitted that the case against her had failed entirely. Fraud allegations had been made against her, as had a claim for accessorial liability which required proof of knowing involvement in the agents’ conduct: Yorke v Lucas.[3] Despite these allegations, the purchaser, in final submissions, had accepted Ms Fleetwood as a witness who did her best to recall the events of the auction day.
[3] (1985) 158 CLR 661
16 Counsel submitted that the purchasers had failed on a number of grounds against Mr Michael Abay and failed entirely against Ms Fleetwood.
17 Counsel for the vendors referred to a Calderbank letter of 7 April 2011 which offered to settle the proceeding for the sum of $25,000 all in and submitted that Ms Fleetwood had obtained a better result than offered in the Calderbank letter. However, the Calderbank letter required the purchaser to discontinue the proceeding against all vendors and therefore is not of weight in the determination of costs.
18 The vendors pointed out that a number of the purchaser’s allegations against them, including that the vendors had been forced to sell the property, were abandoned by the time of final submissions.
19 Alternatively, the vendors submitted there should be an apportionment of costs and that the costs incurred by Ms Fleetwood should be fixed at 60 per cent of the costs of the vendors. This was because the issues concerning Ms Fleetwood covered all of the issues involved in the joint Defence of the vendors and the extra issues concerning her role as a guardian. The logic behind this submission was, that for the purposes of considering the vendors’ submissions, the Court should act on the basis that there were in reality two vendors making submissions, Ms Abay and Ms Fleetwood, and that of the two, Ms Fleetwood’s submissions were the more complex.
20 Counsel for the vendors put separate submissions in respect of the costs of Michael Abay and Kendra Abay. They argued that, save for the case introduced by the amendments of 26 May 2011, the purchaser’s case against them completely failed. The third and fourth defendants also pointed to the fact that the plaintiff had made allegations of fraud and other unwarranted allegations against them and the fact that the liability of the Abays, as principals, for the fraud of their agents, was never in issue at the trial.
21 As an alternative, Mr Abay and Ms Abay submitted that the purchaser should only recover a portion of its costs against them.
22 The vendors also relied on alleged breaches by the purchaser of overarching obligations contained in the Civil Procedure Act 2010, being s.19 (only to take steps to resolve and determine the dispute); s.22 (using reasonable endeavours to resolve the dispute); s.23 (using reasonable endeavours to narrow the issues in the dispute) and s.24 (reasonable endeavours to ensure costs are reasonable and proportionate).
23 They submitted that if the vendors were liable for any of the purchaser’s legal costs, they should receive a complete indemnity from Mr Herman and R T Edgar Toorak. This followed from the Court’s finding that the agents had breached their agency agreement with the vendors. The damages awarded against them were reasonably foreseeable. It was just and equitable that the vendors receive a complete indemnity under ss.23B and s.24 of the Wrongs Act 1958. The vendors had sought an indemnity from the agents in their solicitor’s letter of 25 March 2011.
24 In the alternative, the vendors sought their costs from 30 March 2011, being the date of rejection of the offer. Because there had been a finding of fraud against the agents, costs should be awarded to the vendors against the agents on a solicitor and own client basis. The vendors also sought orders against the agents, alleging that they had breached obligations imposed by the Civil Procedure Act 2010.
25 In the principal judgment, I determined that the vendors, Mr Michael Abay and Ms Kendra Abay, had a right of contribution against the agents. I left undetermined whether they were entitled to an order for the recovery of all their costs against the agent on an indemnity basis.
Consideration of Costs Issues
26 The Court has a discretion in the award of costs.
27 Section 28 of the Civil Procedure Act provides that:
[4] The overarching obligations applied to this proceeding from 1 January 2011: see s.73(2)
“(1) In exercising any power in relation to a civil proceeding, a court may take into account any contravention of the overarching obligations. (2) Without limiting subsection (1), in exercising its discretion as to costs, a court may take into account any contravention of the overarching obligations.”[4]
28 The purchaser succeeded against the agents for misleading and deceptive conduct and in deceit. RT Edgar Toorak’s liability was vicarious, including pursuant to statute, for the actions of Mr Herman, who worked for it and was its director. The usual order that would follow would be that the agents would pay the purchaser’s costs on a party-party basis. This is the usual order for costs, even when findings of fraud are made against the unsuccessful party. In NFM Property Pty Ltd v Citibank Ltd,[5] Lindgren J stated:
“Even in a proved case of fraud, for example, in my opinion the presumption is that a costs order against a fraudulent party will be on the party and party basis. The conduct of a party that is relevant to the issue of indemnity costs is the party’s conduct as litigant. But, as noted below, the knowledge that a party has, including knowledge of his or her past conduct, may be relevant to an assessment of his or her conduct as litigant.”
[5] NMFM Property Pty Ltd v Citibank Ltd (No 11) (2001) 109 FCR 77 at [56]
29 In Ventouris Enterprises Pty Ltd v Dib Group Pty Ltd (No. 3) Slattery J, citing authority, including the judgment of Lindgren J quoted in the previous paragraph, stated:
“Even unconscionable conduct, breaches of fiduciary duty, fraud and other deplorable conduct when established in litigation will ordinarily lead to an order for costs on the usual basis and something more must be established for a special order as to costs.”[6]
[6] [2010] NSWSC 1479 at [13]
30 Unsuccessful cases based on allegations of misleading or deceptive conduct usually lead to an award of costs against the plaintiff on a party-party basis.
31 The purchaser must establish something additional connected with the agents’ conduct of the litigation to justify the award of indemnity costs.
32 In the Court of Appeal decision of Murdaca v Maisano,[7] Nettle JA referred to the decision in Fountain Selected Meat (Sales) Pty Ltd v International Produce Merchant Ltd,[8] upon which the present plaintiff relied, and stated:
“As Woodward, J put it, it is appropriate to consider awarding solicitor/ client costs or indemnity costs whenever it appears that a party properly advised should have known that he had no chance of success. In such cases the action must be presumed to have been commenced or continued for some ulterior motive or because of some wilful disregard of the known facts or to some clearly established laws.”[9]
[7] [2004] VSCA 123
[8] (1988) 81 ALR 397
[9] [2004] VSCA 123 at [40] see also Macedon Ranges Shire Council v Thompson [2009] VSCA 209
33 Some of the matters relevant to determining whether indemnity costs should be awarded are identified in the overarching obligations contained in the Civil Procedure Act 2010, which the purchaser alleges that the agents breached. The Civil Procedure Act is significant legislation which establishes, or affirms, standards for the conduct of civil litigation with a view to facilitating:
“… the just, efficient, timely and cost-effective resolution in dispute.”[10]
[10] Section 1(1)(b) of the Civil Procedure Act 2010
34 However, I do not understand that the Civil Procedure Act prevents a party raising defences to contest a civil proceeding, provided it has a proper basis to do so: see s.18. Whether there is a proper basis for the conduct of a defence may be difficult to determine. It will often be unwise to determine that question with the perspective of hindsight, coloured by the findings made in the judgment.
35 I do not consider that it has been established that the agents properly advised should have known that there they had no prospects of success. The proceeding involved issues of fact and law, a number of which might have been identified before action as giving the agents a reasonable prospect of defence. These include issues of reliance, damages and mitigation. Even the lack of strength in the Defence based on the alleged Stuart Fleetwood offer, ultimately turned on findings of fact.
36 Because of that conclusion, I do not consider that the agents failed to use reasonable endeavours to resolve the dispute.
37 I do not consider that the agents’ case changed significantly on the eighth day of trial as the purchaser submits. At least from the time of the filing and service of the agents’ Defence of 11 November 2010, it was apparent that their defence was that Mr Herman, in making the representations, relied on the alleged Stuart Fleetwood offer and that he had told Ms John that the offer was made by someone by the name of “Tom”.
38 The matter that does require particular consideration to determine whether special circumstances exist justifying an order for some indemnity costs was that part of the Defence that ultimately was that that the Mosses’ evidence, where it conflicted with Mr Herman’s, “should be treated with suspicion and disbelieved as collaborative concoction”.[11] Equally, it was submitted that there was “an unnatural convergence on key points”.[12] These submissions were part of a detailed attack on the reliability of the evidence of the Mosses.
[11] Written submissions on behalf of the second and sixth defendants paragraph 26
[12] T 1653
39 I did not take that part of the case to allege that the plaintiff’s witnesses were giving deliberately false evidence. I consider that this part of the Defence falls short of circumstances justifying an order for indemnity costs.
40 I see no basis in authority or under the Rules for awarding the indemnity costs on the basis of the purchaser’s costs agreement. I do not make such an order.
41 I consider that the agents should be ordered to pay the purchaser’s costs on a party and party basis.
Overpayment of Stamp Duty
42 The purchaser claimed, as additional damages, the difference between the stamp duty payable on a purchase price of $2.7 million and $2.5 million, which amounted to $11,000. That sum had been identified in the document referred to at trial, that the purchaser relied on as a summary of its damages. However, it was not mentioned in final submissions. I have yet to pronounce final orders in the proceeding and I consider that the plaintiff is entitled to claim that sum. Ultimately as the authorities discussed in the principal judgment state, the objective of the award of damages is to compensate the plaintiff for is loss.
43 The additional stamp duty paid was an item of loss and damages recoverable in accordance with the authorities.
Interest
44 The plaintiff is entitled to interest on the judgment sum of $211,000 calculated in accordance with s.60(1) of the Supreme Court Act 1958.
The Vendors
Ms Fleetwood
45 The purchaser has failed against the fifth defendant and ordinarily would pay her costs on a party and party basis. For reasons discussed below, I do not consider that the purchaser’s case alleged fraud against the vendors personally.
46 I see no special circumstance to award those costs on an indemnity basis. Ms Fleetwood was sued on the basis that she was the administrator of Michael Abay’s estate and because she played a part in arranging the sale. As stated in the principal judgment, she did not purport to act as administrator when she signed the Agent’s Authority. I found that as administrator she did not have separate liability additional to her grandfather’s.
The purchaser’s entitlement to a Sanderson order against the agents in respect of the costs it is ordered to pay to Ms K Fleetwood
47 I consider that the purchaser is entitled to a Sanderson order in respect of the costs that is obliged to pay Ms Fleetwood, the fifth defendant.
48 A Sanderson order will not ordinarily be made unless:
[13] Fassbender v Bohlmann (t/as Seymour Freight Lines and Caravans) [2010] VSCA 204 at [71]
(a) the plaintiff’s claims against the two defendants are interdependent; essentially alternative claims; and (b) it is reasonable for the plaintiff to have joined the successful defendant and the conduct of the unsuccessful defendant has been such as to make the order just.[13] 49 The claims against Mr Abay and Ms Fleetwood were interdependent. They were both potential defendants. One or other of them was liable as the vendor of Mr Abay’s property and as the person who, together with Ms Abay, had appointed R T Edgar and Mr Herman as agents. The matter was complicated because Ms Fleetwood did not purport to act as administrator when signing the Agent’s Authority. I decided that only one of them was liable as vendor and that was Michael Abay. But I consider that the claims against them were interdependent and alternative claims.
50 I consider that it was reasonable for the purchaser to join both Mr Abay and Ms Fleetwood. The conduct of Mr Herman in making representations on behalf of the vendors was such as to make it just that he and RT Edgar Toorak pay the fifth defendants’ costs.
51 As stated in the principal judgment, R T Edgar Toorak is liable for Mr Herman’s conduct.
52 In a practical sense, Ms Fleetwood was, in essence, acting as, and performing the role of, a vendor, even though I found that she did not have individual legal liability.
Mr Michael Abay and Ms Kendra Abay
53 In the principal judgment, I found that the third and fourth defendants, Mr M Abay and Ms K Abay, were entitled to contribution and indemnity from the agents in respect of the judgment against them.[14]
[14] paragraph [395] of the principal judgment.
54 I consider that in addition to the indemnity to which the third and fourth defendants are entitled against the purchaser, they are entitled to their party- party costs against the agents, the second and sixth defendants.
55 There is no basis for awarding indemnity costs to Mr Abay and Ms Fleetwood against the agents. There is no special circumstance justifying such an order. The vendors’ solicitor’s letter of 25 March 2011 sought an indemnity from the agents but did not constitute an offer of compromise or Calderbank offer, which might be relevant to costs.
56 No term of the contract between the vendors and the agents has been proved, giving the vendors an entitlement to indemnity costs.
57 The vendors sought indemnity costs against the purchaser. The vendors claim that the case made against them until the amendments of 26 May 2011 wholly failed. They claim that the purchaser introduced allegations of fraud against them by the amendment to the pleadings made on 26 May 2011.
58 I do not consider that, as ultimately pleaded and as explained by counsel for the purchaser,[15] the amendments did allege personal fraud against the vendors, but rather that they were responsible for the conduct of the agents.
[15] T26, L18 – T 27, L23 and T 42-45 and T 99.
59 Nor do I consider that the accessorial liability case against the vendors involved allegations of fraud against the vendors. The accessorial liability case was not greatly pressed in final submissions. It was put in the purchaser’s final submissions that Ms Abay should not be accepted as a witness of credit unless her evidence was otherwise corroborated. I did not accept this submission, but I do not regard it as sufficient to justify an order that the purchaser pay the vendors or Ms Abay’s costs.
60 The vendors took part in the argument of many of the issues in the case. The third and fourth defendants are liable for the judgment sum. They should also be liable for the plaintiff’s costs on a party and party basis.
Issues between R T Edgar Toorak and Mr Herman
61 Both R T Edgar Toorak and Mr Herman have been jointly represented throughout the proceeding except on the argument about costs.
62 Counsel for RT Edgar Toorak suggested that some separate division of costs should now be made, with Mr Herman bearing all or a greater proportion of costs.
63 I see no reason for any division of costs liability between the agents in view of the manner in which the proceeding has been conducted.
Certification of Counsels’ Fees
64 The purchaser is entitled to a certificate for two counsel for each day of the trial at the rate claimed of $7,700 per day for Senior Counsel and $2,650 for Junior Counsel for each day of trial and the hearing on 9 November 2011.
65 This was significant commercial litigation of some complexity. It justified the briefing of two counsel, including Senior Counsel. It justifies the higher than normal fees, for which certification is sought.
66 I will hear the vendors as to the rate at which the certification of counsels’ fees.
67 I will hear the parties further as to the extent of Counsels’ preparation that should be certified.
68 The purchaser also sought the certification of the fee of $6,914.50 of Mr Sutherland who gave evidence of the valuation of the properties. No submission in opposition to that course was put and I will therefore grant that application.
Conclusion
69 I will heat the parties as to the precise form of order to be made.
70 The plaintiff and others have brought an application by summons seeking orders under s.29 of the Civil Procedure Act 2010. I have already heard submissions in respect of one issue in that application. The further hearing of the summons will be adjourned to a date to be fixed.
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