Pesec v Zivko (No 4)
[2024] ACTSC 361
•21 November 2024
SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
Case Title: | Pesec v Zivko (No 4) |
Citation: | [2024] ACTSC 361 |
Hearing Date: | On the papers |
Decision Date: | 21 November 2024 |
Before: | McCallum CJ |
Decision: | (1) Vacate the order as to costs made on 23 October 2024. (2) Order the plaintiff to pay the first and sixth defendants’ costs. (3) Order the plaintiff to pay the costs of the second to fifth defendants and, separately, the costs of the seventh defendant up to and including 10 August 2022. (4) Order the plaintiff to pay the costs of the second to fifth defendants and the seventh defendant on the basis that, from 11 August 2022, those defendants are to be treated as having been represented by the same counsel and the same solicitors, with the intent that those defendants be allowed a single set of costs from 11 August 2022. (5) Dismiss the defendants’ application for a special costs order. |
Catchwords: | COSTS – determination of costs following unsuccessful oppression suit – where defendants were represented by three separate legal teams – whether plaintiff should bear costs of all three – where defendants served offer of compromise and Calderbank letter – inclusion of requirement for plaintiff to release defendants from any future claims arising out of or in connection with the matters the subject of the proceedings – whether it was unreasonable for the plaintiff not to accept the offer – whether judgment “not more favourable” |
Legislation Cited: | Court Procedures Act 2004 (ACT), s 5A Court Procedures Rules 2006 (ACT), rr 1012, 1752 |
Cases Cited: | ACT v Gillan; Gillan v ACT [2019] ACTSC 200 Australian Institute of Fitness Pty Ltd v Australian Institute of Fitness (Vic/Tas) Pty Ltd (No 3) [2015] NSWSC 1639 Credit Lyonnais Australia Ltd v Darling (1991) 5 ACSR 703 De Gruchy v The Owners Units Plan No. 3989 (No 2) [2020] ACTSC 166 Forge v Rewers (No 2) [2017] ACTSC 273 Gilmore Finance Pty Ltd v Aesthete Pty Ltd (No 2) [2023] NSWCA 31 Grant v John Grant & Sons Pty Limited [1954] HCA 23; (1954) 91 CLR 112 Gray v Richards (No 2) [2014] HCA 47; (2014) 315 ALR 1 HP Mercantile Pty Ltd v Hartnett [2017] NSWCA 79 Hulanicki v Walton (No 2) [2015] ACTCA 45 In the matter of CMI Limited [2011] QSC 346; 87 ACSR 144 Marhaba v Chen (No 2) [2024] ACTSC 288 Milillo v Konnecke [2009] NSWCA 109 Pesec v Zivko (No 3) [2024] ACTSC 325 Pettitford v Whicker [2005] NSWCA 370 Statham v Shephard (No 2) (1974) 23 FLR 244 Van Eeden v Henry [2005] NSWCA 14; (2005) 62 NSWLR 301 |
Parties: | Anthony Pesec (Plaintiff) Josip Pavao Zivko (First Defendant) Frank Crnkovic (Second Defendant) Mirko Skrnjug (Third Defendant) Rein Heins (Fourth Defendant) Noel Edward McCann (Fifth Defendant) XO 1 Pty Ltd (Sixth Defendant) Consolidated Builders Limited (Seventh Defendant) |
Representation: | Counsel M Pesman SC with R Higgins ( Plaintiff) D Thomas SC (First and Sixth Defendants) J Hutton SC (Second to Fifth Defendants) M O’Meara SC, IJM Ahmed (Seventh Defendant) |
| Solicitors Chamberlains Law Firm ( Plaintiff) Allens (First and Sixth Defendants) Ashurst (Second to Fifth Defendants) Clayton Utz (Seventh Defendant) | |
File Number: | SC 147 of 2021 |
McCALLUM CJ:
1․Anthony Pesec brought an oppression suit concerning the conduct of the affairs of Consolidated Builders Limited, an unlisted public company in which he holds shares. On 23 October 2024, I dismissed the proceedings and made the usual order as to costs (that Mr Pesec, being the unsuccessful party, pay the defendants’ costs): Pesec v Zivco (No 3) [2024] ACTSC 325. At the request of the parties, I then made further directions to afford them an opportunity to apply to have that order varied.
2․There are seven defendants in the proceedings represented by three sets of lawyers as follows:
(a)the first and sixth defendants (Consolidated’s managing director, Mr Zivko, and a company associated with him which was joined because most of the shares he controls are held in the name of that company). I will refer to those defendants jointly as “Zivko”. They were represented by the law firm Allens and Mr Thomas SC;
(b)the second to fifth defendants (Consolidated’s non-executive directors). They were represented by the law firm Ashurst and Mr Hutton SC; and
(c)the seventh defendant (Consolidated). Consolidated was represented by the law firm Clayton Utz and Mr O’Meara SC with Mr Ahmed (now also of senior counsel).
3․Each of the firms of solicitors retained by the defendants is a leading Australian law firm.
Orders sought
4․Each party seeks a variation of the costs order.
Order sought by the plaintiff
5․Subject to one qualification, Mr Pesec accepts that he should pay the defendants’ costs assessed on the ordinary basis. The qualification is that he contends he should not have to pay the costs of three legal teams. He accepts that he should pay Zivko’s costs, as their interests were different from and in conflict with those of the other defendants. However, he submits that he should not be required to pay for the separate legal representation of the non-executive directors and Consolidated. As to those parties, he contends for an order based on the order made in HP Mercantile Pty Ltd v Hartnett [2017] NSWCA 79, as follows:
Plaintiff to pay the costs of the second to fifth and seventh [defendants] as agreed or as assessed on the basis that those [defendants] are to be treated as having been represented by the same counsel and the same solicitors, with the intent that [those defendants] be allowed a single set of costs.
Order sought by the defendants
6․On 11 August 2022, the defendants served a joint offer of compromise and a Calderbank letter, in each case offering to compromise the proceedings on the basis of what is commonly termed a “walkaway”, meaning that the proceedings would be dismissed with no order as to costs and with all previous costs orders being vacated. In each case, the offers were subject to a condition that the parties enter into a confidential deed of settlement releasing each other from all past and future claims arising out of or in connection with the matters the subject of the proceedings.
7․Mr Pesec did not respond to those offers. The defendants contend that the result he obtained in the proceedings is no more favourable and, on that basis, seek an order pursuant to r 1012 or alternatively r 1752(1)(a) of the Court Procedures Rules 2006 (ACT) that he pay their costs, and interest on those costs, assessed as follows:
(a)on a party/party basis up to 11 August 2022; and
(b)on an indemnity basis or, alternatively, a solicitor/client basis from 12 August 2022.
8․I have concluded that both applications should be determined in Mr Pesec’s favour. My reasons for reaching those conclusions are as follows.
Multiple legal teams
9․It is trite that the disposition of costs is within the general discretion of the court. As to the exercise of that discretion, Mr Pesec invoked the remarks of the High Court in Gray v Richards (No 2) [2014] HCA 47; (2014) 315 ALR 1 at [2] that, while costs are ordinarily awarded to the successful party, “other factors may have a significant claim on the discretion of the Court”. The High Court said in that case:
The disposition which is ultimately to be made in any case where there are competing considerations will reflect a broad evaluative judgment of what justice requires.
10․Importantly, as implicitly acknowledged in those remarks, the interests of justice will not necessarily be the same as the interests of the successful party. The defence of Mr Pesec’s application was vigorous and comprehensive. It may be inferred from the calibre and reputations of the legal representatives on the defence side of the Bar table that it was also not inexpensive: cf s 5A of the Court Procedures Act 2004 (ACT). In saying so, I mean no criticism of any of the defendants. They were entitled to make choices in their own interests, and they chose well, but the fact of those choices does not bind the Court in evaluating where the interests of justice lie in the determination of costs.
11․Mr Pesec submitted that the Court will not ordinarily allow two sets of costs to defendants where there is no possible conflict of interest between them in the presentation of their cases. In support of that submission, he cited the decision of this Court in Statham v Shephard (No 2) (1974) 23 FLR 244 at 246 (Woodward J) and a decision in which it was recently applied, Gilmore Finance Pty Ltd v Aesthete Pty Ltd (No 2) [2023] NSWCA 31 at [10]. In the latter decision, the New South Wales Court of Appeal referred to the principle in Statham v Shephard (No 2) as one “regularly applied” in that Court (a Jade search gives 8 hits; that may not include older, unreported judgments).
12․In Statham v Shephard (No 2), after reviewing authorities that discussed the factors governing the award of costs to successful defendants between whom there was no conflict of interest, Woodward J extracted the following principle at 246-247 (citations omitted):
[T]he Court will not normally allow two sets of costs to defendants where there is no possible conflict of interest between them in the presentation of their cases. I would add to this basic proposition three provisos. In the first place, if a conflict of interest appears possible but unlikely, the defendants should make any necessary enquiries from the plaintiff as to the way in which his case is to be put if this would resolve the possibility of conflict between defendants.
Secondly, there could be circumstances in which, although the defendants were united in their opposition to the plaintiff, their relationship to each other might be such that they would be acting reasonably in remaining at arm’s length during the general course of litigation.
Thirdly, even if defendants are acting reasonably in maintaining separate representation for some time or for some purposes, they may still be deprived of part of their costs if they act unreasonably by duplicating costs on any particular matter or at any particular time.
Failure to give notice of the application
13․The status of that principle as one that is “regularly applied” at the appellate level in New South Wales is significant because one of the submissions made by the non-executive directors in opposition to Mr Pesec’s application is that they were not put on notice that any point would be taken about duplication of costs. In their written submissions, the non-executive directors wrote:
At no time during the proceeding did the Plaintiff put the [non-executive directors] or the Company on notice that he would seek an order limiting recoverable costs to a single firm of solicitors.
14․That submission was footnoted, unhelpfully, with a bare citation of the decision of the New South Wales Court of Appeal in HP Mercantile Pty Ltd v Hartnett. No point reference was given. There was no articulation of any principle concerning a requirement for notice for which the decision in HP Mercantile was said to stand.
15․Left to my own devices, I am unable to discern from the decision in HP Mercantile any principle that assists the defendants. On the contrary, the principle applied in that decision assists Mr Pesec. The Court observed at [8] that all parties “were content to rely upon principles stated by Woodward J in Statham v Shephard (No 2) (1974) 23 FLR 244 and applied in numerous decisions in this Court”.
16․The Court then noted at [9]:
HPM’s submissions were straightforward. It submitted that it had put the respondents on notice some two months before the respondents’ written submissions had been filed, that the appeal was heard and determined on the basis of a common statement of facts, that the interests of the two groups of respondents were identical, and that there was the absence of any conflict or any possibility of conflict between them.
17․It is trite to observe that the recording of a submission relying on the fact that notice had been given is not a statement of principle; nor is it a proper application of precedent to contend that the absence of a fact that was present in another case must necessarily result in the disapplication of a principle applied in that case or the application of an inverse principle.
18․There is in fact some authority for the principle implicitly invoked by the non-executive directors concerning the desirability of giving notice of any objection to facing multiple sets of costs: Credit Lyonnais Australia Ltd v Darling (1991) 5 ACSR 703 at 710 (Kirby P); considered in Milillo v Konnecke [2009] NSWCA 109 at [110]-[113] (Ipp JA; Macfarlan JA and Sackville AJA agreeing at [132] and [133]). However, the proposition considered in those authorities (that the proper time to raise an objection to the payment of multiple sets of costs is in advance of or at the hearing) was predicated on the existence of a rule in New South Wales that is not replicated in the Court Procedures Rules 2006 (ACT) (and which in any event applies only to appeals).
19․In Gilmore Finance Pty Ltd v Aesthete Pty Ltd (No 2), which is the second decision relied upon by Mr Pesec and the most recent consideration by the New South Wales Court of Appeal of the principle in Statham v Shephard (No 2), there is no suggestion of any requirement for notice as a predicate of the application of the principle. The issue was first raised in that case by the Court, in its substantive judgment.
20․In the circumstances of the present case, the suggestion that it was incumbent on Mr Pesec’s solicitor to warn the intellectual clout at the other end of the Bar table of a principle that is regularly applied at the appellate level in their State of origin should be rejected.
Defendants’ entitlement to participate in the proceedings
21․Leaving aside the point about notice, the separate written submissions in reply of the non-executive directors and Consolidated rather tend to reinforce Mr Pesec’s point about the duplication entailed in those parties having two sets of legal representatives. As was the case during the hearing, their separate submissions in large measure repeated and fortified each other’s points.
22․First, it was submitted:
There are members of Consolidated other than the plaintiff and the first to fifth defendants whose interests were affected by the outcome of the proceedings. Consolidated’s participation in the proceedings served the legitimate purpose of reflecting and protecting those interests, as well as the interests of the company as a whole: Trojan Equity Ltd v CMI Ltd [2011] QSC 346; (2011) 87 ACSR 144 at [27]-[28] (McMurdo J); Australian Institute of Fitness Pty Limited v Australian Institute of Fitness (Vic/Tas) Pty Limited (No 3) [2015] NSWSC 1639 at [108]-[110]; (2015) 109 ACSR 369 (Sackar J).
23․Neither of the decisions cited in that submission is concerned with costs. The decision referred to as Trojan Equity, properly cited as In the matter of CMI Limited, determined an application by a minority shareholder for an interlocutory injunction to restrain the company from defending an oppression suit, hence the discussion of an entitlement to participate. The passage cited from the decision of Sackar J in Australian Institute of Fitness takes the matter no further. His Honour simply included the decision in CMI Ltd in a review of authorities concerning oppression suits. No principle emerges from either decision that the existence of an entitlement to participate in proceedings determines the question of entitlement to costs. It is not here disputed that Consolidated was entitled to participate in the proceedings and be represented if and by whom it chose. The question is whether Mr Pesec should bear the costs of that Rolls Royce level of representation as well as the costs of the non-executive directors.
24․A further point was made that, in the proceedings as initially framed in the Originating Process, the relief sought plainly put the interests of the directors in conflict with the interests of the company, as it was alleged that the non-executive directors breached fiduciary and statutory duties owed to the Company. Equitable compensation payable by the directors to the company was sought on that basis. I accept that those claims raised conflicting interests, justifying the decision to have separate representation at that stage.
25․The non-executive directors then noted at [6] of their written submission in reply, “the Originating Process was never amended”, while Consolidated noted at [5], “The [Originating Process] was never amended and never expressly abandoned”. However, by the time of the hearing before me, it was clear that no such relief was pressed and that the interests of all defendants were very much aligned, to the point where they presented as a large team, cooperatively dividing topics among themselves against a valiant Mr Pesman. The effect was that Mr Pesec, rather than facing three separate opponents, in effect faced a single opposition that was triply well-armed. The fact that the defendants joined in sending a single offer of compromise and even a single Calderbank letter (discussed below) highlights the commonality of their interests at that time.
26․In this respect the case reflects the circumstances addressed in the first and third provisos to the general principle stated by Woodward J in Statham v Shephard (No 2) set out above. The first proviso is “if a conflict of interest appears possible but unlikely, the defendants should make any necessary inquiries from the plaintiff as to the way in which his case is to be put if this would resolve the possibility of conflict between defendants”. The third proviso is “even if defendants are acting reasonably in maintaining separate representation for some time or for some purposes, they may still be deprived of part of their costs if they act unreasonably by duplicating costs on any particular matter or at any particular time”.
27․Although the Originating Process was never amended, the proceedings evolved significantly after the filing of pleadings. As acknowledged in Consolidated’s submissions, many points were abandoned and there were ultimately two central contentions maintained by Mr Pesec: the challenge to Mr Zivko’s remuneration package awarded in 2015 and the complaint of inadequate financial information for members. Consolidated submitted that it had a clear interest in appearing to respond to each claim which was distinct from any other defendant. It was submitted that the first contention “sought a substantial alteration of the structure of Consolidated’s share capital and which, if successful, would have occasioned an obligation on Consolidated to return to the first defendant and sixth defendant the moneys they paid to subscribe for that share capital”. The second contention “sought mandatory relief against Consolidated requiring the provision by Consolidated of information to members over and above Consolidated's statutory reporting and other obligations”.
28․An example given by Consolidated of the contended divergence of interests was this:
had the occasion arisen for the Court to consider whether it should order rescission of the shares issued by Consolidated to the first and sixth defendants, engaging an obligation on the part of Consolidated to make restitutio in integrum, the interests of Consolidated and the other defendants would have sharply diverged.
29․I accept that would have reflected a divergence of the interests of Zivko as against Consolidated. It was not explained how, in circumstances where Consolidated joined the non-executive directors in defending their decision, the interests of the non-executive directors (in that capacity) would have diverged from Consolidated’s at that point. There was no suggestion that Consolidated would in that event look to the non-executive directors for any compensation. That would be inconsistent with the steps taken by the company to have that decision ratified in general meeting.
30․Noting the issues on which the parties’ interests were said to diverge, Consolidated submitted:
In these circumstances, it simply cannot be said that the separate representation of Consolidated in these proceedings was unnecessary or inappropriate: cf Van Eeden v Henry [2005] NSWCA 14; (2005) 62 NSWLR 301 at [40].
31․Van Eeden was an unusual case. It involved two people who had been involved in a motor vehicle collision. Each sued the other and each was represented by two sets of solicitors, one to prosecute their claim against the other and one to defend the claim brought by the other. In the passage cited from Van Eeden, Spigelman CJ (with whom Sheller and McColl JJA agreed) said:
There was of course no legal impediment to the separate representation of Mr Henry and Mr Van Eeden in their respective capacities as Plaintiff and Defendant. Nevertheless this Court has a discretion with respect to the award of costs and could refuse to make an order for costs in favour of a party whose separate representation was unnecessary or inappropriate.
32․It does not follow from those remarks that, so long as it was not inappropriate for a party to be separately represented, recovery of two sets of costs will be allowed. In HP Mercantile Pty Ltd v Hartnett at [15], the test was framed in the following terms:
Accordingly, the question is whether the respondents have demonstrated a sufficient reason for the appellant to be burdened with more than one set of costs. That burden is not discharged merely by pointing to factors which explained their decision to have separate representation.
33․A similar test was applied in Gilmore Finance, where the Court (Gleeson, Leeming and Kirk JJA) said at [11]:
To be clear, the fourth and fifth respondents were perfectly entitled to adopt the active stance that they did. But the question which arises is whether it is reasonable for the unsuccessful applicant to bear two sets of costs when, if either of the courses mentioned above had been adopted, there would only have been one set of costs.
34․The alternative courses referred to there were to retain the same firm and counsel as the other defendants or to file an appearance and put on a submission (or ask the other defendants to do so) indicating that they opposed the application, but otherwise not taking any active part in the proceedings.
35․Each of the tests formulated in those cases reflects the central proposition that the factors that govern the Court’s discretion as to costs are different from the considerations that will govern a private litigant’s choice as to participation and legal representation.
36․Consolidated submitted that, at all points, Mr Pesec sought relief which was “either against Consolidated or which was relief with the capacity to adversely affect the interests of Consolidated (ie, claims for rescission of shares issued to the first and sixth defendants)”. Consolidated submitted, and I accept, that it was both necessary and appropriate that Consolidated respond to those claims. What was not explained was how, in respect of either of the limbs of Mr Pesec’s case at hearing, Consolidated’s interests were in conflict with those of the non-executive directors such that separate representation was necessary.
37․I am satisfied that, from at least the time the joint offer of compromise was sent, there was no real possibility of conflict between Consolidated’s interests and those of the non-executive directors. Accordingly, Consolidated’s separate representation at the hearing resulted in significant duplication of costs at the Bar table.
38․That is not to say that the defendants were not entitled to separate representation; on the contrary, I have no doubt that was good strategy. However, given the measure of overlap in the issues addressed by the defendants and their clear alignment against Mr Pesec, which was evident at the hearing and can be traced back at least as far as the offer of compromise, I am satisfied that Mr Pesec should not have to bear the costs of both sets of lawyers at the hearing.
Special costs order
39․The defendants jointly seek what is commonly termed a special costs order, being one that varies from the usual order for costs in that a portion of the costs is ordered to be assessed on a higher basis than the usual party/party basis. The application invokes r 1012 or alternatively r 1752(1)(a) of the Court Procedures Rules. The order sought is that the plaintiff pay the defendants’ costs, and interest on those costs, assessed:
(a)on a party/party basis up to 11 August 2022; and
(b)on an indemnity basis or, alternatively, a solicitor/client basis from 12 August 2022.
40․Rule 1012 provides:
Offer not accepted and judgment no less favourable to defendant
(1)This rule applies if the offer is made by the defendant, but not accepted by the plaintiff, and the defendant obtains an order or judgment on the claim no less favourable to the defendant than the terms of the offer.
(2)Unless the court orders otherwise—
(a)the defendant is entitled to an order against the plaintiff for the defendant’s costs in relation to the claim, to be assessed on a party and party basis, up to the time when the defendant is entitled to costs under paragraph (b); and
(b)the defendant is entitled to an order against the plaintiff for the defendant’s costs in relation to the claim, assessed on a solicitor and client basis—
(i) if the offer was made before the first day of the trial—on and from the day after the offer was made; and
(ii) if the offer was made on or after the first day of the trial—at and from 11 am on the day after the offer was made.
41․Rule 1752 provides:
Costs—assessed on solicitor and client etc basis
(1)The court may order costs to be assessed—
(a)on a solicitor and client basis; or
(b)on an indemnity basis; or
(c)on any other basis it considers appropriate.
Note Pt 6.2 (Applications in proceedings) applies to an application for an order under this rule.
42․The grounds for seeking a special costs order are:
(a)the defendants jointly made an offer of compromise by letter dated 11 August 2022;
(b)the defendants jointly made a Calderbank offer, in broadly equivalent terms, by separate letter also dated 11 August 2022;
(c)neither offer was accepted by the plaintiff, which was unreasonable in all the circumstances; and
(d)the defendants obtained a materially better result by judgment.
43․The offer of compromise was in the following terms:
The First to Seventh Defendants make an offer of compromise under Part 2.10 of the Court Procedures Rules 2006 (ACT) to resolve the entirety of the Proceedings by way of the following orders:
1.The Proceedings be dismissed, with no order as to costs.
2.All previous costs orders in the Proceedings be vacated.
This Offer of Compromise is made on the condition that prior to any application by the parties to the Court to enter orders 1 and 2 above, the parties enter into a deed of settlement, without admission of liability, containing terms:
(a) releasing each other from all past and future claims arising out of or in connection with the matters the subject of the Proceedings;
(b) agreeing to keep the terms of the deed and settlement confidential except to the extent any party may make any disclosure that it considers necessary to comply with the law or any other requirement of any regulatory body or to any professional advisers, insurance brokers, insurers, auditors, bankers, related bodies corporate, financial or taxation advisers and financiers; and
(c) agreeing to seek that the Court enter orders 1 and 2 above.
This offer is open for acceptance for a period of 28 days from the date of the offer. In the event the offer is not accepted by that time, it will lapse.
44․In their joint submissions on costs, the defendants relied on the following principles concerning offers of compromise stated by this Court in Marhaba v Chen (No 2) [2024] ACTSC 288 (McWilliam J) at [24] (citations omitted):
(a)The offer must be a genuine offer of compromise, meaning that the offer must involve giving something away in order to end the dispute.
(b)The offer must be clear and certain in its terms.
(c)The judgment on the claim must be no more favourable to the plaintiff. In that regard, the offer should not be viewed with excessive formality or technicality, but rather with a view to giving effect to the spirit of the Rules. The Court does not look to the form of the orders, but rather to their substance.
(d)Where the offer is made within 2 months before trial, the offer must be open for a “period reasonable in the circumstances”: r 1002(5).
45․The defendants submitted that their offer of compromise complied with those principles. I accept that the offer was open for a reasonable period. It is necessary to consider the other requirements in more detail.
Whether the offer of compromise was genuine
46․The defendants submitted that the offer represented a realistic and genuine attempt to resolve the dispute by agreement as it involved offering to release Mr Pesec from his liability for two cost orders previously made against him and other costs incurred by the defendants in the proceedings. They noted that, at the time the offer was made, the preparation for final hearing was well advanced and that Mr Pesec was aware (from the Calderbank letter) that the defendants had incurred costs exceeding $1,760,000.
47․I accept that the offer was genuine in that limited sense because it involved giving something away (the benefit of previous costs orders in favour of the defendants). That said, it is important to have regard to the fact that the relief sought in the proceedings was not pecuniary. The offer did not involve any compromise on the issues of concern to Mr Pesec. As I found in the primary judgment, the company could easily have provided better information to shareholders. The directors chose not to because they didn’t have to: Pesec v Zivko (No 3) [2024] ATCSC 325 at [126]-[128] and [248]-[249].
48․The defendants further submitted in this context that the offer should be considered in the context of the history of extensive litigation commenced by Mr Pesec based on the same or a similar matrix of facts. For the reasons explained in the primary judgment, that context is of limited relevance: Pesec v Zivko (No 3) at [21].
Clear and certain offer; judgment no more favourable
49․The defendants submitted that the judgment was not more favourable to Mr Pesec than the offers. That is a difficult assessment to make because the proposed deed was to contain a mutual release from “all past and future claims arising out of connection with the matters the subject of the proceedings”. I accept, as submitted by the defendants, that the proposed release was mutual and would have conferred a benefit on Mr Pesec, including a release from extant costs orders against him in these proceedings.
50․The defendants submitted that the offer to bring an end to litigation that had a long history between the parties on a “walk away” basis was clearly more favourable to Mr Pesec than the judgment. However, the submissions implicitly acknowledge that the terms of the offer and the judgment obtained are not directly comparable. The defendants noted that, in such circumstances, whether the orders are less favourable to a plaintiff is a matter for the Court's judgment. In making that assessment, the Court should look to the substance of the result rather than the form of the orders: Pettitford v Whicker [2005] NSWCA 370 at [15]; cited by this Court in De Gruchy v The Owners Units Plan No. 3989 (No 2) [2020] ACTSC 166 at [27] (McWilliam J).
51․The substance of the result is difficult to compare with an offer that required Mr Pesec to capitulate, not just in these proceedings but forever. The content of the offer was in that respect uncertain. Mr Pesec failed in his oppression suit primarily because of the level of deference I was required to afford to the business judgment of the directors, considered in the primary judgment at [10]-[13]. It is not possible to know what causes of action he may have in the future “arising out of or in connection with the matters the subject of the proceedings”. In saying so, I do not mean to encourage a litigious approach; I seek only to explain that I am not in a position to make the judgment contended for by the defendants. The defendants still know considerably more than Mr Pesec does about the financial position of the company. Their offer in effect required him to make a decision blindfolded.
52․Accordingly, I am not persuaded that r 1012(2) is engaged. In case that conclusion is wrong, I indicate that, even if the judgment is not more favourable than the terms of the offer, I would have exercised my discretion under r 1012(2) to order otherwise than contemplated by that rule.
53․In Forge v Rewers (No 2) [2017] ACTSC 273 at [29] (Mossop J), this Court approved as being applicable in the Territory the principle that it will be proper for the court to “order otherwise” only if, in the exercise of the wide discretion conferred by the rule, there is good reason to order that the rule is not to have its usual effect.
54․In my assessment, the inclusion of the requirement to enter into a deed of release in the terms specified affords good reason to exercise the discretion to order that the rule is not to have its usual effect.
Whether it was unreasonable not to accept the Calderbank offer
55․It was common ground that, in determining whether a special costs order should be made by reason of the failure to accept a Calderbank offer, the issue is whether it was unreasonable for the offeree not to accept the offer: ACT v Gillan; Gillan v ACT [2019] ACTSC 200 at [30].
56․The defendants relied on the decision of the Court of Appeal in Hulanicki v Walton (No 2) [2015] ACTCA 45 where the Court said at [13]-[14] (citations omitted):
The acceptance of reasonable offers of compromise is in the interests of litigants and the public; it minimises the personal and financial costs to litigants and it enables the courts to focus resources on claims that are not amenable to compromise. “The non-acceptance of a Calderbank offer is a factor, in some cases a strong factor, to be taken into account on an application for indemnity costs”. On the other hand, it is critical that litigants have ready access to justice and do not feel unreasonably constrained to compromise cases.
When a Calderbank offer has been made, the issue is whether it was unreasonable to reject the offer, considering all the circumstances of the case, including the apparent strength of each party’s case at the time that the offer was made. In Hazeldene’s Chicken Farm Pty Ltd v Victorian Workcover Authority (No 2) (2005) 13 VR 435 at [25] the Victorian Court of Appeal noted that other matters that should be taken into consideration when evaluating the reasonableness of a rejection are:
(a) The stage of the proceeding at which the offer was received.
(b) The time allowed to the offeree to consider the offer.
(c) The extent of the compromise offered.
(d) The offeree’s prospects of success, assessed as at the date of the offer.
(e) The clarity with which the terms of the offer were expressed.
(f)Whether the offer foreshadowed an application for indemnity costs in the event of the offeree’s rejecting it.
57․Having regard to those factors, the defendants submitted that it was unreasonable for Mr Pesec not to accept the offer. As at 11 August 2022, pleadings had closed, all lay evidence had been served, discovery was complete and hearing dates for trial had been set down. The defendants submitted that, if Mr Pesec had conducted an objective analysis of his case as at 11 August 2022, it could and should have been apparent that the prospects of successfully prosecuting the claim were remote. The Calderbank letter identified several reasons why Mr Pesec was unlikely to succeed and Mr Pesec had the benefit of experienced solicitors to assist him to consider those matters. For those reasons, it was submitted that it was not reasonable for Mr Pesec to fail to accept the offer.
58․As with the offer of compromise, the difficulty with the Calderbank offer was the inclusion of a term requiring the parties to release each other from “all past and future claims arising out of or in connection with the matters the subject of the Proceedings”. Mr Pesec submitted that the inclusion of that term precludes any finding that it was unreasonable not to accept the offer. For the reasons stated above in respect of the offer of compromise, I agree.
59․As submitted by Mr Pesec, the nature or strength of any future claim arising from the same circumstances is necessarily unknown. Mr Pesec noted that the judgment in these proceedings will not prevent future litigation of such unknown claims should they arise. The facts from which such cases could arise, being "out of or in connection with the matters the subject of the Proceedings", are extremely broad. I accept Mr Pesec’s submission that I cannot determine that the defendants have achieved a better result than either the offer of compromise or the Calderbank letter, because “the inclusion of releases for future unknowns makes such a comparison impossible”. For the same reason, it was not unreasonable for the plaintiff not to accept either offer.
60․In supplementary written submissions filed with the leave of the Court, the defendants submitted that the scope of the proposed release would have been interpreted in accordance with the principles in Grant v John Grant & Sons Pty Limited [1954] HCA 23; (1954) 91 CLR 112 namely:
as a matter of contractual interpretation, general words in a release are (i) to be interpreted by reference to the particular issues referred to in the recitals; and (ii) to be read as being limited to those matters in contemplation by the parties (and therefore known to each party) at the time the release was given; and
a court may, in its equitable jurisdiction, prevent a party from relying on a release to avoid liability regarding matters unknown to the parties at the time the release was executed (in the absence of clear language indicating such an intention).
61․It was submitted that, as the proposed release “did not contain any explicit language commonly found in releases in order to outflank the rule in Grant v John Grant (for instance, releasing all claims whether "known or unknown")”, that rule would apply in the conventional way.
62․On that basis, the defendants acknowledged that comparison of the scope of the proposed release and “the preclusive effect of the judgment” necessarily involves speculation, but submitted that “it is difficult to conceive of any such claims that would be released by the proposed release and not precluded either by res judicata or by an estoppel of the type recognised in Port of Melbourne Authority v Anshun (1981) 147 CLR 589”. That submission has not persuaded me that it was unreasonable of Mr Pesec not to accept the offers because there are simply too many unknowns. Mr Zivko did not give evidence at the hearing, nor did two of the non-executive directors.
63․The defendants further submitted that even if there is a new potential claim that would have been released but would be able to be brought notwithstanding the judgment, “that would not stand in the way of a finding that the judgment was no less favourable to the defendants than the offers notwithstanding that the plaintiff would have avoided a very substantial costs liability had he accepted the offers”. I do not accept that submission. If the release was of no value to the defendants it would not have been sought. The extent of the costs liability that could have been avoided must be considered in the context of my conclusion that the costs incurred entailed duplication.
Conclusion and orders
64․For those reasons, I make the following orders:
(1)Vacate the order as to costs made on 23 October 2024.
(2)Order the plaintiff to pay the first and sixth defendants’ costs.
(3)Order the plaintiff to pay the costs of the second to fifth defendants and, separately, the costs of the seventh defendant up to and including 10 August 2022.
(4)Order the plaintiff to pay the costs of the second to fifth defendants and the seventh defendant on the basis that, from 11 August 2022, those defendants are to be treated as having been represented by the same counsel and the same solicitors, with the intent that those defendants be allowed a single set of costs from 11 August 2022.
(5)Dismiss the defendants’ application for a special costs order.
| I certify that the preceding sixty-four [64] numbered paragraphs are a true copy of the Reasons for Judgment of her Honour Chief Justice McCallum Associate: Date: 21 November 2024 |
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