Phantom Precision Engineering Pty Ltd v Luscombe (No 2)

[2021] SASC 103

SUPREME COURT OF SOUTH AUSTRALIA

(Magistrates Appeal: Civil)

PHANTOM PRECISION ENGINEERING PTY LTD v LUSCOMBE (No 2)

[2021] SASC 103

Judgment of the Honourable Justice Lovell 

24 August 2021

MAGISTRATES - APPEAL AND REVIEW - SOUTH AUSTRALIA - APPEAL TO SUPREME COURT - COSTS

APPEAL AND NEW TRIAL - PROCEDURE - SOUTH AUSTRALIA - POWERS OF COURT - COSTS

The appellant was successful in its appeal against a decision of a Magistrate for judgment in favour of the respondent in relation to a purported debt claim. The appellant seeks its costs of the appeal fit for two counsel or alternatively senior counsel, and its costs of the primary action including a portion on an indemnity basis. The respondent contends no costs order should be made, or alternatively any order should be limited to the primary action on a Magistrates Court scale.

Held, by Lovell J:

1. The appellant was successful on appeal and should receive its costs;

2. The appeal was not of sufficient complexity to warrant two counsel;

3. In all the circumstances, it was not unreasonable for the respondent to have refused the appellant's Calderbank offer of settlement;

4. The respondent is to pay the appellant’s costs of the appeal and the primary action to be agreed or taxed on a party party basis;

5. The costs of the appeal are to be fit for senior counsel.

Uniform Civil Rules 2020 (SA) r 194.5, referred to.

Aljade and MKIC v OCBC [2004] VSC 351; Australian Securities and Investments Commission v West & Anor (2008) 100 SASR 496; Beasley v Marshall (No 3) (1986) 41 SASR 321; Calderbank v Calderbank [1975] 3 All ER 333; Crump v Equine Nutrition Systems Pty Ltd Trading as Horsepower (No 2) [2007] NSWSC 25; Elite Protective Personnel Pty Ltd v Salmon (No 2) [2007] NSWCA 373; Grynberg v Muller [2002] NSWSC 350; Jones v Bradley (No 2) [2003] NSWCA 258; Kroehn v Kroehn (1912) 15 CLR 137; Leighton Contractors Pty Ltd v Public Transport Authority of Western Australia (No 7) [2009] WASC 218; Oshlack v Richmond River Council (1998) 193 CLR 72; Pinehurst Nominees Pty Ltd v Coeur De Lion Investments Pty Ltd [2015] QSC 122; Players P/L (In Liq) (Recs Apptd) v Clone P/L (No 3) [2020] SASC 165; Resort Management Services Ltd v Noosa Shire Council (No 2) [1995] 1 Qd R 56; SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323; Stanley v Phillips (1966) 115 CLR 470; Stipanov v Mier (No 2) [2006] VSC 424; Tickell v Trifleska Pty Ltd (1990) 25 NSWLR 353, considered.

PHANTOM PRECISION ENGINEERING PTY LTD v LUSCOMBE (No 2)
[2021] SASC 103

Magistrates Appeal – Civil

1. LOVELL J: On 28 May 2021, I allowed an appeal by Phantom Precision Engineering Pty Ltd (“the appellant”) against a decision of a Magistrate for judgment in favour of Mr Luscombe (“the respondent”).[1] I set aside the judgment of $61,434.17 and dismissed the respondent’s original claim alleging a debt owed under a purported loan agreement.[2] I also refused the respondent’s oral application to adduce fresh evidence on appeal.

   [1]     Phantom Precision Engineering Pty Ltd v Luscombe [2021] SASC 59.

   [2]     Original claim AMCCI-19-1738.

2. The parties subsequently filed written submissions on the question of costs. The appellant seeks its costs of the appeal certified fit for senior counsel, if not two counsel. The appellant further seeks its costs of the primary action, including a portion on an indemnity basis. The respondent submits no costs order should be made, or alternatively any order should be limited to the primary action on a Magistrates Court scale.

   Background

3. The factual background is set out in my original judgment. In summary, the respondent made a claim in debt against the appellant for $61,434.17, said to be the outstanding amount of a $100,000.00 advance made to the appellant. An issue arose as to whether the advance was a loan or an investment. The appellant argued that it was an investment and the balance was therefore not repayable on demand. Further, the appellant argued that in any event it had been released from any liability by virtue of a Deed of Settlement and Release (“the Deed”).

4. The Magistrate found in favour of the respondent, holding that the $100,000 advance was a loan and that the appellant had admitted on the pleadings both that it was a loan and that the sum outstanding was $61,434.17. Further, the Magistrate held that, in any event, the Deed did not operate to release the appellant from liability.

5. The appeal concerned the Magistrate’s interpretation of the parties’ pleadings (Grounds 1 and 2) and the proper construction of the Deed (Grounds 3 and 4). The appellant was successful as I found the Magistrate erred in her interpretation of the pleadings. On review of the evidence, I further found the evidence did not establish the purported loan agreement or the quantum of the respondent’s claim.  I also refused the respondent’s application to adduce further evidence related to these issues. The appeal grounds relating to the construction of the Deed were raised in the alternative and, whilst strictly unnecessary to have been decided, I dismissed them. That is, the appellant was successful on the pleadings point, and unsuccessful (again) on its argument about the construction of the Deed.

   Parties’ submissions as to costs

6. The appellant seeks its costs of the appeal and the primary action, relying upon the general rule that a successful party in litigation is entitled to an award of costs in its favour.

7. The appellant also seeks an order that costs of the appeal be certified fit for both senior counsel and junior counsel, or alternatively senior counsel. The appellant submits the appeal raised issues of sufficient complexity that justified the retainment of both counsel and that there was efficiency in having trial counsel briefed in respect of the appeal as junior counsel. Alternatively, the appellant submits costs should be certified fit for at least senior counsel, as such an order is ordinarily made in appellate matters.

8. The respondent submits the appellant’s conduct in the litigation was profligate warranting a departure from the general rule and disentitling, or at least limiting, the appellant from receiving a favourable costs order. Further, the respondent submits that the appellant was only partially successful on appeal, upon grounds which arose as a direct result of its own deficient pleadings. The respondent opposes any order for costs being certified fit for two counsel or fit for senior counsel on the basis that such an order would offend the principles of proportionality. Rather, the respondent submits any appeal costs should be fit only for one junior counsel.   

9. In relation to the primary action, the appellant seeks costs on an indemnity basis, or alternatively a solicitor client basis, from 7 May 2019.[3] The appellant relies upon correspondence exhibited to an affidavit of its solicitor, Mr Michael Fabbro, including a Calderbank offer[4] in the amount of $100.00. The appellant submits that in light of the Court’s findings dismissing the respondent’s claim, it was unreasonable for the respondent to have not accepted the offer. The respondent contends that the Calderbank offer was deficient as it was not a genuine offer to compromise; rather, it was a mere offer to surrender.

   [3]     I note the appellant’s submissions refer to both 17 May 2019 and 7 May 2019; the letter annexed to Mr Fabbro’s affidavit is dated 7 May 2019.

   [4]     Calderbank v Calderbank [1975] 3 All ER 333.

   Consideration

10. The Court’s power to award costs is discretionary and the Court is not restricted in the factors it may have regard to when considering an application for costs.[5] I have taken into account the parties’ written submissions, and the affidavits of Mr Michael Fabbro sworn 11 June 2021 (solicitor for the appellant) and Mr Paul David Bear affirmed 18 June 2021 (solicitor for the respondent).

    [5]     See Uniform Civil Rules 2020 (SA) r 194.5(1).

    Costs to a successful party

11. The general rule is that costs follow the event.[6] It is well established that the purpose of an order for costs is to provide compensation to a successful party, rather than serve as a punishment to an unsuccessful party.[7] Where there are multiple grounds of appeal, it will ordinarily be appropriate for the court to award costs to the successful party without attempting to differentiate between the issues which were successful or unsuccessful, unless a particular issue or group of issues is clearly dominant or separable.[8]

    [6]     Uniform Civil Rules 2020 (SA) r 194.5(2).

    [7]     Oshlack v Richmond River Council (1998) 193 CLR 72 at [67].

    [8]     Elite Protective Personnel Pty Ltd v Salmon (No 2) [2007] NSWCA 373 at [6].

12. The appellant in this case was successful on appeal. While there were four grounds of appeal there were only two issues: the pleadings point and the Deed construction point. The appellant was only successful on the pleadings point.

13. Whilst it is true that the conduct of a successful party may disentitle it to a favourable costs order,[9] as explained in the primary judgment, I do not accept that the respondent did not have proper notice of the appellant’s Defence. Whilst the appellant’s Defence was unclear, it was sufficient to have put the respondent on notice of its case, namely that it disputed the existence of the loan agreement, its terms and the quantum of the claim. I do not consider the appellant’s conduct in this matter warrants a departure from the general rule.

    [9]     Oshlack v Richmond River Council (1998) 193 CLR 72 at [69] citing examples of misconduct in litigation which may justify a proper departure from the usual order as to costs.

14. Nor do I consider that the fact that the respondent was successful on two of the grounds of appeal warrants a departure from the general rule. An order for costs of the appeal will be made in favour of the appellant.

    Fit for senior counsel

15. The appellant submits that costs of the appeal should further be certified fit for both senior counsel and junior counsel, or alternatively at least senior counsel.

16. The test for whether costs should be certified fit for more than one counsel has been referred to as follows: would a prudent person not compelled by poverty come in to court in such a case without two counsel?[10] The test focuses upon what representation is reasonably necessary for the adequate presentation of a litigant’s case, opposed to what a reasonable litigant might be prepared to do in order to win.[11] When considering whether costs should be allowed for more than one counsel in Stanley v Phillips, Barwick CJ explained that the question:[12]

    [i]s fundamentally concerned with the attainment of justice, which expanded into its elements, means that it is concerned with the presentation of a case to a court of law in such manner and to such extent that a just result is able to be achieved. As it is to be supposed that the success of the party incurring the fees of counsel will involve the opponent in their payment, the expenditure must be confined to what is necessary, which means reasonably necessary, or proper to ensure such a presentation of the case. …

    The emphasis throughout is upon obtaining an adequate presentation to enable justice to be done; it is not upon the propriety of the steps taken by a litigant to ensure the maximum of success in his own cause. That of course he may do but not, in my opinion, at his opponent’s expense …

    [10]   Kroehn v Kroehn (1912) 15 CLR 137 at 141 (Griffiths CJ); Stanley v Phillips (1966) 115 CLR 470 at 478–479. See also Players P/L (In Liq) (Recs Apptd) v Clone P/L (No 3) [2020] SASC 165 at [75].

    [11]   Stanley v Phillips (1966) 115 CLR 470 at 478–479; Leighton Contractors Pty Ltd v Public Transport Authority of Western Australia (No 7) [2009] WASC 218 at [44]–[46].

    [12] (1966) 115 CLR 470 at 478–479.

17. The appropriateness of engaging two counsel is ultimately whether the circumstances of the case make it necessary or proper that they are retained so that the Court may do justice between the parties. Relevant circumstances that may be considered include the importance of the case, the complexities of issues of fact or law, the complexities of the required presentation, the volume of material, and the amount sought to be recovered.[13]

    [13]   Stanley v Phillips (1966) 115 CLR 470 at 479–480; Players P/L (In Liq) (Recs Apptd) v Clone P/L (No 3) [2020] SASC 165 at [77]–[80]; Pinehurst Nominees Pty Ltd v Coeur De Lion Investments Pty Ltd [2015] QSC 122 at [20].

18. With respect to the retainment of senior counsel, the enquiry is whether as at the delivery of the brief the retainment of senior counsel is reasonably necessary or prudent for a reasonable litigant’s case to be adequately presented.[14] Where costs are sought for both senior and junior counsel, there must be sufficient complexity or volume of work beyond the reasonable capacity of senior counsel to have conducted the matter before costs are also allowed for junior counsel.[15]

    [14]   Stanley v Phillips (1966) 115 CLR 470 at 480; Beasley v Marshall (No 3) (1986) 41 SASR 321 at 331; Australian Securities and Investments Commission v West & Anor (2008) 100 SASR 496 at [220].

    [15]   Resort Management Services Ltd v Noosa Shire Council (No 2) [1995] 1 Qd R 56 at 58.

19. This was a Magistrates Court appeal with confined issues, resolution of which required the application of well-established principles of contractual interpretation. The trial itself was confined to the papers which were not voluminous; no witnesses were called. In light of the principles discussed above, I do not consider that the present appeal was of such complexity to warrant an order for costs to be certified fit for both senior and junior counsel. However, I agree with the appellant that it was appropriate to retain senior counsel for the appeal.

    Indemnity costs

20. The appellant seeks indemnity costs, or alternatively solicitor client costs, from 7 May 2019 for the respondent’s alleged unreasonable rejection of a Calderbank offer. The appellant contends the offer of $100.00 was in effect a “bear own costs” offer that the respondent was unreasonable to have refused in light of the Court’s finding the respondent had not proved the existence or quantum of the loan agreement. The respondent challenges the genuineness of the Calderbank offer of $100.00.

21. I do not accept the respondent’s submissions that the Calderbank offer of $100.00 was not genuine. The genuineness of an offer requires consideration of whether, in all the circumstances, the offer represents a compromise or is a mere formally stated demand for payment designed simply to trigger an entitlement to indemnity costs.[16] The appellant was clearly confident in its position that no indebtedness existed or that any such indebtedness would be extinguished by execution of the Deed. Based upon the appellant’s assessment of its prospects of success, its offer of $100.00 which was, as noted, effectively a “bear own costs” offer cannot be said to be ingenuine in these circumstances.

    [16]   Tickell v Trifleska Pty Ltd (1990) 25 NSWLR 353 at 355.

22. I turn to whether it was unreasonable for the respondent to have rejected the offer. The onus rests with the appellant as the party seeking indemnity costs to prove why the rejection of the Calderbank offer was unreasonable. The Court should be careful not to assess whether the rejection of a Calderbank offer was reasonable through the prism of hindsight.[17] The reasonableness of the refusal must be considered by reference to the situation at the time the offer was made, not solely by reference to the ultimate outcome of the proceedings.[18] More broadly, failure to accept a Calderbank offer does not create a presumption in favour of the offeror to an indemnity costs order, even where the offeror ultimately obtains a better result. A Calderbank offer is a factor to be taken into account as part of the totality of relevant considerations when exercising the Court’s discretion to award indemnity costs.[19]

    [17]   Stipanov v Mier (No 2) [2006] VSC 424 at [12]; Grynberg v Muller [2002] NSWSC 350 at [48].

    [18]   Crump v Equine Nutrition Systems Pty Ltd Trading as Horsepower (No 2) [2007] NSWSC 25 at [41].

    [19]   Crump v Equine Nutrition Systems Pty Ltd Trading as Horsepower (No 2) [2007] NSWSC 25 at [39]; Jones v Bradley (No 2) [2003] NSWCA 258 at [9]; SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 at [37]; Stipanov v Mier (No 2) [2006] VSC 424 at [11]; Aljade and MKIC v OCBC [2004] VSC 351 at [72].

23. The offer of 7 May 2019 was made the day after proceedings were filed, in response to various correspondence received by the appellant including the respondent’s letter of demand of 18 March 2019. The offer was in effect one to walk away and bear one’s own costs. As evidenced in the correspondence between the parties, the appellant’s offer was made on the basis of its anticipated success on the Deed construction point; in fact, the appellant repeatedly communicated its intention to defend the claim on the basis that the Deed operated as a bar to such proceedings. The appellant was unsuccessful on the Deed construction point at first instance and again on appeal. It was not unreasonable for the respondent to have rejected the offer as it was eventually successful in that point.

24. I reject the appellant’s submissions on this point. I do not consider, in all the circumstances of this case, that the appellant’s costs of the primary action should be paid on an indemnity basis or a solicitor client basis from 7 May 2019. I would order costs of the primary action in favour of the appellant to be agreed or taxed on a party party basis.   

    Orders

    1. The respondent is to pay the appellant’s costs of the appeal and the primary action to be agreed or taxed on a party party basis;

    2. The costs of the appeal are to be fit for senior counsel.