Project Gas Services Pty Ltd v Leaseplus Operations Pty Ltd
[2017] VSCA 55
•20 March 2017
SUPREME COURT OF VICTORIA
COURT OF APPEAL
S APCI 2016 0034
| PROJECT GAS SERVICES PTY LTD | Applicant |
| v | |
| LEASEPLUS OPERATIONS PTY LTD | Respondent |
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| JUDGES: | TATE, FERGUSON and McLEISH JJA |
| WHERE HELD: | MELBOURNE |
| DATE OF HEARING: | 20 October 2016 |
| DATE OF JUDGMENT: | 20 March 2017 |
| MEDIUM NEUTRAL CITATION: | [2017] VSCA 55 |
| JUDGMENT APPEALED FROM: | Leaseplus Operations Pty Ltd v Project Gas Services Pty Ltd (Unreported, County Court of Victoria, Judge McNamara, 3 March 2016) |
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CONTRACTS – Applicant made offer of compromise shortly before trial – Respondent abandoned liquidated damages claim after making additional discovery and expert accountant giving evidence – Applicant sought (but was refused) leave to withdraw offer – No sufficient change of circumstances – Applicant took risk offer might be accepted during trial – Not unjust to hold applicant to offer – Each case depends on its own facts – County Court Civil Procedure Rules 2015 Order 26 – Scanruby Pty Ltd v Caltex Petroleum Pty Ltd [2001] NSWSC 411 applied; H W Wilson Pty Ltd v Pitman (Unreported, Full Court (Murphy, O’Bryan and McDonald JJ, 6 December 1990) considered; Gaskins v British Aluminium Co [1976] 1 QB 524; Proetta v Times Newspapers Ltd [1991] 1 WLR 337 distinguished – Appeal dismissed.
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| APPEARANCES: | Counsel | Solicitors |
| For the applicant | Mr D Christie with Ms GM Douglas | Russell Kennedy |
| For the respondent | Mr PB Murdoch QC with Dr AP Trichhardt | Francis Abourizk Lightowlers |
TATE JA
FERGUSON JA
McLEISH JA:
Introduction and summary
The respondent, Leaseplus Operations Pty Ltd (‘Leaseplus’) sued the applicant, Project Gas Services Pty Ltd (‘Project Gas Services’), in the County Court. Shortly before the trial began, Project Gas Services made an offer of compromise. While the offer remained open and after the trial had started, Leaseplus discovered further documents and abandoned one of its claims, and the expert accountant called by it began to give evidence. Project Gas Services sought leave to withdraw its offer of compromise on the basis that there had been a sufficient change in circumstances since it made its offer to make it just for leave to be granted. A judge refused that application.
Project Gas Services seeks leave to appeal. If leave is granted, it seeks an order that the appeal be allowed and that the judge’s orders be set aside and replaced with an order that it is granted leave to withdraw its offer of compromise.
For the reasons which follow, we would grant leave to appeal but would dismiss the appeal. In short compass, there is no discernible error on the part of the judge in the exercise of the discretion. In the circumstances of this case, it is not unjust to hold Project Gas Services to its offer.
The facts
On 16 July 2012, Project Gas Services entered into a master lease agreement with Leaseplus for the supply of specialist four-wheel drive vehicles. About two years later, Project Gas Services served a notice of termination because it no longer required the leased vehicles.
Leaseplus subsequently sued Project Gas Services in the County Court. It sought liquidated damages (defined as the ‘Termination Amount’) for breach of contract. In this regard, by its Further Amended Statement of Claim dated 11 February 2016 (‘FASOC’), Leaseplus claimed $1,065,639 as a debt due for the Termination Amount. The pleading of the Termination Amount claim proceeded on the basis that under the terms of the master lease agreement if Project Gas Services failed to pay rent on the due date and did not pay within 14 days of service of a default notice, Leaseplus was entitled to terminate the master lease agreement and Project Gas Services was required to pay the Termination Amount on demand. Leaseplus pleaded that by returning the vehicles, Project Gas Services had wrongfully purported to terminate the master lease agreement, Leaseplus had served a default notice for rent, Project Gas Services had failed to remedy the default and the master lease agreement had been terminated. By reason of that, Leaseplus alleged that Project Gas Services became liable to pay the Termination Amount. The amount claimed in the FASOC for this claim was based on the expert report of Mr Owain Stone.
Leaseplus pleaded that if it did not recover the Termination Amount then it had suffered loss and damage because Project Gas Services had wrongly repudiated the master lease agreement. That alleged loss had three components:
(a) $1,274,015,25 for loss of profits (particularised in a letter of 11 September 2015 from the solicitors for Leaseplus) (‘Main Lost Profits’);
(b) $24,344.16 for interest Leaseplus paid on moneys it alleged it had needed to borrow because it did not have the revenue from the rental under the master lease agreement; and
(c) $192,009 for lost revenue Leaseplus claimed would have been earned from expansion of its business in Sydney (‘Sydney Lost Profits’).
Among other things, Project Gas Services pleaded that it was a hirer at will and paid the daily rent at the end of each month up to the date of termination on 5 May 2014 such that no other rent instalments were due. It claimed that it had validly terminated the master lease agreement and denied that it had wrongly repudiated the agreement. Under cover of a denial, it also pleaded that any loss suffered by Leaseplus must be offset by any amounts that Leaseplus had recovered on resale of the vehicles and that Leaseplus had failed to mitigate its loss; and it relied on the report of Mr Campbell Jaski (the accounting expert it called) and the joint expert report of Mr Jaski and Mr Stone.
The joint expert report was produced on 11 February 2016. The Termination Amount was agreed at $1,060,635.42. The experts did not agree on the quantum of the Main Lost Profits but valued them at somewhere between $910,802 and $618,598. In this regard, the experts agreed that the undiscounted loss of profits to Leaseplus was $980,443. They agreed that this figure had to be discounted by 3.87 per cent, being a discount to reflect the time value of money. When that discount was applied, the figure for the Main Lost Profits reduced to $937,639. The joint report went on:
The experts agree that it is a matter for the Court to assess what allowance should be taken for the risks which are to be associated with these lost profits, which may be different from the risks associated with the LeasePLUS business as a whole.
The experts agree that they do not have sufficient information to be able to provide a definitive view on the appropriate discount rate to be applied for either LeasePLUS as a whole, or these specific lost profits.
Mr Jaski is of the view that an appropriate discount rate for the LeasePLUS lost profits is between… 27.50% and 52.50%. Note that these discount rates are already inclusive of the 3.87% time value of money component previously discussed.
Somewhat confusingly, the report later stated that Mr Jaski was of the view that the appropriate discount rate must be higher than those figures. The report then set out Mr Stone’s position as follows:
Mr Stone is of the view that it is likely that the specific risks associated with these specific lost profits may be closer to a rate of 6.50%. Some of the elements, such as the lost contribution to fixed costs through the administration and maintenance fee, were effectively certain (assuming the leases were not terminated). However other aspects of the lost profits, such as the ‘but for’ assumed capital profit on the vehicles, are less certain.
Mr Stone is of the opinion that he does not have sufficient information about LeasePLUS to proffer an opinion on an appropriate discount rate to reflect the risks of the business as a whole. He notes that one of the risks of the business is whether or not it can find leases to operate; in this instance this is not a risk associated with these lost profits as the leases were already the subject of signed agreements.
The joint report included a table illustrating the effects of discounting the Main Lost Profits at rates of 3.87 per cent, 6.50 per cent, 27.50 per cent and 52.50 per cent.
The report then went on to deal with the profit attributable to the Sydney Lost Profits. A similar table showing the effect of the various discount rates was included. Beneath this, the following appeared:
The experts further agree that the lost profits from the Sydney Expansion are more risky than those associated with the other head of claim.
The day after the joint report was delivered, Friday 12 February 2016, Project Gas Services made an offer of compromise under O 26 of the County Court Civil Procedure Rules 2015 (‘Rules’) in the amount of $525,000 (inclusive of GST (if any), costs and interest). The costs component of the amount offered was $25,000.
The offer of compromise was served under cover of a letter dated 12 February 2016 from the solicitors for Project Gas Services (Thomson Geer) to the solicitors for Leaseplus. Thomson Geer stated that their client’s position was that Leaseplus had no entitlement to claim any amount. The letter went on to state that if their client was wrong about that, Project Gas Services considered that the Termination Amount claim would fail. In this regard, the letter stated:
We note that there is now consensus between experts on a calculation methodology for the Termination Amount, however our client does not consider that this cures the inherent uncertainty and inconsistency in the relevant clauses of the [master lease agreement] concerning the calculation of the Termination Amount (in relation to which your client has complete discretion). Based on the principles expressed in Placer v The Commonwealth [1969] HCA 29, we consider that the Termination Amount clauses in the [master lease agreement] are void for uncertainty.
Further, or in the alternative, no allowance is made in the formulae for the calculation of the Termination Amount that provides for an appropriate discount of the rent received in advance for the balance of the term (i.e. whilst in your client’s possession), or for any deduction for any excess profit obtained by your client on the sale of the vehicles as discussed in IAC (Leasing) Limited v Humphrey (1972) 126 CLR 1331. In the circumstances, the clause is a penalty and unenforceable, or otherwise is only enforceable to the extent of any genuine loss suffered by your client.
The letter then dealt with the Main Lost Profits claim. It referred to the disparity between the experts as to the appropriate discount rate to be applied and asserted that Leaseplus had failed to sell the vehicles in mitigation of its alleged loss. The solicitors stated that once these matters were taken into account, the Main Lost Profits claim was likely to be less than $450,000.
Finally, the letter set out the reasons why Project Gas Services considered the Sydney Lost Profits claim as having little prospect of success.
The trial began the following Monday, 15 February 2016.
On 17 February 2016, the Chief Executive Officer of Leaseplus, Mr Leigh Penberthy, gave evidence about quoting for leases. He testified that Leaseplus used a computer software program to produce quotes to customers. He stated that the data for all quotes rendered by Leaseplus was stored in an Excel spreadsheet which was retained in the IT system maintained by Leaseplus. Counsel for Project Gas Services called for the Excel spreadsheets as they had not been discovered. As things transpired, the Excel spreadsheets no longer existed, but the underlying data for them was still stored in the IT system. Counsel for Project Gas Services was interested in the underlying data because, in his submission, that data included information about the residual value of vehicles which was one of the integers for the calculation of the Termination Amount.
During the trial, on 18 February 2016, counsel for Leaseplus explained that due to further discovery by his client (of over 80 pages of screenshots from the database), it had agreed to an adjournment and it would bear the costs thrown away. An order was made to that effect.
At the start of the day on 19 February 2016, counsel for Leaseplus filed a Reply and Defence to Counterclaim. He then said in open court:
The plaintiff [Leaseplus] is not proposing to proceed with its claim for the termination amount. It will still proceed with a claim for damages, and Your Honour’s about to hear some evidence from the experts about what the quantum of that damages claim is. But we won’t proceed with the claim under liquidated damages clause.
There are some knock on consequences to that in terms of what defences no longer need to be run. And the net result, Your Honour, is that the case has got smaller, and the issues have confined somewhat. And in light of that, I think I can say with a high degree of confidence that we expect to be finalised next week.
After this, Mr Owain Stone, who was called by Leaseplus, gave evidence in chief and was cross-examined until lunchtime. He gave evidence in chief that there was more uncertainty associated with the proposed Sydney Lost Profits than there was with the Main Lost Profits resulting from the termination of the master lease agreement. Consequently, the discount to be applied for risk to the Sydney Lost Profits was higher than that to be applied to the Main Lost Profits. In cross-examination he confirmed that he did not have sufficient information about the Leaseplus business as a whole to give his opinion as to the appropriate discount rate to reflect that risk. Cross-examination continued:
So you just took that out of the equation?---I said I can’t express an opinion on it.
That didn’t form part of your consideration, the risk of LeasePlus business as a whole when opining from the loss of profit from these leases?---As I’ve put in my report - - -
The answer’s yes, I think, isn’t it?---No, it’s not. As I’ve said in my report, I’ve said in my report and the joint report it is necessary to take into account risk.
I don’t have sufficient information to arrive at that. Here are some illustrative discount rates to show what the effect of a certain rates would be but I don’t have enough information to be able to conclude as to which of those rates as the most appropriate.So that’s why you just picked the ANZ Bank interest rate of six and a half per cent as the one you would say is the appropriate risk?---No, I didn’t say it was the appropriate risk.
You did you said you picked the six and a half per cent because that’s what the bank was prepared to lend on and that’s what you said the risk would be?---No, what I’ve said is that - - -
No, what you said in your evidence. Don’t look at that, you said that in your evidence?---I said that paragraph 27 says that the risk is more likely to be closer to that rate, I didn’t say it would be at that rate.
Higher or lower?---It would be higher than six and a half
per cent.How much higher?---I don’t know.
So you don’t know what risks would be applied in relation to the loss of profits’ claim in this case?---I don’t know what discount should be applied to reflect the risks associated with this stream of income or lost income in this case.
You don’t know what risk should be applied to the loss of profit on the Sydney expansion either?---The same extent, it’s not that I don’t know the risk should be applied, clearly some risks should be applied and the risk should be greater for the Sydney loss of profits than it would be for the loss of profits from the contract to the extent it’s allowed but the extent of that difference I’m not in a position to give an opinion on.
So it should be greater than a number we don’t know. So we’re going to have a number we don’t know that’s greater than another number we don’t know. Is that really where your evidence is at?---Correct.
During the lunch break, Project Gas Services informed Leaseplus that it intended to apply for leave to withdraw its offer and sought a listing from the court for this application. Before the application was listed, Leaseplus accepted the offer of compromise. The application for leave to withdraw the offer of compromise was subsequently heard and refused.
Legal principles
Order 26 of the Rules deals with offers of compromise. It sets out a procedure for making offers and for accepting them. Subject to r 26.03(5), an offer is to remain open for at least 14 days.[1] Rule 26.03(5) provides:
An offer of compromise shall not be withdrawn during the time it is open to be accepted, unless the Court otherwise orders.
[1]Rules r 26.03(3).
It is common ground between the parties that the decision whether to grant leave to withdraw an offer of compromise is discretionary and that it is necessary to demonstrate an error of the House v The King[2] kind if the judge’s orders are to be set aside. That is, it would need to be shown that the judge made his decision based upon a wrong legal principle, or made a mistake as to the facts, or took into account an irrelevant matter, or failed to take into account a relevant matter, when weighing the various considerations to arrive at his decision. Alternatively, it would have to be shown that the decision was so unreasonable or plainly unjust that this Court could infer that there was a failure to exercise the discretion properly.[3]
[2](1936) 55 CLR 499 (‘House’).
[3]Ibid, 504–5 (Dixon, Evatt and McTiernan JJ).
The parties also agree that the timing of the purported acceptance of the offer makes no difference as to whether leave may be granted to withdraw the offer.[4] That may be done with retrospective effect if a judge is otherwise satisfied that leave should be granted.[5]
[4]Scanruby Pty Ltd v Caltex Petroleum Pty Ltd [2001] NSWSC 411 (‘Scanruby’).
[5]Gordon v Berowra Holdings Pty Ltd [2005] NSWCA 27.
It is also common ground that the appropriate consideration when a judge is considering whether to allow a party to withdraw an offer of compromise in a case like the current one is whether there has been a sufficient change in circumstances since the offer was made to make it just that the offeror be permitted to withdraw the offer.[6] Examples of change in circumstance held to be sufficient include new evidence that is or may well be significant to the result of the case[7] or a change in the law.[8]
[6]See, for example, Scanruby [2001] NSWSC 411. Other considerations may apply if there has been a mistake or fraud: see Cumper v Pothecary [1941] 2 KB 58.
[7]Scanruby [2001] NSWSC 411 [12]–[13].
[8]Cumper v Pothecary [1941] 2 KB 58, where the application was for leave to have money that was paid into court paid out to the defendant.
On the other hand, the examples of matters held not to constitute a sufficient change in circumstances include advice from new counsel that the offer is worth more than the value of the claim[9] or belated realisation of a good defence to the claim.[10]
[9]Rosniak v GIO (Unreported, Wood J, Supreme Court of New South Wales, 4 October 1990).
[10]Gordon v Berowra Holdings Pty Ltd [2005] NSWCA 27.
In H W Wilson Pty Ltd v Pitman,[11] on the morning that a trial was due to begin in the County Court, the defendant filed an offer of compromise. The trial began later that day. During the day, the defendant became aware of new evidence which might seriously imperil the plaintiff’s case. The defendant sought leave to withdraw the offer and sought interim relief restraining the plaintiff from accepting the offer until the application for leave was determined. The interim relief was refused by Judge Fricke. There was no appeal from that order. The plaintiff then gave notice accepting the offer of compromise and applied to the trial judge (Judge Rendit) to have the action struck out because the offer had been accepted. The trial judge held that the acceptance of the offer was valid and pronounced orders. The defendant appealed but the appeal was later taken to be abandoned.
[11]Unreported, Full Court (Murphy, O’Bryan and McDonald JJ) 6 December 1990 (‘Wilson’).
The defendant issued a further summons in the County Court seeking orders that the plaintiff not be entitled to judgment, the action be remitted for hearing at the next sittings and an order that the order as to costs made by Judge Rendit be set aside, alternatively, that the defendant be granted leave to appeal. This summons was heard by Judge Kimm. He referred to the relevant rule which provided that where a party to an accepted offer of compromise fails to comply with the terms of the offer, the other party is entitled to judgment in the terms of the accepted offer unless for special cause the court otherwise orders. Judge Kimm referred to the circumstances described above and held that they were not sufficient to amount to ‘special cause’. He dismissed the defendant’s summons and entered judgment in favour of the plaintiff. The defendant appealed from this order. Ultimately, O’Bryan J (with whom Murphy and McDonald JJ agreed) held that Judge Kimm was correct to find that no ‘special cause’ was shown. O’Bryan J said:
it is appropriate to comment that the events which occurred … highlight the wisdom of the defendant not serving a notice of offer of compromise on the eve of the trial. It is not uncommon in the course of a trial as the evidence unfolds that a plaintiff will have a change of heart. An offer of compromise is available to be accepted within the time specified. A defendant who makes a late offer cannot be heard to complain if an apprehensive plaintiff accepts a late offer in the course of a trial.[12]
[12]Ibid 11.
In an addendum to the reasons for judgment, O’Bryan J (again Murphy and McDonald JJ agreeing) reiterated the point:
During the hearing of a claim there may be an infinite variety of circumstances which occur to diminish the plaintiff’s likelihood of succeeding in his claim for damages. If a defendant makes an offer of compromise at the last moment, he must be aware that, if the plaintiff’s case turns sour, the plaintiff may yet choose to accept the late offer of compromise without reference to the Court if within the time allowed by the offer. If it were to be otherwise, a defendant would always be entitled on making an offer of compromise at the door of the Court to attempt to avoid the consequences of such an offer on grounds essentially similar to those asserted in the present case. The twofold purpose – firstly, that actions should be settled early if possible without litigation, and, secondly, that there should be an end to litigation – would each be defeated. I am of the opinion that this should not happen.[13]
[13]Ibid addendum 3–4.
In contrast, Project Gas Services points to two English cases which it relies upon as authority for the proposition that where the plaintiff’s prospects are diminished, the defendant will not be held to its offer. However, when properly analysed, those cases do not stand for that broad proposition. In the first, Gaskins v British Aluminium Co,[14] the plaintiff’s evidence and that of the expert called on his behalf had not gone well during the course of the trial. Consequently, on the basis that his prospects of success had considerably diminished, the plaintiff sought to take out of court money that had been paid in by the defendant. The time for doing so as of right had passed. He therefore needed the leave of the court before the money could be paid to him. The court refused the plaintiff’s application.
[14][1976] 1 QB 524 (‘Gaskins’).
The second case relied upon by Project Gas Services is Proetta v Times Newspapers Ltd[15] which also concerned an application out of time for money to be paid out to the plaintiff. In that case, the defendant’s pleading changed after it had paid money into court. As a result of the change in pleading, the plaintiff’s prospects were diminished. Again, the court refused the plaintiff’s application.
[15][1991] 1 WLR 337 (‘Proetta’).
As was explained by Heerey J in Wills v Bigmac Pty Ltd,[16] in each of these cases it was the plaintiff who was seeking the court’s indulgence. The time for acceptance of the offer by payment in had passed. It was only if the court extended time that the money could be paid out. It would be unjust to the defendant (in effect) to re-open the offer that it had made earlier. This is in contrast to the situation here where it is the offeror who is seeking the court’s indulgence and where the time for acceptance of the offer had not passed.
[16]Unreported Federal Court of Australia, 9 December 1994, Heerey J, 12.
In any event, what is clear from the authorities is that whether there has been a sufficient change in circumstances since an offer was made to warrant the grant of leave to withdraw it must be determined on the facts of the case in question. No hard and fast rules can be laid down. Moreover, it is important to keep steadily in mind that the grant of leave is discretionary. Consequently, reasonable minds may differ. Two judges faced with the same facts may come to different conclusions. Provided that there has been no House error identified, this Court will not interfere with the exercise of the discretion.
The judge’s reasons
At the conclusion of the hearing of the application, the judge refused to grant leave to Project Gas Services to withdraw its offer of compromise. The judge delivered oral reasons.[17]
[17]Leaseplus Operations Pty Ltd v Project Gas Services Pty Ltd (Unreported, County Court, Judge McNamara, 3 March 2016) (‘Reasons’).
The judge set out the background facts leading to the application to withdraw the offer. As part of this, the judge noted that the offer had been made at the ‘door of the court’ and referred to Wilson.[18] He also noted that the experts had agreed the figure for the Termination Amount at slightly in excess of $1 million.[19] He observed that the experts were agreed about the base amount of slightly in excess of $900,000 for the Main Lost Profits and that a discount of 3.75 per cent should be applied to reflect the time value of money but that they did not agree the discount rate that should be applied having regard to commercial contingencies (Mr Stone said 6.75 per cent and Mr Jaski said 27.5 to 52.25 per cent (possibly more)).[20]
[18]Unreported, Full Court (Murphy, O’Bryan and McDonald JJ) 6 December 1990.
[19]Reasons T 117.1–3.
[20]Reasons T 117.3–21. It appears that Mr Jaski gave the 52.25 per cent or more figure in oral evidence, and a figure of 52.50 per cent in the joint expert report.
The judge noted the terms of r 26.03(5) and that the parties agreed that the test for whether leave should be granted was stated by Palmer J in Scanruby;[21] that is, the applicant for leave should demonstrate that there has been a sufficient change in the circumstances since the offer was made to make it just that the applicant be permitted to withdraw the offer, for example, significant new evidence coming to light after the offer.
[21]Reasons T 120.10–121.10.
The judge recorded that the changes relied upon by Project Gas Services were the withdrawal of the Termination Amount claim and the cross-examination of Mr Stone.[22]
[22]Reasons T 122.34–41.
His Honour noted that where new evidence comes to light the authorities supported the proposition that this would render it just to grant leave to withdraw an offer of compromise.[23] He also noted, however, that it is not in every case that new evidence is sufficient to justify the grant of leave.[24]
[23]Reasons T 123.26–30.
[24]Reasons T 124.5–8.
The judge observed that there were two important considerations when determining whether to grant leave to withdraw an offer. The first was that ‘a party making an offer should not unjustly be held to the offer where circumstances change so significantly that justice requires that the offeror be relieved from the consequences of the offer.’[25] The second was the ‘very significant principle which favours the operation of provisions such as Order 26, and stresses the importance of a settlement of proceedings, and attaches a certain sanctity to that process to maintain its integrity and buttress its effectiveness in the disposition of legal proceedings.’[26] The judge stated that balancing those two principles is frequently difficult and that each case turns on its own facts.[27]
[25]Reasons T 126.1–5.
[26]Reasons T 126.6–11.
[27]Reasons T 126.12–14.
The judge was of the view that the fact that the relevant data could have been derived from other discovered documents meant that the failure to discover the Excel spreadsheets was not of such significance as would justify leave being granted to withdraw the offer.[28]
[28]Reasons T 126.15–24.
The judge then turned to consider the two matters relied upon by Project Gas Services. With respect to the withdrawal of the Termination Amount claim, he observed that Project Gas Services had always assessed that claim as irrecoverable. He said:
The abandonment of the termination amount claim has to be seen in the context of all that had gone before. The defendant - not just before trial, but before the proceeding had even been commenced, was so confident in its own mind that this termination amount or these amounts were not recoverable against it, that it took action which would constitute repudiation of contract if it were incorrect. It maintained that position throughout the proceeding.[29]
[29]Reasons T 126.26–127.4.
The judge noted the submission by Project Gas Services that he should infer that the abandonment of the Termination Amount claim derived from the discovery of the screenshots. The judge said that there were other inferences available and continued:
One inference that one can draw as to why the plaintiff abandoned the claim for the termination amount was that eventually it had a belated appreciation of the force of the position that the defendant had maintained from a point even before the proceedings were commenced. There must also be a consideration of matters such as the need to fund a second week of the trial; a consideration of just what the burden of a full indemnity costs order against the plaintiff might be if it did not better the then pending offer and so forth.[30]
[30]Reasons T 127.21–30.
The judge expressed the view that there were no doubt many considerations (possibly including those he had mentioned) which influenced Leaseplus to abandon its Termination Amount claim; in any event, Leaseplus had come to ‘a different valuation of the force of its own claim.’[31] Relying on what was said in the authorities, the judge reasoned:
an offeror defendant is not to be entitled to be relieved of its offer merely because the defendant comes to a different assessment of the value of its claim. Surely the same must go for the plaintiff.[32]
[31]Reasons T 128.5–10.
[32]Reasons T 128.11–15.
The judge next considered the effect of Mr Stone’s evidence and said:
As to the issue of the concessions made by Mr Stone, they are no doubt of some significance. But the terms of the letter covering the offer of compromise show that the defendant was already well alive to the vulnerability of the expert evidence upon which the plaintiff was relying for its unliquidated damages claim. Moreover, the defendant had the advantage of its own expert who had clear and downright opinions contrary to those of Mr Stone and those witnesses had conferred.
Therefore, it does not seem to me that the cross-examination on the Friday morning can be regarded as having constituted some sort of epiphany for the defendant.[33]
[33]Reasons T 128.16–28.
The judge concluded that the Termination Amount claim was weak. He held:
In summary therefore, the weaknesses of the claim for the termination amount by the plaintiff were there and manifest to be seen even before the proceeding was commenced.
The defendant was absolutely alive to all those difficulties and weaknesses. No significant change has occurred on that front and again, as to the expert evidence, for the same sort of reasons, namely the critique which the defendant and its own expert had already subjected Mr Stone’s opinions to leads to the conclusion that [again there] was no significant change on that front either.[34]
[34]Reasons T 128.29–129.9.
The judge refused to grant leave for the offer of compromise to be withdrawn.
Proposed grounds of appeal
Project Gas Services has five proposed grounds of appeal. They are:
1.The judge erred in principle by misconstruing the test to be applied for an application for leave to withdraw an offer of compromise under r.26.03(5) of the Rules.
2.The judge erred in assessing whether there was a ‘sufficient change of circumstances’ by having regard to irrelevant considerations, namely:
a.inferences as to the state of mind of the parties;
b.that as the plaintiff had come to a different valuation of the force of its own claim, the defendant should not be entitled to be relieved from its offer of compromise; and
c.that the defendant’s offer of compromise had been made on the ‘door of the court.’
3.The judge erred by reaching an error of fact and applying that erroneous fact as an irrelevant consideration.
4.The judge erred in failing to have regard to relevant considerations, namely:
a.the material difference between the quantum of the plaintiff’s claim before and after the abandonment of the claim for the termination amount; and
b.the cross-examination of Mr Stone.
5.The judge ought to have assessed whether there had been a ‘sufficient change of circumstances’ based on an objective assessment of the facts of the case and found it just that the applicant be permitted to withdraw the offer.
Was the judge in error in finding that there was not a sufficient change of circumstances to warrant granting leave to withdraw the offer?
Project Gas Services submits that the judge identified (but misapplied) the correct test (whether there has been a sufficient change of circumstances since the offer was made to make it just that the offeror be permitted to withdraw the offer). Project Gas Services contends that the judge’s error was failing to apply the test objectively. It maintains that the judge did not give any or adequate weight to the change in the amount of the claim following abandonment of the claim for the Termination Amount. It says that the claim went from about $1 million to something less than $620,000. In a related submission, it says that the amount that would be paid if the Termination Amount claim were to be successful was certain. In contrast, the loss of profits claim was subject to uncertainty as to the discount to be applied. Project Gas Services says that instead of taking these matters into account, the judge concerned himself with an irrelevant matter being the subjective state of mind of each of the parties and thus ignored the proper inquiry of whether there had been a sufficient change in circumstances. In the submission of Project Gas Services, it would be speculative, unsafe and productive of random outcomes to consider the test as a subjective analysis, turning upon whether or not there was a change in the state of mind of particular parties.
Project Gas Services submits that the judge took other irrelevant matters into account. First, that as Leaseplus had come to a different valuation of the force of its own claim, Project Gas Services should not be relieved from its offer. Project Gas Services submits that the judge misstated the authorities and, in any event, if Leaseplus had changed its view about its claim, this was no reason why Project Gas Services should be penalised and denied the opportunity to withdraw its offer. In its submission, this would lead to unjust results and directly conflicts with the authorities.
The next consideration, which Project Gas Services submits was irrelevant, is that the offer was made at the ‘door of the court.’ It contends that the passage from Wilson[35] relied on by the judge was obiter dicta and not binding. Project Gas Services maintains that the judge elevated this consideration above the proper test of whether there has been a sufficient change in circumstances. It contends that the timing of the offer is irrelevant and, if taken into account, imposes an unjustified higher threshold for when there is a sufficient change of circumstances. In this case, Project Gas Services says that it works a particular injustice because Leaseplus failed to provide relevant discovery and particulars of its claim and was seven weeks late in providing its expert accounting evidence, with the consequence that the joint experts’ report was not finalised until two days before the trial.
[35]O’Bryan J, Unreported 12 December 1990.
According to Project Gas Services, the final irrelevant consideration that the judge took into account was that it had always maintained that the Termination Amount claim was weak. But, Project Gas Services says, its defence was that the vehicles which were the subject of the dispute were on a daily hire, rather than a three year lease; a defence which it says would defeat the whole of the claim, not just the Termination Amount claim. Moreover, it says, the Termination Amount claim did not exist when it returned the vehicles in May 2014. That only arose subsequently when the demand for rent was not met.
Project Gas Services also complains about matters which it says the judge did not take into account. They are first, the difference in the nature of the claim before and after abandonment of the Termination Amount claim and second, the
cross-examination of Mr Stone. In respect of the first of these matters, Project Gas Services says that the Termination Amount claim was complicated and involved various defences. There were to be six witnesses to give evidence about the Termination Amount issues who would not be needed in the absence of that claim. But, so it says, the judge failed to consider the effects of the abandonment of the Termination Amount claim such as the trial being shorter, with fewer witnesses and amended pleadings, and with the issues simplified. It maintains that the fundamental result of the abandonment was that Leaseplus had weaker prospects of success and this is the type of change in circumstances that enlivens the discretion to grant leave to withdraw an offer of compromise.
In respect of the cross-examination of Mr Stone, Project Gas Services submits that the judge wrongly focussed on its state of mind when he said that that evidence was not an epiphany for it.
In our view, so far as this last point is concerned, Mr Stone’s oral evidence was consistent with what had been included in the joint experts’ report. His position that he did not have sufficient information to give his opinion as to the appropriate discount rate to be applied to the Main Lost Profits was stated in the joint report and then confirmed by his oral evidence. His evidence in cross-examination that he did not know what discount should be applied to reflect the specific risks associated with the master lease agreement did not materially affect what had been included in the joint report in the first paragraph quoted at [9] above. At most, the paragraph of the joint report merely gave a tentative opinion as to the discount rate. But a fair reading of the report shows that Mr Stone was very uncertain about the discount rate to be applied (both as to the specific risks associated with the master lease agreement as well as the general risks associated with the business of Leaseplus). His evidence in cross-examination did not affect this in any material way.
Furthermore, Mr Stone’s oral evidence that a higher rate for risk should be applied to the Sydney Lost Profits was also consistent with what was said in the joint report. He was never in a position to give an opinion as to the appropriate rate to be applied and his evidence in cross-examination did not meaningfully take matters any further.
There was nothing fundamentally new or different in the oral evidence and that was the thrust of the judge’s analysis in regard to Mr Stone’s evidence.
The judge did not wrongly take into account that the offer was made shortly before trial. Sometimes a case will go badly for one party or the other as the trial proceeds. That is just part of the fluctuating fortunes common in litigation.[36] Where a party chooses to make an offer of compromise under the Rules shortly before or during the trial, then that party takes the risk that the evidence at trial may mean that its offer turns out to be more generous than it had intended. It does not necessarily matter if the timing of the offer at or shortly before trial is, at least in part, influenced by the late delivery of documentary evidence by the other side, for example, the late delivery of an expert’s report. For the offeror still knows that there are the risks associated with evidence at trial and that the offer may be accepted in circumstances where the evidence affects each party’s assessment of its prospects. In those circumstances, there may be nothing unjust in holding the offeror to its bargain if the offer is accepted in time. Each case will, of course, depend on its facts.
[36]Wills v Bigmac Pty Ltd (Unreported Federal Court of Australia, Heerey J 9 December 1994 p12).
As noted above, the English authorities of Gaskins[37] and Proetta[38] are distinguishable. They are the equivalent of the situation that would arise if a plaintiff were able to make an application to the court to re-open an offer of compromise where time for acceptance had passed. But that is not the case here. The offer remained open for acceptance and the defendant took the risk that it might be accepted during the course of the trial. It was the defendant seeking the court’s indulgence to depart from the requirement under the Rules to leave the offer open for 14 days.
[37][1976] 1 QB 524.
[38][1991] 1 WLR 337.
The position may be contrasted with the situation where new evidence comes to light that the offeror could not have discovered using reasonable diligence itself. If evidence that is truly new comes to light, rather than a witness simply giving evidence that is better or worse than expected, then it may be easier to conclude that it would be unjust to hold the offeror to the offer.
This leads to a consideration of the effect of the screenshots which had not been discovered. As was the case below, Project Gas Services did not press before this Court that the discovery of the screenshots was a basis for finding a change of circumstances. However, as noted above, it submits that taking into account that the offer was made shortly before trial would work a particular injustice in part because documents were discovered late. As the judge noted, the screenshots may have been new to Project Gas Services, but the information disclosed in them was not. That information was already available to Project Gas Services through other means. In those circumstances, the late discovery of the documents (and for that matter, the late delivery of particulars and the lateness of the joint expert report) did not result in any unfairness if Project Gas Services were to be held to its offer.
At a superficial level, the abandonment of the Termination Amount claim may appear to be significant. However, on closer examination, that is not the case. Viewed objectively, the parties’ conduct suggests that they considered that the claim was weak. Contrary to the submissions of Project Gas Services, application of the objective change of circumstances test does not preclude drawing inferences of the state of mind of the parties and the assessments they make of the strength of a claim. Here, those assessments before and during the trial reveal consistency, rather than any change. Even taking into account that the solicitors for Project Gas Services may (for the purposes of negotiation) have overstated the weaknesses in the claim, their correspondence is cast in disparaging terms. A fair reading of the cover letter sent with the offer of compromise indicates that the Main Lost Profits claim was viewed as stronger than the Termination Amount claim; the solicitors expressed the view that Main Lost Profits were likely to be less than $450,000. In contrast, no amount was suggested by them for the Termination Amount claim — it would fail completely. In addition, Leaseplus chose to abandon the Termination Amount claim. It might be accepted, as Project Gas Services contends, that the judge confused the effect of Project Gas Services’ defence with the question whether Leaseplus came to a different view about its claim and had ‘some sort of epiphany’, but in our opinion those matters have no relevant effect on the outcome. It is apparent from the judge’s concluding remarks set out in [45] above that he did not apply a subjective test. All that he did was take into account the context (which included the parties’ conduct) when considering whether the abandonment of part of the claim amounted to a sufficient change in circumstances. There is nothing wrong in that.
The inclusion of a weak claim and its later abandonment does not in any real sense alter the landscape to make it unjust to refuse leave to withdraw an offer that has been made. Moreover, the Termination Amount claim and the Main Lost Profits claim overlapped, so the appearance of a significant reduction in the amount that might be awarded is exaggerated. The experts valued the Termination Amount at just over $1 million. They did not give a definitive opinion as to the quantum of the Main Lost Profits. They agreed on the base loss and discount for time value of money which resulted in a figure of approximately $938,000. They both agreed that they had insufficient information to provide a definitive view as to an additional discount to be applied to reflect other risks. Having said that, the experts included a table setting out the effect if various discount rates were applied. These figures ranged from about $911,000 to about $618,000. Once the Termination Amount claim was abandoned, the only monetary effect was to reduce the potential amount of the overall claim by about $150,000.[39] That is not significant in the scheme of things in the present case. The submission by Project Gas Services that there is a change because the calculation of the Termination Amount was certain whereas the calculation of Main Lost Profits was not does not take things very far. It may be accepted that there was some change but Project Gas Services was still exposed to a risk for a similar amount. And as Leaseplus pointed out, the Termination Amount had its own uncertainty, including because of arguments that it constituted a penalty. In the circumstances, the uncertainty associated with the assessment of the damages was not such as to create a sufficient change in circumstances.
[39]That is, $1,065,639 (the amount claimed in the FASOC for the Termination Amount) less $911,000, that most probably being the best that Leaseplus could do by an award of damages for the Main Lost Profits.
The judge did not ignore the reduction in the amount of the claim. Indeed, he mentioned it specifically. True it may be that the abandonment may lead to a shorter trial and less complexity and that the judge did not mention these matters explicitly. However, in the circumstances of this case, those effects are of such limited import that there is no discernible error on the part of the judge.
Conclusion
We would grant leave to appeal but would dismiss the appeal. No discernible error of the House kind has been demonstrated and there is no basis for interfering with the judge’s exercise of the discretion to refuse leave to withdraw the offer of compromise. In any event, had it been necessary to re-exercise the discretion, for the reasons given above, we would have refused to permit Project Gas Services to withdraw the offer.
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