RV Pty Limited v Connector Park Pty Ltd (No 3) - [2017] TASSC 53

[2017] TASSC 53

COURT: SUPREME COURT OF TASMANIA

CITATION: RV Pty Limited v Connector Park Pty Ltd (No 3) [2017] TASSC 53

PARTIES:  RV PTY LIMITED
  v
  CONNECTOR PARK PTY LTD

FILE NO:  5/2006
DELIVERED ON:  11 September 2017
DELIVERED AT:  Hobart
HEARING DATE:  Written submissions
JUDGMENT OF:  Blow CJ

CATCHWORDS:

Procedure – Costs – Offers of compromise – Payments into court and settlements – Informal offers and Calderbank letters – Offer by plaintiff not accepted – Plaintiff achieved substantially better result at trial.

Calderbank v Calderbank [1976] Fam 93; Hazeldene's Chicken Farm Pty Ltd v Victorian Workcover Authority (No 2) [2005] VSCA 298, 13 VR 435, referred to.
Aust Dig Procedure [1591]

REPRESENTATION:

Counsel:
             Plaintiff:  S B McElwaine SC
             Defendant:  G O'Rafferty
Solicitors:
             Plaintiff:  Shaun McElwaine + Associates
             Defendant:  Leonard Fernandez

Judgment Number: [2017] TASSC 53
Number of paragraphs: 23

Serial No 53/2017
File No 5/2006

RV PTY LIMITED v CONNECTOR PARK PTY LTD (NO 3)

REASONS FOR JUDGMENT BLOW CJ

11 September 2017

In this action, the plaintiff successfully sued the defendant for damages for breach of contract, and the defendant successfully counterclaimed against the plaintiff for monies payable pursuant to the parties' contract. On 5 April 2017 judgment was entered for the plaintiff against the defendant for $2,520,000 on its claim, and for the defendant against the plaintiff for $440,000 on the counterclaim: RV Pty Limited v Connector Park Pty Ltd (No 2) [2017] TASSC 22. It is now necessary for me to determine what orders should be made as to costs. The parties have provided me with written submissions as to the costs issue.
The plaintiff has sought orders that the defendant pay its costs of its claim, on a party and party basis up to 18 September 2013, and thereafter on an indemnity basis. It made an offer of settlement on 16 September 2013, not 18 September 2013, which I will discuss shortly. The plaintiff contends that each party should pay its own costs of the counterclaim.
The defendant contends that costs should follow the event in the ordinary way. That is, it contends that it should pay the plaintiff's costs of the claim on a party and party basis, and that the plaintiff should pay its costs of the counterclaim on a party and party basis.
On 3 May 2016, a few days before the start of the trial, I dealt with applications by the defendant for an adjournment of the trial, a mediation, the amendment of its defence, and further discovery. I reserved the costs of those applications. The plaintiff has submitted that the defendant should pay those costs on an indemnity basis. The defendant has made a submission to the effect that those costs should be treated as costs in the cause and paid on a party and party basis. Those costs relate almost entirely to the plaintiff's claim and should therefore be treated as costs of that claim.
On 16 September 2013 the solicitor for the plaintiff emailed a letter to the solicitors for the defendant, making an offer of settlement. The relevant part of the letter read as follows:
"What follows is written without prejudice – save as to costs. I now have instructions that my client will compromise its claim and your client's counterclaim in this proceeding as follows:
1My client will not proceed with its damages claim against your client. I am specifically instructed that this claim is calculated in the order of $1M and relates to costs incurred due to delays caused by your client, together with interest and consequential loss;
2Your client will release my client from all of its claims pursuant to this proceeding, and the Connector Park agreement;
3Each party will enter into a deed of release whereby all claims and counterclaims are released; and
4Each party will pay their own costs of and incidental to this proceeding."
The offer was not accepted within the stipulated period of 14 days. In a letter from the defendant's solicitors to the plaintiff's solicitors dated 14 October 2013, it was made clear that the defendant had given instructions for the matter to proceed to a hearing.
The plaintiff contends, rightly in my view, that the offer of 16 September 2013 constituted a Calderbank offer. The defendant contends that it did not.
Calderbank v Calderbank [1976] Fam 93 stands for the proposition that, in civil litigation, when one party makes an offer of settlement that is able to be disclosed to the court when a costs order is sought, the offer is unreasonably refused or not accepted, the parties proceed to trial, and the offeree obtains a worse result than what was offered, then ordinarily the offeror should be awarded costs as from the date of the offer. Later authorities establish that the making of an offer that is able to be disclosed on the hearing of a costs application can be a significant factor weighing in favour of an order for indemnity costs. See, for example, Lipovac v Hamilton Holdings Pty Ltd (1997) 136 FLR 400; Pirrotta v Citibank Ltd (1998) 72 SASR 259.
In Calderbank at 106, Cairns LJ described the form of offer that came to be known as a Calderbank offer as "… an offer … made in the form that it was without prejudice to the issue as to damages but reserving the right of the co-respondent [the offeror] to refer to it on the issue of costs".
The essential characteristics of a Calderbank offer are as described by the Victorian Court of Appeal in Love v Roads Corporation [2011] VSCA 434 at [183]:
"183 A Calderbank offer is no more than an offer that:
(a) is expressed to be without prejudice save to the question of costs; and
(b) indicates that the offer will be adduced into evidence on the question of costs."
In submitting that the offer in question was not a Calderbank offer, counsel for the defendant relied on the fact that the relevant letter did not expressly indicate that the offer would be adduced into evidence on the question of costs, and did not refer to the decision in Calderbank. Those matters make no difference to the status of the offer. As a general rule, evidence of an offer of settlement is not admissible as evidence: Evidence Act 2001, s 131(1). However s 131(2)(h) of that Act creates an exception when "the communication or document is relevant to determining liability for costs". The words "save as to costs" in the letter have the effect of making the letter admissible as evidence in relation to costs: Bruinsma v Menczer (1995) 40 NSWLR 716; Nobrega v Trustees of the Roman Catholic Church for the Archdiocese of Sydney (No 2) [1999] NSWCA 133 at [8].
Part 9 of the Supreme Court Rules 2000 makes provision for the parties to an action to file and serve offers of compromise. Under r 289(1) of those rules, if a plaintiff makes such an offer of compromise, the defendant does not accept it, and the plaintiff recovers a judgment no less favourable than the terms of the offer, then the plaintiff is entitled to an order for costs on a solicitor-client basis unless the Court or a judge otherwise orders. Similar rules exist in other jurisdictions. In some jurisdictions the corresponding rules provide for indemnity costs to be ordered. It has consequently become common, when plaintiffs make Calderbank offers and get more favourable results at trial, for applications to be made for costs on an indemnity basis. In this case, the plaintiff chose not to file and serve a formal offer of compromise in accordance with the Supreme Court Rules, but instead to make a Calderbank offer in a letter.
As a general rule, costs follow the event. When both a claim and a counterclaim succeed, the usual costs orders require the defendant to pay the costs of the claim and the plaintiff to pay the costs of the counterclaim. If a Calderbank offer has been made, and if the oferee has unreasonably rejected or failed to accept that offer, then a court will often depart from the usual practice and make costs orders more favourable to the offeror. The critical point is that the rejection or non-acceptance of the offer must be unreasonable: Hazeldene's Chicken Farm Pty Ltd v Victorian Workcover Authority (No 2) [2005] VSCA 298, 13 VR 435 at [19]. The question for the Court is "whether the offeree's failure to accept the offer, in all the circumstances, warrants departure from the ordinary rule as to costs": SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 at [37]; Hazeldene's Chicken Farm at [20].
As the Victorian Court of Appeal has said in Hazeldene's Chicken Farm at [25], and in Marriner v Australian Super Developments Pty Ltd [2016] VSCA 141 at [234], the matters to be taken into account in determining whether an offeree has acted unreasonably include the following:
"(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."
The offer was made and received 7½ years after the action was commenced but more than 2½ years before the trial. More than five years previously, Tennent J had ordered specific performance of the defendant's contractual obligations to construct a roadway, and had adjourned the claim for damages. The immense task of quantifying the plaintiff's damages was far from complete.
The period allowed for acceptance of the offer was only 14 days. That was neither a generous nor an outrageous time limit. The evidence establishes that the decision-making for the defendant company was undertaken by one director, Mr Pintarich, who lived in Launceston and could easily be contacted by his solicitors.
The compromise offered by the plaintiff must be evaluated without the benefit of hindsight. The counterclaim was for a fixed sum, namely $440,000. Interest was not claimed on that sum. The plaintiff's claim was asserted to be "in the order of $1M". The plaintiff was likely to recover substantial costs in relation to its successful claim for specific performance if the case proceded.
The offeree's prospects of success depended on whether the counterclaim would succeed and, if so, whether the plaintiff's damages would be assessed at a lower figure than the counterclaimed sum of $440,000. Although the counterclaim succeeded, that was not a foregone conclusion. The outcome of the counterclaim depended on a difficult question of contractual interpretation. The quantum of the plaintiff's claim was very difficult to estimate. However it must have been obvious that the plaintiff was likely to recover hundreds of thousands of dollars, if not millions, by way of damages. The construction of the roadway necessary for the development of a large residential subdivision was delayed by about 3½ years as a result of the defendant's breach of contract. Sales of millions of dollars worth of real estate were delayed. No issue as to the mitigation of the plaintiff's damages had been pleaded. In my view it should have been obvious to the defendant that it was almost inevitable that, if it chose not to accept the offer but to proceed to trial, it would ultimately be worse off by hundreds of thousands of dollars at least.
The offer was expressed with crystal clarity.
The offer was not accompanied by a warning that the plaintiff would seek indemnity costs or any other sort of special costs order. However it should have been obvious that the words "save as to costs" were inserted in the letter for a purpose. The only possible applications that the plaintiff could make after trial in reliance upon that letter were applications for (a) costs on a more generous basis than a party and party basis; and/or (b) in the event of the counterclaim succeeding but the plaintiff's damages exceeding the amount of the counterclaim, an order that the defendant pay the plaintiff's costs of the counterclaim.
The rules relating to offers of compromise in Tasmania differ from the corresponding rules in other jurisdiction in that they make no provision for the payment of indemnity costs by offerees. I therefore think that the discretion to order indemnity costs against the recipients of Calderbank offers should be exercised somewhat sparingly by the Court. It is normally only in somewhat extreme circumstances that courts consider the conduct of litigants bad enough to warrant orders for the payment of indemnity costs. See, for example, Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 25 at [233]-[234]. In my view the defendant's conduct in failing to accept the Calderbank offer was not so unreasonable as to warrant an order for indemnity costs.
However I consider that the defendant's conduct in failing to accept the Calderbank offer was unreasonable. The offer was obviously a generous one, though it seems that neither party appreciated just how much worse off the defendant would be if it proceeded to trial. The rejection of the offer put the plaintiff's staff, its solicitors, and its accountants in the position of having to undertake an enormous amount of work over an extended period for the purpose of quantifying its claim. Having regard to all the circumstances, but particularly those two factors, I think the appropriate course is to make orders as follows:
1That the defendant pay the plaintiff's costs of the claim up to 16 September 2013 on a party and party basis.
2That the defendant pay the plaintiff's costs of the claim as from 17 September 2013, including the costs reserved on 3 May 2016, on a solicitor-client basis.
There will be no order as to the costs of the counterclaim.