RW & Me Smith Pty Ltd v Boral Resources (Vic) Pty Ltd (No 3)
[2024] VCC 356
•27 March 2024
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
EXPEDITED LIST
Case No. CI-20-03807
| RW & ME SMITH PTY LTD (ACN 105 445 645) | Plaintiff |
| V | |
| BORAL RESOURCES (VIC) PTY LIMITED (ACN 004 620 731) | Defendant |
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JUDGE: | HER HONOUR JUDGE A RYAN | |
WHERE HELD: | Melbourne | |
| DATE OF HEARING: | Written submissions filed 8, 12 and 14 March 2024 | |
DATE OF RULING: | 27 March 2024 | |
CASE MAY BE CITED AS: | RW & ME Smith Pty Ltd v Boral Resources (Vic) Pty Ltd (No 3) | |
MEDIUM NEUTRAL CITATION: | [2024] VCC 356 | |
RULING
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Subject:PRACTICE AND PROCEDURE – COSTS
Catchwords: Whether indemnity costs should be ordered in favour of the plaintiff following the defendant’s rejection of the plaintiff’s offer of compromise – defendant contends there should be no orders as to costs prior to the plaintiff amending its reply at trial
Legislation Cited: County Court Civil Procedure Rules 2018
Cases Cited:IFTC Broking Services Ltd v Commissioner of Taxation [2010] FCAFC 31; 78 ATR 606; Key Infrastructure Australia Pty Ltd v Bensons Property Group Pty Ltd (No 2) [2019] VSC 763; Leach v The Nominal Defendant (QBE Insurance (Australia) Ltd) (No 2) [2014] NSWCA 391; Oshlack v Richmond River Council [1998] 193 CLR 72; Re Janson; Gash v Ruzicka (No 3) [2022] VSC 557; RW & ME Smith Pty Ltd v Boral Resources (Vic) Pty Ltd (No 2) [2024] VCC 144; Shaw v Jarldorn (1999) 76 SASR 28; The Friendly Backpacker Pty Ltd v Will Ang Drive Pty Ltd (No 2) [2023] VCC 114
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr L E P Magowan | Aitken Partners |
| For the Defendant | Mr O Fagir | Australian Business Lawyers & Advisors |
HER HONOUR:
1On 27 February 2024, I delivered reasons for judgment relating to the assessment of damages.[1] These reasons assume familiarity with the earlier reasons and adopt the same terminology.
[1]RW & ME Smith Pty Ltd v Boral Resources (Vic) Pty Ltd (No 2) [2024] VCC 144
2The parties were directed to confer and file a minute of consent orders, or failing agreement, to file and serve submissions regarding the orders to be made, including costs. The parties provided the Court with a proposed minute of order on 5 March 2024. The parties agreed that judgment should be entered for the plaintiff in the sum of $267,900, together with interest under statute in the sum of $94,829.26. Interest is payable on the judgment debt thereafter pursuant to s73(4) of the County Court Act 1958. The parties did not agree on costs and sought further time to file submissions on that issue. The Court granted a further short extension.
3The plaintiff filed written submissions on costs dated 8 March 2024. These submissions attached an offer of compromise served on the defendant dated 7 April 2021 (“the offer of compromise”).
4In response, Boral filed submissions on costs on 12 March 2024. The plaintiff filed a written submission in reply on 14 March 2024.
5The plaintiff seeks an order that Boral pay the plaintiff’s costs of and incidental to the proceeding on a standard basis in respect of costs incurred until 11am on 9 April 2021 and thereafter on an indemnity basis, to be taxed in default of agreement. This order is sought on the basis of the offer of compromise which was not accepted by the defendant.
6The offer of compromise dated 7 April 2021 provides relevantly as follows:
“TAKE NOTICE that:
1. This offer of compromise is served in accordance with Part 2 of Order 26 of Chapter I of the Rules.
2. The plaintiff will accept payment of the sum of $250,000 (plus costs to be taxed on the standard basis if not agreed including costs of the reinstatement of the Plaintiff in the Supreme Court) from the defendant by way of compromise of all of the claims made in this proceeding.
3. This offer of compromise is open to be accepted for a period of 14 days after the day the offer is served.”
7The plaintiff relies on Rule 26.08(2) of the County Court Civil Procedure Rules 2018 (“the Rules”), which deals with the costs consequences of a failure to accept an offer of compromise. Rule 26.08(2) provides that:
“(2)Where an offer of compromise is made by a plaintiff and not accepted by the defendant, and the plaintiff obtains a judgment on the claim to which the offer relates no less favourable to the plaintiff than the terms of the offer, then, unless the Court otherwise orders, the plaintiff shall be entitled—
(a)...
(b)in the case of any other claim of the plaintiff, to an order against the defendant for the plaintiff’s costs in respect of the claim before 11.00 a.m. on the second business day after the offer was served, taxed on the ordinarily applicable basis and for the plaintiff’s costs thereafter taxed on an indemnity basis.”
8The prima facie presumption created by the rule is that indemnity costs should be awarded unless the Court otherwise orders.
9The onus lies on the party wishing to displace the prima facie rule in Rule 26.08 to establish grounds for its displacement. This onus has been described as a heavy burden or sometimes as exceptional circumstances. The prima facie presumption is a strong one and not easily displaced.[2] However, it is to be emphasised that such labels do not operate to fetter the Court’s discretion but instead emphasise the weight of the rule-based presumption and the need for the Court to be convinced of a good reason to oust its effect.[3]
[2]The Friendly Backpacker Pty Ltd v Will Ang Drive Pty Ltd (No 2) [2023] VCC 114 at [36]-[39] and the authorities referred to therein.
[3]G E Dal Pont, Law of Costs, Lexis Nexis, 5th edition, at [13.32]
10In determining whether the discretion to oust the effect of the rule should be made, the Court will have regard to the reasonableness of the offer and also the timing of the offer. The stage of the proceeding when the offer was made is relevant if, for example, at an early stage the offeree lacks sufficient information to assess its reasonableness. Generally speaking, an offer made late in the proceedings may disincline the Court to oust the prima facie rule, as the more advanced the proceedings are, the greater the ability for the offeree to make an informed assessment of the merits of the offer.[4] Other factors to consider are whether the offer has been made in clear terms and whether it reflects a genuine compromise.
[4]Ibid at [13.39]
11Boral accepts the onus is on the party seeking to avoid indemnity costs under Rule 26.08 to satisfy the Court that the prima facie case should be departed from.[5]
[5]IFTC Broking Services Ltd v Commissioner of Taxation [2010] FCAFC 31; 78 ATR 606 at 609-10, paragraph [9]
12Boral submitted in its written submission on costs dated 12 March 2024:
“11. It is impossible exhaustively to state the circumstances in which the court’s discretion to “order otherwise” might be exercised.[6] Although it has sometimes been suggested that the Court will “otherwise order” only in exceptional circumstances, that is an overstatement:[7]
[6]Leach v The Nominal Defendant (QBE Insurance (Australia) Ltd) (No 2) [2014] NSWCA 391 at [48]
[7]Key Infrastructure Australia Pty Ltd v Bensons Property Group Pty Ltd (No 2) [2019] VSC 763
[10] Bensons accepts that it carries a heavy burden to displace KIA’s prima facie entitlement to costs under the Rules. What this requires has been variously described - for example, ‘special circumstances’, or ‘compelling and exceptional circumstances’ - however, ‘none of these expressions is intended to fetter the court’s discretion‚ but instead emphasise the weight of the rule-based presumption, and the need for the court to be convinced of a “good reason” to oust its effect’. The purpose of r 26.08 needs also to be kept in mind:
The use of an expression such as “exceptional circumstances” is thus not to be treated as an impermissible gloss on the language but rather a practical explanation of the predicament facing the offeree in the light of the obvious purpose of the Rules to encourage settlement of the proceedings and their structure in so far as they provide a default position which cannot be ignored when exercising that discretion. This was made clear by Doyle CJ in Shaw v Jarldorn [1999] SASC 529; 76 SASR 28 at [4]:
The power to “order otherwise” confers upon the Court an unfettered discretion. But it is a discretion which, if exercised, is exercised to displace what will otherwise be the required effect of [the relevant rule], which is that the defendant pay the whole of the plaintiff’s costs of action as between solicitor and client. In other words, it will be proper for the court to order otherwise only if, in the exercise of that wide discretion, there is good reason to order that the rule is not to have its usual effect. In considering whether there is good reason to so order, it is necessary to bear in mind the manner in which the rule operates, and the context in which it operates.[10]
12. A typical case where a departure from the default rule is the case where a party’s case has changed significantly after the making of the offer. In frequently cited comments, the South Australian Court of Appeal said:[8]
[36] … The circumstances which are most likely to arise and which might justify relieving a defendant from the obligation to pay solicitor and client costs, will be those where there is such a significant change in the manner in which the plaintiff’s case is presented at the trial, or the manner in which the evidence emerges at the trial, that it might fairly be said that the full dimensions of the plaintiff’s entitlement could not possibly have been foreseen before the hearing commenced.
[37] Another circumstance which might give rise to an application of the discretion in favour of the defendant is if the plaintiff substantially amends his or her case at the trial, or at least after the period within which the defendant might have accepted the offer has expired.
13. The mere fact that it was reasonable for the litigant to take the view that he or she did in rejecting the offer is not enough to displace the rule, but reasonableness of the rejection is relevant.[9]”
[8]Shaw v Jarldorn (1999) 76 SASR 28 (Perry J, with whom Doyle CJ and Mullighan J agreed)
[9]Leach v The Nominal Defendant (QBE Insurance (Australia) Ltd) (No 2) [2014] NSWCA 391 at [48]
13Boral concedes the plaintiff has obtained judgment on terms no less favourable than the terms of the offer of compromise within the meaning of Rule 26.08. Despite this, Boral argues the usual default costs consequences should not follow, principally, because the plaintiff’s case changed radically very late in the piece. The point that was ultimately successful in the Court of Appeal, namely, that the works undertaken by the plaintiff when conducting repairs on 9 July 2015 were not cartage works as defined in the relevant agreement was only first pleaded in a further amended reply filed on 8 June 2021. This was after the evidence had been completed and before oral submissions were made on 16 June 2021. The plaintiff’s winning point was thus first raised after the close of evidence, 10 months after the proceedings were commenced.
14Denying the applicability of clauses 1.1 and 22.2 of the agreement, being the position taken in the further amended reply, involved a complete departure from the case that had been previously advanced by the plaintiff. It follows that the plaintiff substantially amended its case. There was a significant change in the manner in which the plaintiff’s case was presented after the making of the offer. Boral argues the plaintiff’s case at the time the offer was made was a losing one and therefore it was reasonable to reject the offer. Consequently, this case is in the category of cases where the Rule 26.08 presumption is displaced and the Court should “otherwise order.”
15The proceedings were commenced on 25 August 2020. The plaintiff’s claim was wide-ranging and alleged breach of contract, estoppel, and breaches of ss20 and 21 of the Australian Consumer Law. The plaintiff sought damages in the amount of $818,272.
16Boral notes that several elements of the plaintiff’s case were rejected. The plaintiff’s case on quantum was largely rejected, with damages of one-quarter of the amount sought ultimately being recovered, and the conduct of the case in general was unsatisfactory, with significant wastage of time on peripheral issues and consistent overreach by the plaintiff.
17Boral contends that given the plaintiff’s case prior to 8 June 2021 would have failed, there is an argument that Boral should have its costs of the proceeding before that point. Boral acknowledges it is necessary to bear in mind that the plaintiff ultimately succeeded and this is a factor entitled to weight. Taking all these matters into account, and in the exercise of the Court’s broad discretion, the appropriate order is to require Boral to pay costs on the ordinary basis from the date the winning point was first taken, with the parties to each bear their own costs in relation to the earlier period.
Consideration
18The usual position is that costs follow the event.[10] I am not persuaded by Boral’s submission there should be a departure from the usual position and that each party should bear its own costs up until the “winning point” was first raised. The mere fact that some issues ended up being determined adversely to the plaintiff is not a sound basis for denying the plaintiff its costs in circumstances where it has ultimately succeeded. In my view, there is no proper basis established for depriving the plaintiff of an order for costs of the proceeding in its favour up to the date the so-called winning point was raised. Further, I was not satisfied there was any conduct on the part of the plaintiff which would disentitle it to an award of costs.
[10]Oshlack v Richmond River Council [1998] 193 CLR 72 at [97]
19The next issue is whether the plaintiff should receive an order for indemnity costs having regard to the offer of compromise. Boral concedes the judgment was no less favourable than the offer, and that the requirements of Rule 26.08 have been met, save as to whether the Court should otherwise order against making an award of indemnity costs.
20Consequently, the plaintiff is entitled to indemnity costs following Boral’s rejection of the offer of compromise unless there are circumstances which would persuade the Court to otherwise order.
21The plaintiff’s specific claim that the repairs were not cartage works within the scope of the agreement had not been pleaded when the offer was served in April 2021. This claim was pleaded in the Further Amended Reply dated 8 June 2021 and after evidence was closed. The resolution of this point turned upon the proper construction of the term “cartage works” and was dealt with at some length by the Court of Appeal. Boral did argue against this point and self-evidently, was not convinced that it was a winning point as Boral continued to defend vigorously the claim made at trial and on appeal. Other defences such as whether Boral would have terminated on three months notice were not upheld by the Court of Appeal because Boral failed to call evidence on that aspect. The Court of Appeal also found that the deed of release signed by the plaintiff did not extend to the claim made for damages for summary termination. This shows that there were defences raised which would not have succeeded as events turned out.
22The success of the plaintiff’s claim depended largely upon whether the plaintiff had engaged in serious misconduct in undertaking the repair works such that Boral was entitled to terminate summarily. This involved an assessment of the work undertaken to determine whether it was sufficiently serious misconduct and consideration of the relevant terms of the agreement. Other claims were made in addition to the contract claim, namely, estoppel and breaches of the Australian Consumer Law. In my view, it could not said with absolute certainty that the plaintiff had no chance of success whatsoever on the claims as pleaded in April 2021, contrary to Boral’s submission. It is too simplistic, as Boral would have it, to argue that but for the cartage works issue, the plaintiff’s claim could not have succeeded at the time the offer of compromise was served. Litigation is inescapably chancy and unpredictable,[11] such that the plaintiff might have succeeded on one or more of its claims. The risk that the plaintiff might succeed could not have been entirely discounted by Boral when the offer of compromise was served. The Court must be mindful of the fact that a party who rejects an offer of compromise is assumed to have taken into account any risks and vicissitudes that may ensue.[12]
[11] Re Janson; Gash v Ruzicka (No 3) [2022] VSC 557 (per McMillan J) at [43]-[45]
[12] Ibid at [43]
23Cases often change shape during the course of trials and even afterwards when pleading amendments frequently occur and are permitted to reflect the case run at trial – so much is normal and not unexpected. This is such a case. It was hard fought and altered during the trial.
24The focus at trial was on the construction of the relevant agreement and whether the plaintiff had breached its terms which gave Boral the right to terminate under the provisions in the agreement. The addition of a further contractual claim regarding the application of the agreement to the incident in question was not in my view, an amendment that was sufficiently significant or extraordinary so as to warrant the displacement of the usual rule. The amendment to the pleading was an ordinary risk inherent in litigation.
25I am not persuaded that there are good grounds for ousting the presumption contained in Rule 26.08(2). Accordingly, Boral has not discharged the onus placed upon it to rebut the prima facie presumption. I find that the plaintiff is entitled to rely upon the offer of compromise and should have its costs on the indemnity basis following Boral’s non acceptance.
Conclusion
26I will make the following orders:
(1) There be judgment for the plaintiff against the defendant in the sum of $362,729.26 made up as follows:
(a) damages in the sum of $267,900; and
(b) interest under statute in the sum of $94,829.26.
(2) The defendant pay the plaintiff’s costs of and incidental to the proceeding on a standard basis up to 11.00am on 9 April 2021 and thereafter on an indemnity basis to be taxed in default of agreement.
Certificate
I certify that these 9 pages are a true copy of the reasons for ruling of her Honour Judge A Ryan delivered on 27 March 2024.
Date: 27 March 2024
Associate to her Honour Judge A Ryan
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