Settlement Group Pty Ltd v Purcell Partners (a Firm) (no 2)

[2014] VSCA 68

SUPREME COURT OF VICTORIA

COURT OF APPEAL

S APCI 2012 0209

SETTLEMENT GROUP PTY LTD
(ACN 117 803 684)

Appellant

v

PURCELL PARTNERS (A FIRM) (No 2)
(ABN 71 502 905 832)

Respondent

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JUDGES:	MAXWELL P, REDLICH JA and DIXON AJA
WHERE HELD:	MELBOURNE
DATE OF HEARING:	17 December 2013
DATE OF JUDGMENT:	9 April 2014
MEDIUM NEUTRAL CITATION:	[2014] VSCA 68
JUDGMENT APPEALED FROM:	Permanent Mortgages Pty Ltd (ACN 097 176 362) v Purcell Partners (A Firm)and Settlement Group Pty Ltd (ACN 117 803 684) [2012] VCC 1857 (Judge Lacava)

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PRACTICE AND PROCEDURE – Costs – Indemnity costs – Calderbank offer before trial – Whether refusal of offer unreasonable – Offer of compromise before appeal – Whether refusal of offer unreasonable –  Extent of compromise offered – Assessment of offeree’s prospects of success on appeal – Refusal unreasonable – Indemnity costs ordered – Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) (2005) 13 VR 435 applied – Supreme Court (General Civil Procedure) Rules 2005 (Vic) r 26.12.

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APPEARANCES:	Counsel	Solicitors
For the Appellant	Mr G G McArthur SC with Mr J R Ludlow	Madgwicks, HWL Ebsworth Lawyers
For the Respondent	Mr A R Kirby	DLA Piper

MAXWELL P
REDLICH JA
DIXON AJA:

1. On 17 December 2013, the Court allowed the appeal in this matter and set aside the judgment which had been entered against the appellant (‘Settlement’) in the Court below.  In relation to costs, this Court proposed that the respondent (‘Purcell’) pay Settlement’s costs of the trial in the County Court, and its costs of and incidental to the appeal (up to 31 March 2013 on a party/party basis and from 1 April 2013 on a standard basis).

1. The parties were afforded an opportunity to file written submissions in respect of costs and have done so.  The submission for Settlement is that, in each proceeding, Purcell had unreasonably refused an offer of compromise which Settlement had made and should therefore be ordered to pay costs on an indemnity basis from the date of rejection of the offer.  The submission for Purcell is that on each occasion the rejection of the offer was not unreasonable.

1. At trial, Purcell obtained judgment for $211,486.20, plus costs estimated at $112,000. This judgment was entered on 18 October 2012.  When the appeal succeeded, Purcell lost this judgment and its third party proceeding against Settlement was dismissed.  Settlement had made a Calderbank offer prior to trial of $70,000, inclusive of costs.

1. On 28 November 2012, some eight months before the hearing of the appeal, Settlement served an offer to compromise the appeal.  It offered $211,486.20, being the judgment sum, but the offer was inclusive of interest and costs.  In the result, each offer made by Settlement to Purcell was more favourable to Purcell than the outcome it achieved in the proceeding.

The pre-trial Calderbank offer

1. In Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2),[1] this Court said in relation to Calderbank offers that the critical question was whether the rejection of the offer was unreasonable in the circumstances.  Deciding whether conduct is unreasonable involves matters of judgment and impression.  The Court in  Hazeldene held that, when considering whether the rejection of a Calderbank offer was unreasonable, a court should ordinarily have regard at least to the following matters:

   [1](2005) 13 VR 435, 441–442 [23]–[26] (‘Hazeldene’).

(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;  and

(f)       whether the offer foreshadowed an application for indemnity costs in the event of the offeree’s rejecting it.

1. We are not persuaded that Purcell unreasonably rejected the offer made prior to trial.  The Calderbank offer was initially made by email on 22 August 2012, and was repeated by letter on 6 September 2012.  The email is characterised by its brevity.  It invited further negotiations should the offer be considered to be unattractive, and did not foreshadow an application for indemnity costs in the event of its rejection.

1. The letter of 6 September 2012 was more detailed.  It contained a clear and cogent analysis of the legal position, an analysis which was, in the event, fully vindicated by the majority judgments in this Court.  But the letter allowed only two working days for consideration of that analysis, which was quite inadequate.  Moreover, it was a modest offer given the amount Purcell was seeking to recover.  Nor did the letter say anything about an application for indemnity costs being made in the event of the offer being rejected.  The solicitors simply reserved the right to refer to the letter on the question of costs. 

The pre-appeal offer

1. The offer of compromise was served after the notice of appeal, pursuant to Order 26 of the Supreme Court (General Civil Procedure) Rules 2005 (Vic) (the ‘Rules’). Rule 26.12 provides:

(1)Where notice of appeal to the Court of Appeal has been served, a party may serve on another party an offer to compromise the appeal on the terms specified in the offer.

…

(3)       Where on an appeal—

(a)a party has made an offer in writing to the other party (whether or not expressed to be without prejudice) to compromise the appeal on the terms specified in the offer;

(b)the offer was open to be accepted for a reasonable time, but was not accepted; and

(c)the party making the offer obtains an order on the appeal no less favourable to that party than the terms of the offer—

the Court of Appeal shall take those matters, and also the stage of the appeal at which the offer was made, into account in determining what order for costs to make in respect of the appeal or in respect of the appeal and the proceeding more generally.

(4)The Court of Appeal, in exercising its discretion as to costs in accordance with paragraph (3), may order that the party on whom the offer to compromise the appeal was served pay the costs of the party who made the offer, taxed on a basis other than a party and party basis, from the commencement of the appeal, from the day the offer was served or from any other time that the Court thinks fit.

1. As the Court of Appeal pointed out in Hazeldene, a Calderbank offer in relation to an appeal — being ‘an offer to compromise the appeal’ — will fall within r 26.12(3) provided that it is ‘open to be accepted for a reasonable time’. For obvious reasons of consistency of approach, the matters identified by the Court in Hazeldene, as relevant to a consideration of the unreasonableness of the refusal of a Calderbank offer, should be taken as applicable whenever the Court is required to decide whether the refusal of ‘an offer to compromise the appeal’ made pursuant to r 26.12(1) warrants an order for indemnity costs.

1. The offer made by Settlement was clear in its terms, and complied with the procedural requirements of the Rule.  The Rule itself foreshadows adverse costs consequences if an offer is unreasonably refused.  The offer was open to be accepted for 14 days.  What is particularly significant, in our view, is that the offer was a very substantial one.  As mentioned, Settlement was offering to pay the full amount of the judgment at first instance, but the amount was to be inclusive of costs and accrued interest.  What was being offered was approximately two-thirds of what Purcell had achieved at trial.

1. In our view, Settlement’s offer should have been viewed as a very attractive one.  In the circumstances, it involved a relatively modest discount from Purcell’s trial result, to reflect the real risk that the appeal would succeed. 

1. On any reasonable assessment, Settlement’s appeal had merit.  As is apparent from the reasons for judgment in the appeal, Purcell had undoubtedly been negligent in failing to provide Settlement with the necessary payout figures to enable all of the mortgages to be discharged.  But for that negligence, there would have been no occasion for the relevant outgoing mortgagee to insist on Settlement returning the discharge of mortgage. 

1. The trial judge had not made any finding about Purcell’s negligence nor, therefore, about the extent to which that negligence had been a contributing cause of the incoming lender’s loss. Those were issues squarely raised by the grounds of appeal.  Moreover, Settlement’s Western Australian solicitor had very clearly and cogently laid out, in the letter of 6 September 2012, the correct legal analysis of the respective positions of Settlement and Purcell.  Proper consideration of that analysis must, necessarily, have led to the conclusion that Purcell was at risk in the appeal.

1. For these reasons, in our view, Purcell’s rejection of the appeal offer was unreasonable.  Accordingly, the Court will order that:

(a)The appeal be allowed.

(b)The judgment of 18 October 2012 of his Honour Judge Lacava be set aside, and, in lieu thereof, it be ordered that:

(i)       the defendant’s third party proceedings be dismissed;  and

(ii)the defendant pay the third party’s costs of the proceeding.

(c)The respondent pay the appellant’s costs of and incidental to the appeal, up to  28 November 2012 on a party/party basis, and thereafter on an indemnity basis.

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