Sneaths Freightlines v Pertsinidis (No 2) - [2008] SADC 3

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
SNEATHS FREIGHTLINES v PERTSINIDIS (No 2)
[2008] SADC 3
Judgment of His Honour Judge Nicholson
5 February 2008
PROCEDURE - COSTS
Depriving successful party of costs - refusal of application for indemnity costs.
District Court Act 1991 (SA) s42; District Court Rules 1987 Rules 101.01, 101.02, 101.02A; Magistrates Court (Civil) Rules 1992 r52, referred to.
Morris v McEwen (2005) 92 SASR 287 at [1], [2], [34], [36], [46], [74], [75] and [76]-[78]; Forlyle Pty Ltd v Tiver & Anor [2007] SASC 464, applied.
Cromer v Rickards Tivoli Theatres Ltd [1921] SASC 325; Cretazzo v Lombardi (1975) 13 SASR 4 at 16; Badge Constructions Pty Ltd v Penbury Coast Pty Ltd [1999] SASC 6; Chell Engineering Ltd v Unit Tool & Engineering Co Ltd [1950] 1 All ER 378; Bunker v James & Anor (1980) 26 SASR 286; Burton v Litton Business Systems Pty Ltd & Anor (1977) 16 SASR 162 at 171; Metro Meat Pty Ltd v Werlick (1992) 167 LSJS 455 at 462; Calderbank v Calderbank [1976] Fam 93; Pirotta v Citibank Ltd & Ors (1998) 72 SASR 259; ACCC v Universal Music Australia Pty Ltd (No 2) (2002) 201 ALR 618 at 631-632; Dukemaster Pty Ltd v Bluehive Pty Ltd [2003] FCAFC 1 at [9]; Seven Network Ltd v News Ltd [2007] FCA 1489 at [50]-[56], considered.

SNEATHS FREIGHTLINES v PERTSINIDIS (No 2)
[2008] SADC 3
Introduction

In delivering judgment in this matter[1] I made the following orders:
(i)The claim by the plaintiff (Sneaths Freightlines Pty Ltd) is allowed in part;
(ii)The counterclaim by the defendant (Theo Pertsinidis) insofar as it relates to the accounting exercise, is allowed in part;
(iii)The defendant is to pay the plaintiff the sum of $1,189 together with the sum of $850 by way of a lump sum in lieu of interest, making a total of $2,039;
(iv)In all other respects the counterclaim of the defendant is dismissed.
The facts and my findings are set out in the primary judgment. I adjourned the matter for submissions and further consideration with respect to the question of costs. In this judgment I set out the costs orders that I have made and my reasons for them.
[1] [2007] SADC 84.
Ordinarily the costs of and incidental to a proceeding, whilst in the discretion of the court, should follow the event.
The general rule is that a successful party has a reasonable expectation of obtaining an order for costs unless for some reason connected with the case a different order was specially warranted.[2]
There is power to deprive a successful plaintiff of some of its costs where it has failed on particular issues,[3] although this aspect of the discretion is to be exercised cautiously.[4]
[2]    Forlyle Pty Ltd v Tiver & Anor [2007] SASC 464 at [29] per Debelle J, with whom Sulan and Vanstone JJ agreed, together with the cases there cited and see District Court Act 1991 s42; District Court Rules 1987, Rule 101.02.
[3]    Cromer v Rickards Tivoli Theatres Ltd [1921] SASR 325.
[4]    Cretazzo v Lombardi (1975) 13 SASR 4 at 16 per Jacobs J.
It may be that, taking a technically correct position, the orders I made do not properly reflect the outcome at trial of this long-running litigation. In other words and as counsel for the plaintiff has submitted, having regard to my findings of fact in the matter, and given that juristically the plaintiff’s claim and the defendant’s counterclaim were separate actions, the orders ought, perhaps, to have been along the lines:
(i)Judgment for the plaintiff on its claim in the amount of $1,189 [together with interest or a lump sum in lieu];
(ii)The defendant’s counterclaim be dismissed.
I have not reached a concluded position on this. If there is an error in the form of the orders, it has, in my view, no practical consequence, at least insofar as costs are concerned. If I am wrong here, that may be a matter for consideration in another place. I accept the submission of counsel for the plaintiff that if the orders made had been in this latter form, they would have clearly defined “the events” which would form the starting point for costs considerations. However, irrespective of the form of the orders, I still would need to take into account the considerations that led me to make the orders in the form as in fact made, when exercising the discretion as to costs available to me pursuant to s42 of the District Court Act 1991 and rule 101 of the District Court Rules 1987. The orders, as made, came about as a result of the following considerations.
Considerations tending against the usual order
The plaintiff’s claim was for a liquidated sum; it was based on what it asserted to be a proper reconciliation of a running account between the parties as at the end of their commercial relationship. That running account involved, essentially, amounts due from the plaintiff to the defendant from time to time, being remuneration payable for contracted truck haulage services provided by the defendant, which payments were to be offset from time to time by amounts said to be due by the defendant to the plaintiff with respect to certain expenses incurred by the defendant relating to running costs.
The defendant, in his defence, denied that it owed any money to the plaintiff and essentially put the plaintiff to proof of the amount the plaintiff alleged was due and owing following a proper accounting exercise. However, the defendant also filed a counterclaim.[5] In that counterclaim he asserted, with some particularity, that it was he who was owed money following a proper accounting between the parties.[6] In addition, the defendant in his counterclaim asserted an entitlement to substantial damages based on an alleged breach, by the plaintiff, of an alleged oral contract to guarantee regular work between Adelaide and Perth.
[5] The final pleading filed by the defendant was his Amended Defence and Amended More Explicit Counterclaim filed 24 January 2007 following leave relating to another matter granted during the trial.
[6] The pleading filed on 24 January 2007 still did not, in fact, set out accurately the final amount asserted by the defendant to be owing to him, as claimed throughout the trial; see the trial judgment [2007] SADC 84 at [6]-[8].
I leave aside the issue of whether or not the defendant’s allegation, that it was in fact he who was entitled to recover a liquidated sum following a proper accounting between the parties, could have been pleaded as part of the defence by way of set-off to the plaintiff’s accounting claim. It is clear that the defendant’s claim for breach of contract could only have been pleaded as a counterclaim. It is also clear that, even if the defendant had pleaded his accounting entitlement by way of defence and set-off, he still would have had to plead it again as part of a counterclaim if, as he did, he wished to recover money said to be due to him rather than just set off the plaintiff’s claim.
As I explained in the primary judgment in this matter, by the time the matter came to trial, and whilst not reflected in the pleadings, the plaintiff’s claim on the accounting exercise was for $17,101 whereas the defendant’s claim on the accounting exercise was that he was owed $35,164.
The practical result of all of this was that, at the trial, two principal and, to an extent separate, disputes between the parties arose for determination. The first one was the “accounting exercise” and the second one was the “Perth contractual issue” as I have described them in the primary judgment. Leaving aside the respective amounts ultimately claimed by the parties on the accounting exercise, this issue was dealt with on the basis of the pleadings in the statement of claim, the defence and also the counterclaim.
The defendant raised four categories of expense with respect to which he said he had been overcharged. In opening the defendant’s case on the counterclaim at trial, counsel for the defendant, in effect, accepted the plaintiff’s accounting which gave rise to its claim that it was owed $17,101 but subject to these four categories of payments which the defendant maintained were incorrectly dealt with by the plaintiff’s accounting. In pursuing his claim to be entitled to an adjustment in his favour based on these four categories of payments, said to have been wrongly accounted for by the plaintiff, the defendant partially succeeded. In other words, as to some of the claims made by the defendant on his counterclaim with respect to the accounting exercise he succeeded. However, the total amount by which he succeeded was not sufficient to gain him a nett recovery; it was sufficient to almost, but not quite, eliminate the plaintiff’s claim.
In practical terms, and relevant to cost considerations, the result of the litigation with respect to the accounting exercise can be summarised as follows.
First, the defendant claimed that $9,000 by way of insurance premiums had been wrongly charged to his account by the plaintiff. The defendant succeeded here. However, it was a relatively minor issue at trial.
(i)The quantum of the amount in dispute here was agreed, at least throughout the trial, although I accept that costs will have been incurred by both parties prior to trial, essentially in analysing their respective accounting records, so as to reach this agreed position;
(ii)The relevant terms of the contract between the parties, at least in this respect, were not seriously challenged by either party;
(iii)The plaintiff’s entitlement to charge the $9,000 by way of recovery of insurance premiums paid turned on a question of contractual construction and the failure by the plaintiff to adduce any evidence that relevant insurances, as required by the particular contractual term in question, had been taken out.
The second item of dispute concerned the rates of payment to which the defendant was entitled over the period of the parties’ relationship for the various journeys he undertook. On this issue the plaintiff succeeded. Again it was a relatively minor issue in the trial. The plaintiff’s evidence underpinning this aspect of its claim, in essence, was accepted by the defendant. The success of the defendant’s defence and counterclaim in this respect turned on whether or not the defendant’s evidence that a different rates schedule was to apply throughout the period was correct or not. In the result, I did not accept his evidence in this respect and found that the plaintiff had applied, throughout the period of their relationship, the correct and agreed upon rates schedule. The matter took up little trial time. Nevertheless, I again accept that costs will have been incurred by both parties prior to trial, essentially in analysing the parties respective records, in order to confine the issues at trial on this topic.
The third item of dispute on the accounting exercise concerned an alleged overcharging by the plaintiff of an amount of $1,508, for a series of account administration fees and a charge of interest due on one payment by the defendant. I found that the plaintiff was not entitled to make these charges and that the accounting should be adjusted to this extent in favour of the defendant. At trial this comprised a relatively discrete issue and did not consume much trial time. However, I again accept that notwithstanding the relatively small amount of money ultimately found to be involved, it is likely to have given rise to a significant issue in terms of preparation for trial. The defendant required expert accounting assistance to analyse a very large quantity of the plaintiff’s records in order to identify all of these overcharges and to exclude the possibility of other overcharges. By the time of trial the alleged overcharged amounts had been identified and broadly agreed upon. It became a question of identifying the contractual terms and their proper construction. As I have said, ultimately I determined the issue in favour of the defendant.
The fourth item in contention related to overcharging by the plaintiff for fuel purchased by the defendant either from third parties but on the plaintiff’s account with those third parties or directly from the plaintiff at its depots. There is no doubt that significant pre-trial work was involved in analysing both the plaintiff’s and defendant’s primary records and in obtaining expert reports which were intended to assist the court on this matter. There was significant time devoted at court aimed at demonstrating the quantum of this alleged overcharging. Ultimately, neither the plaintiff’s nor the defendant’s position on this issue was completely accepted by me.
The defendant succeeded, in part, but not on the basis he had put forward. Instead I based my decision here on oral evidence given at the trial by the defendant and by the plaintiff’s witness, Mr Keith Sneath. I accepted the plaintiff’s documentary evidence as to the actual amount of fuel expense charged to the defendant but then adjusted it downward, by a relatively slight amount of $5,504, to reflect my finding that throughout the relationship the plaintiff had overcharged the defendant by the amount of 2 cents per litre of fuel purchased.
In the end, relying on essentially uncontested evidence as to the overall distance travelled and the overall rate of fuel consumption by the defendant throughout the relationship, I arrived at the amount to be allowed for overcharging by a relatively straightforward mathematical calculation. Notwithstanding the substantial amount of work put into this issue by both the parties and the experts, I did not find it to be, in the circumstances, of great assistance.
Much of the trial and, I infer, its preparation was taken up with identifying the parties’ competing accounting records and in obtaining and considering the parties’ competing expert analyses of these records. This underpinned not just the accounting exercise but also the damages assessment for the defendant’s Perth contractual claim. Detailed analyses of the defendant’s actual expenses, incurred throughout the parties’ relationship, was undertaken by the parties in order to assist with an assessment of any loss of contribution to fixed costs suffered by the defendant following the breach of the alleged Perth contract. As it happened, the defendant failed on liability grounds with respect to his Perth contractual claim. Nevertheless, I did go on and assess damages for that claim in the event that I were found to be wrong in dismissing it.
However, I do note that much of the competing accounting analyses provided, particularly that of the defendant, was not relied upon by me either with respect to the accounting exercise or the Perth contractual issue.
At the end of the day, whilst the defendant failed with his counterclaim he did succeed with respect to a number of issues in defending the plaintiff’s claim which issues also formed part of the counterclaim. However, as I have endeavoured to explain, whilst each of these issues may have taken up some time in preparation, all but the one relating to fuel overcharging were relatively minor in terms of time devoted to them during the trial.
Significant work done in preparation for and at trial, particularly the identification of the relevant accounting records on each side and the work of the experts, was relevant to both the accounting exercise and the Perth contractual issue. In these circumstances, and even if the orders had been that the claim be allowed but the counterclaim dismissed, whilst acknowledging that ordinarily costs should follow such events, the costs orders still should be framed so as to give a just result.[7] In this case I think that there are matters that warrant a variation to such a conventional costs order. In addition to the matters I have just raised, there are other considerations.
[7] Badge Constructions Pty Ltd v Penbury Coast Pty Ltd [1999] SASC 6; Chell Engineering Ltd v Unit Tool and Engineering Co Ltd [1950] 1 All ER 378.
As I have said the plaintiff’s claim succeeded to the extent of $1,189 together with interest and the defendant’s counterclaim, in essence, failed. However, the plaintiff’s claim only just succeeded. In this respect, I heard submissions from both parties as to the possible relevance of rule 52 of the Magistrates Court Rules and rule 101.2A of the District Court Rules.
Originally the plaintiff filed its claim in the Mount Gambier Magistrates Court. The defendant filed a defence and counterclaim seeking, at that time, an amount of $170,000 on the accounting exercise issue and an amount of $2,319,700 by way of damages with respect to the Perth contractual issue. The matter, perforce, was transferred to the District Court. Of course, the plaintiff had no choice in this respect.
Nevertheless, had the plaintiff’s claim been litigated to finality in the Magistrates Court, rule 52 would have had potential application to the judgment of $1,189 on the claim. In the event that rule 52 applied, the party and party costs on the relevant Magistrates Court scale to which the plaintiff ordinarily would have been entitled would have been very significantly reduced. Rule 52 would have applied if the judgment sum ultimately obtained by the plaintiff was less than 50% of the amount it claimed either twenty one days after issue of a notice for trial or as at the date of a conciliation conference, whichever was the earlier. In this case, the matter was transferred to the District Court, as a result of the defendant filing its counterclaim, some time shortly before 18 December 1998. At this point, the trigger date for any application of rule 52 had not been reached.
Nevertheless, if the matter had proceeded in the Magistrates Court without the plaintiff offering to reduce its claim, it would have been substantially penalised. On this assumption, application of the formula in rule 52 would have resulted in the plaintiff being entitled to only approximately 0.13% of its costs of its claim taxed on the relevant Magistrates Court scale. Of course, there is no occasion for me to apply this rule; with the action having been transferred into the District Court.
However, in this court rule 101.02A provides in part[8],
… the amounts fixed below are the amounts in respect of which no order for costs will be made in favour of a plaintiff unless the court otherwise orders …
[8] See also s42(2) of the District Court Act 1991.
An unfettered application of rule 101.02A(a) would result in the plaintiff being wholly deprived of its costs given that it succeeded with its liquidated claim only in an amount of less than $20,000. To directly apply rule 101.02A in circumstances where the plaintiff is in the District Court only because the defendant has filed a counterclaim which converted a Magistrates Court matter into a District Court matter and therefore has no choice[9] but to continue with its claim in the District Court, would be quite unfair. There is a discretion not to apply the terms of rule 101.02A directly or literally and I propose to exercise that discretion in this case for this reason.[10]
[9] Save for abandonment of its claim.
[10] Save for this consideration, it is unlikely that any of the factors usually relied on when exercising this discretion in favour of a plaintiff would apply here; see Bunker v James & Anor (1980) 26 SASR 286; Burton v Litton Business Systems Pty Ltd & Anor (1977) 16 SASR 162.
In the circumstances, neither the Magistrates Court rule 52 nor District Court rule 101.02A is directly applicable. However, that is not necessarily the end of this potential consideration. The policy underlying rule 52, as I apprehend it, is that a plaintiff who claims an unrealistically high amount so as to risk stultifying any early opportunity to resolve the claim for an objectively reasonable amount should have its costs significantly reduced and the reduction should be proportional to the extent to which the claim is unreasonably high.

The policy underlying rule 101.02A, is different. It is to discourage plaintiffs, upon pain of costs sanctions, from litigating in the higher costs court claims which properly should be brought in a lower costs court.[11]
[11] See Metro Meat Pty Ltd v Werlick (1992) 167 LSJS 455 at 462, Burton at 171.
The rationales for the two rules are clearly different. Nevertheless, each, together with principle, suggests that when considering whether or not a plaintiff should be entitled to all of its costs on a liquidated claim, the amount of the judgment actually obtained as compared with the amount claimed, can, in appropriate circumstances, be a relevant consideration.
As I said, here the plaintiff had no choice but to stay in the District Court and, in my view, there can be no serious claim by the defendant for a direct application of rule 101.02A in all of the circumstances. However, had the plaintiff stayed in the Magistrates Court, it would have run the risk of a severe reduction in its allowed costs by virtue of rule 52. Furthermore, any scale costs the plaintiff would have been entitled to in the Magistrates Court, would be significantly less than any scale costs it would get on the District Court scale whether or not rule 52 would have operated to reduce its costs in the Magistrates Court.
In this sense, the defendant may have done the plaintiff a favour by forcing it to litigate its claim in this court; presumably the same or a similar amount of actual costs would have been incurred in either case in order to reach the result on the accounting exercise.
There is a further factor to consider here. The plaintiff sent the defendant two so-called “Calderbank” offer[12] letters very early in the District Court litigation; one letter was dated 19 June 2001 and the other 25 September 2001. Each, in effect, made an offer to the defendant for both parties to discontinue their respective claims, that is, walk away from the litigation, with each to pay their own costs. The first of the offers was expressly rejected by the defendant, by his solicitor’s letter dated 22 June 2001, and the second offer was never accepted.
[12] See Calderbank v Calderbank [1976] Fam 93; for the approach taken in this State see Pirrotta v Citibank Ltd & Anor (1998) 72 SASR 259; Morris v McEwen (2005) 92 SASR 281.
At this point, the plaintiff was locked into litigation of potentially significant proportions. In the result, the plaintiff obtained a better outcome in terms of the resolution of the claim and the counterclaim at trial than was provided for by these offers. These letters of offer are relied upon by the plaintiff in support of a claim that any costs it is ultimately awarded with respect to the period after 22 June 2001 should be on an indemnity basis rather than a party and party basis. I will come back to this issue a little later on. However, in these circumstances, it cannot be said the plaintiff was wholly unreasonable in proceeding with the litigation, that is in pursuing its claim and in maintaining its defence to the defendant’s counterclaim, in the District Court.
The defendant, by bringing the plaintiff into the District Court with, as I have found, an unmeritorious counterclaim and thereafter refusing the plaintiff’s two offers to settle on terms ultimately favourable to the defendant, was on notice that he had exposed himself potentially to an order to pay the whole of the plaintiff’s costs on the District Court scale. Nevertheless, the plaintiff did barely succeed with its claim and significant court time was devoted to a claim which ultimately was found to be of marginal merit whether it had been pursued in the Magistrates Court or in this court.
In these circumstances, I propose to reduce the costs to be ordered in favour of the plaintiff on its claim because of the issues it failed on. In so doing I also will place some weight on the fact that the plaintiff only succeeded with its claim to a very limited extent. However, the plaintiff should have its costs of defending the counterclaim. I add here that I reject the defendant’s submissions that this is a suitable case for an order that the plaintiff should pay some of the defendant’s costs on account of his partially successful defence of the plaintiff’s claim.
The plaintiff’s claim for indemnity costs
I turn to the plaintiff’s claim that any order for costs in its favour should be on an indemnity basis.
As I have mentioned, the plaintiff bases its claim to indemnity costs on the letters of offer to settle sent to the defendant’s solicitor on 19 June 2001 and 25 September 2001, which were not accepted.
The letter of 19 June 2001 was in the following terms, insofar as is material:
We refer to our letter dated 5 June 2001.
Our client has instructed us that it is prepared to discontinue its action on the basis that your client discontinue his counterclaim and each party bears its own costs.
We note that your client will be liable to pay our client’s costs of any unsuccessful action pursued by him. We have instructions to issue bankruptcy proceedings against your client to recover any outstanding amounts owing to it pursuant to any costs orders granted in its favour.
Please provide your client’s response to this letter as soon as possible. If we have had no response by 22 June 2001, we will assume the offer is rejected.
Yours faithfully
This offer was expressly rejected by letter from the defendant’s solicitors dated 22 June 2001. The plaintiff followed up with its second offer in similar, but not identical, terms, by letter of 25 September 2001:
We refer to our letters dated 19 June 2001 and 25 September 2001.
In an effort to prevent any further costs being incurred by both parties, we are instructed that our client is prepared to discontinue its action on the basis that your client discontinue his counterclaim and that each party bears its own costs.
Please note that this letter is written on a “Calderbank” basis; namely that we reserve the right to draw this letter to the attention of the Court on any issue of costs when it becomes relevant to that issue.
Please consider the above and provide your client’s response within 7 days.
Yours faithfully
No express reply to this offer was ever received. Counsel for the plaintiff submitted that, unlike the first, this second offer imposed no restriction as to by when it had to be accepted. The final sentence was, it was argued, merely a polite request for a response within seven days, and the receipt of such a response was not a condition of the offer. Counsel went so far as to suggest that the offer remained open for acceptance after the lapse of seven days and could have been accepted, for example, a year later. I do not accept these submissions.
In my view, the intent of the offer as formulated and as conveyed to the defendant’s solicitor was that the defendant had seven days within which to consider and respond to the offer. Without forming a concluded view, either the offer was open only for seven days or the plaintiff expressly reserved the right to withdraw the offer at the expiration of the seven days. At the very least, the defendant was confronted with an ambiguity. Even if the latter construction were to apply, the offer would not remain open indefinitely. As soon as the defendant took steps in the further conduct of the litigation, after the elapse of the seven days, which steps indicated to the plaintiff an intention to proceed with the litigation, such is likely to have been construed as a rejection, by conduct, of the offer.
I do not need to consider what particular steps in the litigation by the defendant might have or did, in fact, constitute such conduct. The nett result of this analysis is that the defendant when it received this second offer was faced with an ambiguity as to the period during which it remained open. Furthermore, even if the defendant took the view that it was still open after seven days, he would, properly advised, feel hamstrung as to whether or not to take further steps in the litigation prior to finalising consideration of his response to the offer in the event he reasonably needed more than seven days to do this.
Counsel for the plaintiff submitted that the making of such Calderbank offers rather than formal offers complying with the District Court Rules was justified on the basis that because of the nature of the claim and counterclaim in this litigation, the plaintiff could not fashion an offer, in the terms it wished to proffer, that would have complied with the rules.
Whilst not finally deciding this issue, I do doubt that no amount of creative drafting could have produced an offer to settle which would have satisfied and could have employed the formal procedures of the rules. However, early authorities in this State to the effect that it will only be in exceptional cases where there was some good reason for not employing a formal rules offer that a court will act on an informal offer, no longer appear to apply.[13] Nevertheless, ordinarily such an offer should not impose more onerous obligations on the recipient than would an offer filed in accordance with the rules. Where a rules offer is, for some reason not practicable or possible, any informal offer should be framed in terms consistent with the spirit and intent of the relevant rules.[14]
[13] Morris v McEwen (2005) 92 SASR 281 at [34], [74].
[14] Morris at [1], [36], [74].
In addition to the form of the offer and the extent to which it conforms with the requirements of the rules as to offers, there are a number of factors which a court must have regard to when considering an informal offer to settle[15].
[15] Morris at [1], [2], [75].
In the present case, the plaintiff only allowed the defendant three days in which to consider and respond to the first offer and seven days in which to consider and respond to the second offer. If I am wrong as to the latter, at the very best for the plaintiff the offer in this respect was ambiguous. In neither case did the plaintiff clearly and expressly allow the defendant fourteen days within which to consider and respond to the offer so as to the conform to the spirit and intent of rule 40 insofar as the plaintiff’s offer to resolve the counterclaim was concerned.
It is no answer, to say with respect to the first offer that the defendant was able to consider the offer and respond in the time allowed.[16] As White J in Morris v McEwen[17] said:
I do not regard that consideration as being persuasive. It is to be expected that in every case where solicitors for a party receive an offer, expressed to be open for only a limited time, those solicitors will, in the proper exercise of their professional duty, make all reasonable efforts to obtain their client's instructions with respect to the offer within the time stipulated. If they do not, and the offer lapses, the solicitors may expose themselves to an action in professional negligence from their own client. The response of the plaintiff within the seven-day period in this case is, therefore, explicable as the plaintiff's response to the circumstances dictated by the defendants. Further, and in any event, it is apparent that the defendants did not intend that the plaintiff should have an ongoing opportunity to reconsider the adequacy of the offer.
The trial judge said that the plaintiff could have requested an extension of time in which to consider the offer and he had not. That is so, but again, I do not regard that as being persuasive. Had the defendants' offer been made in a way which was "consistent with the spirit and intent" of r 40, the occasion for such a request would not even have arisen.
[16] Morris at [76]-[77].
[17] (2005) 92 SASR 281 at [77]-[78]
In my view, the fact that the defendant did not respond to the second offer at all is also no answer. The defendant’s failure to respond is to be considered on a similar basis. The failure of the defendant’s solicitor to respond here is again explicable as the defendant’s response in the circumstances dictated by the plaintiff. He can be forgiven, in the circumstances, for thinking that he only had seven days within which to respond. It was a simple matter for the plaintiff to make it plain to the defendant that he had fourteen days to consider and respond to the offer.
In addition, I have other concerns. Whilst the plaintiff offered to forego its own claim to $17,101, it effectively offered nothing on the defendant’s counterclaim which on its face was substantial and nothing towards costs. Had the offer on the counterclaim stood alone it might have been criticised as not proffering a serious offer to settle.[18] In rolling up the settlement proposal, as it did, the plaintiff may avoid this criticism because its offer to forego the $17,101 also operated, in effect, to pay something on the defendant’s counterclaim. However, whether or not the offer, in the circumstances, can properly be characterised as “derisory”[19] its very limited nature is a factor to have regard to. Furthermore, in my view the very nature of the offer in its rolled up form raises a concern. The claim and counterclaim (at least as far as the Perth contract allegations were concerned) raised separate and distinct issues. The defendant was required to abandon the Perth contract claim if he wished to accept the offer to settle the accounting issue. I do not suggest that the plaintiff was not entitled to make a linked and conditional offer in this way but it is another question entirely as to whether, as a matter of fairness, it should enjoy a costs advantage having done this.
[18] Cf; ACCC v Universal Music Australia Pty Ltd (No 2) (2002) 201 ALR 618 at 631-2.
[19] Dukemaster Pty Ltd v Bluehive Pty Ltd [2003] FCAFC 1 at [9].
Another consideration is that the offers were made relatively early in the parties preparation of what turned out to be quite factually difficult litigation. Not all discovery issues had been resolved and the parties’ expert accounting reports in their final or near final form were not in existence. Furthermore, whilst I rejected the defendant’s evidence as to formation of a five year contract for the Perth work, I did so on credibility and reliability grounds only. On my findings it remains open that the defendant genuinely believed in the existence of the Perth contract. Had I accepted his evidence in this respect he would have been entitled to very substantial damages. In addition, there was no attempt by the plaintiff to explain to the defendant the reasons why its counterclaim was certain (on the plaintiff’s case) to fail. Finally, in this context the plaintiff, with its award of $1,189 together with interest, did not better its offer by much at all.
For these reasons, I do not think that the defendant acted imprudently and unreasonably, looking at the counterclaim prospectively at the time, in not accepting the plaintiff’s offer.[20]
[20] Morris at [46], and see generally Seven Network Ltd v News Ltd [2007] FCA 1489 at [50]-[66].
I refuse the plaintiff’s application that any costs awarded in its favour should be taxed on an indemnity basis.
Conclusion
For the reasons set out at paragraphs [5] to [36] above, I order that:
(i)the defendant pay 40% of the plaintiff’s costs of the claim taxed on a party and party basis;
(ii)the defendant pay all of the plaintiff’s costs of the counterclaim taxed on a party and party basis.