Southstar Homes Pty Ltd v Form8 Constructions Pty Ltd (No 2)
[2023] VCC 1545
•1 September 2023 (revised 1 September 2023)
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
Case No. CI-22-02214
| SOUTHSTAR HOMES PTY LTD (ACN 096 297 022) | Plaintiff |
| v | |
| FORM8 CONSTRUCTIONS PTY LTD (ACN 629 634 215) BRENDON FEENEY NICOLA SOFIA KARAKATSANIS | First defendant Second defendant Third defendant |
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JUDGE: | HIS HONOUR JUDGE COSGRAVE | |
WHERE HELD: | MELBOURNE | |
DATE OF HEARING: | Determined on the papers (the parties provided written submissions to the court on 23 August 2023 and reply submissions on 28 August 2023) | |
DATE OF JUDGMENT: | 1 September 2023 (revised 1 September 2023) | |
CASE MAY BE CITED AS: | Southstar Homes Pty Ltd v Form8 Constructions Pty Ltd & Ors (No 2) | |
MEDIUM NEUTRAL CITATION: | [2023] VCC 1545 | |
REASONS FOR JUDGMENT (No 2)
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Subject: FINAL ORDERS – INTEREST – COSTS
Catchwords: Section 58 of the Supreme Court Act 1986 – good cause to the contrary – Calderbank offer – interim stay of order
Legislation Cited: County Court Act 1958 – Supreme Court Act 1986
Cases Cited:BHP Billiton Olympic Dam Corporation Pty Ltd v Steuler Industriewerke GmbH (No 3) [2012] VSC 414 - Indrisie v General Credits Ltd [1985] VR 251 - PGA Group Pty Ltd v Idameneo (No. 789) Limited(formerly Symbion Health Limited); (No.2); Peter Gunn v Idameneo (No. 789) Limited (formerly Symbion Health Limited) (No. 2) [2011] VSC 420 - Southstar Homes Pty Ltd v Form8 Constructions Pty Ltd & Ors [2023] VCC 1420 - University of Sydney v Raine & Horne Commercial (NSW) Pty Ltd [1999] VSC 123 - Willetts v Dimos (Unreported, Supreme Court of Victoria, Smith J, No 9150/91, 9 February, 27 February 1998)
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr L Freckelton | Baker Jones |
| For the Defendants | Mr B Petrie | Rigby Cooke |
HIS HONOUR:
1I handed down reasons for judgment in this matter on 17 August 2023 (“the principal reasons”). At the conclusion of the judgment, I directed that the parties file submissions regarding the orders (including orders about costs) giving effect to the judgment. Since then, the parties filed initial submissions on 23 August 2023 and then reply submissions on 28 August 2023. These reasons employ the same terminology as that used in the principal reasons and assume familiarity with those reasons.
2The parties agreed upon orders to the effect that the second and third defendants pay the plaintiff $340,000 and that the amounts previously paid by way of security for costs be repaid to the plaintiff. However, the parties did not agree on the questions of interest or costs. Also, the defendants seek a stay. It is these issues which I need to address.
Interest
3Southstar contends that interest on the amount of $340,000 should be paid from 19 September 2020, being the date that the amount became due and payable under the Deed. It relies upon section 58(1) of the Supreme Court Act 1986 (“SCA”). Southstar contends that there is no good reason to the contrary why interest should not be allowed.
4Southstar submits that the judgment found that the Settlement Sum became immediately due and payable and that this amount was recoverable as a liquidated sum. The cash instalment payments were due to begin on 17 September 2020, being the date eight months after the parties entered into the Deed. Because no payments were made, the date of default was 18 September 2020 at which time the whole of the Settlement Sum became due.
5Feeney and Karakatsanis contended that interest should be calculated from 10 June 2022 when Southstar filed the proceeding at court. They argue that interest should be awarded on the basis set out in section 60 of the SCA. They submit that there was no demand by Southstar and hence, the concept of the court awarding interest consistent with the approach in section 58 of the SCA, namely, from “when the amount became payable or demand served” was inapplicable. They said that there was no demand made until Southstar issued the proceeding. The defendants noted the chronology of events: Southstar went into administration on 7 April 2020; it executed a deed of company arrangement in August 2020; the deed of company arrangement terminated on 5 August 2021; Southstar assigned its claims under the Deed to Stephen Mansour trading as Mansour Lawyers (“Mansour”) on 12 August 2021; and Mansour assigned those same rights back to Southstar on 14 April 2022. Feeney and Karakatsanis contended that, in the circumstances, it was not reasonable to punish them for the plaintiff’s delay in prosecuting its claim.
Analysis
6Southstar seeks interest under section 58 of the SCA, which is applicable by operation of section 50 of the County Court Act 1958. Section 58 is in the following terms:
(1) If in a proceeding a debt or sum certain is recovered, the Court must on application, unless good cause is shown to the contrary, allow interest to the creditor on the debt or sum at a rate not exceeding the rate for the time being fixed under section 2 of the Penalty Interest Rates Act 1983 or, in respect of any bill of exchange or promissory note, at 2% per annum more than that rate from the time when the debt or sum was payable (if payable by virtue of some written instrument and at a date or time certain) or, if payable otherwise, then from the time when demand of payment was made.
(2) Subsection (1) does not authorise the computation of interest on any bill of exchange or promissory note at a higher rate than the rate for the time being fixed under section 2 of the Penalty Interest Rates Act 1983 if there has been no defence pleaded.
(3) A debt or sum payable or a date or time is to be taken to be certain if it has become certain.
7The defendant guarantors seek to reduce the interest payable on the ground of Southstar’s delay in bringing the claim. They say that this factor constitutes “good cause to the contrary” within section 58(1) of the SCA.
8What constitutes good cause in any given case will depend upon the particular facts of each case. In order to refuse interest from 19 September 2020, I need to be satisfied that there is good reason. The statutory purpose of an award of interest is first, to compensate a plaintiff for the detriment suffered by being kept out of its money and secondly, to encourage the early resolution of litigation. The “good cause” requirement has to be assessed against those objectives of the interest provision in the statute.
9The authorities are clear that undue delay in beginning or prosecuting litigation can constitute a “good cause” for either not allowing interest, or reducing the time for which interest is allowed to be claimed, or reducing the rate at which interest is allowed to be claimed.[1]
[1]See PGA Group Pty Ltd v Idameneo (No. 789) Limited (formerly Symbion Health Limited); (No.2); Peter Gunn v Idameneo (No. 789) Limited (formerly Symbion Health Limited) (No. 2) [2011] VSC 420 at [4]-[6]; Willetts v Dimos (Unreported, Supreme Court of Victoria, Smith J, No 9150/91, 9 February, 27 February 1998); University of Sydney v Raine & Horne Commercial (NSW) Pty Ltd [1999] VSC 123 at [41] and the cases quoted therein.
10There has been delay in commencing this proceeding. Initially the problem was Southstar entering administration and then executing a deed of company administration about four months later. During this time, the former director, Tino Filippelli, did not control the company. Filippelli regained control of Southstar in August 2021. Southstar then began the process of assigning its claims to Mansour and then taking an assignment back from Mansour. In the meantime, Mansour commenced a proceeding in this court against the guarantors and then discontinued the proceeding. Southstar then filed the writ in this proceeding on 10 June 2022.
11Although the major cause of Southstar’s financial problems in 2020 concerned a joinery business, Form8 nonetheless contributed to Southstar’s economic demise. I do not think it appropriate to criticise Southstar for the initial delay when the company went into administration. It was not a situation in which Southstar was controlled by Filippelli and he chose not to move forward with the proceeding. However, the delay associated with the assignment and re-assignment involving Mansour is in a different category. Filippelli did not explain or justify this development satisfactorily and it plainly affected the commencement of this proceeding.
12In the circumstances, I am of the view that Southstar is entitled to interest in accordance with section 58 of the SCA from 19 September 2020. But I exclude from the applicable period the time between 12 August 2021 when Southstar assigned its claims to Mansour, and 14 April 2022 when Filippelli regained control of Southstar’s claim against Feeney and Karakatsanis.
Costs
13The plaintiff seeks costs calculated on a standard basis up to 22 May 2023, and indemnity costs thereafter. The plaintiff relies upon a letter sent to the defendants’ solicitors on 22 May 2023 which contained an offer to settle all claims and all costs in the proceeding for the amount of $120,000. This offer was expressed as a Calderbank offer and foreshadowed an application for indemnity costs if the offer were refused.
14The Calderbank offer was in the following terms (so far as material):
“As stated during the mediation, our client contends that:
1. The interpretation of the deed advanced by your client ignores a plain reading of the document and would result in your client receiving a windfall gain to the value of the credit of $345,000 plus GST.
2. There is no evidence that the Walpole Street subcontract was ever signed by both parties.
3. Even if the Walpole Street subcontract was entered into:
(a) Your client’s claim for the amount invoiced by PTX Pty Ltd for the design of post tension concrete framework in the amount of $17,600.00 will fail because your client’s own costings only allowed $10,000 for this item and our client’s evidence is that those drawings were incorrect;
(b) The amount invoiced by Arc X for steel in the amount of $37,915.53 for steel (sic) will fail because our client’s site manager will confirm that steel was never delivered;
(c) there is no evidence that your client advanced the Walpole Street contract past the items set out above, (sic) did any of the work that would have justified the amount of the credit being discussed; and
(d) there is no evidence of the loss and damage claimed in your client’s Defence.
However, in the interests of avoiding further litigation, our client is prepared to settle the above proceeding by accepting the total sum of $120,000 in full and final settlement of all claims and all costs arising from the circumstances of the above proceeding.
This offer is open to be accepted by your client until close of business on Friday, 2 June 2023, after which it will lapse and be of no further force or effect.
In the event that this offer is not accepted and our client obtains a result at trial greater than the amount of this offer, our client will rely on this letter on the question of its costs of the above proceeding on an indemnity basis from this point forward in accordance with the principles enunciated in Calderbank v Calderbank ([1975] 3 All ER 333, C.A.) and as subsequently judicially applied.”
Legal principles
Calderbank offers
15The legal principles in relation to Calderbank offers were conveniently and comprehensively summarised by Habersberger J in BHP Billiton Olympic Dam Corporation Pty Ltd v Steuler Industriewerke GmbH (No 3),[2] where he said:[3]
[2][2012] VSC 414
[3] Ibid [58]
“Steuler next based its claim for indemnity costs in respect of part of the proceedings on the existence of seven separate offers of settlement, some of which were made in accordance with the decision in Calderbank v Calderbank. There are a number of relevant principles regarding Calderbank offers of settlement which it is appropriate to note before examining each of the offers made by Steuler. The standard starting point for such an examination is the joint judgment of Warren CJ, Maxwell P and Harper AJA in Hazeldene’s Chicken Farm Pty Ld v Victorian Workcover Authority (No 2) (“Hazeldene”).
First, the fact that a less favourable result is achieved does not give rise to a presumption of a special costs order. The making of an offer and its rejection are “but two albeit important circumstances” to which the Court will have regard in the exercise of its costs discretion.
Secondly, the competing policy objectives relevant to the exercise of the costs discretion are principally the desirability of promoting settlement and reducing litigation costs as against the undesirability of discouraging potential litigants from bringing their dispute to the courts.
Thirdly, the critical question is whether the rejection of the offer was unreasonable in the circumstances. As the Court of Appeal said in Hazeldene:
In our view, these competing considerations can be sufficiently accommodated by applying a test of (un)reasonableness. The critical question is whether the rejection of the offer was unreasonable in the circumstances. We see no justification for a more stringent test such as “manifestly” or “plainly” unreasonable.
Fourthly, a court considering submissions that the rejection of a Calderbank offer was unreasonable should ordinarily have regard at least to the following matters:
(a) the stage of the proceeding at which the offer was received;
(b) the time allowed for 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 rejecting it.
Fifthly, as the determination of whether it was unreasonable for the offeree to have rejected the offer is made “as at the time, or within a reasonably short time after, the offer” was made, the Court should not too readily embrace submissions that it was inevitable that the proceedings would fail. As Hamilton J put it in Grynberg v Muller:
These submissions focus the bright light of hindsight. Hindsight sings a siren song of which Judges must be cautious …
Sixthly, the onus lies on the offeror to demonstrate the unreasonableness of the offeree’s rejection of the offer. This means that it is necessary to analyse what was proposed.
Seventhly, there is no general rule that the Calderbank offer must set out with specificity the basis for the offeror’s contention that the offeree should accept the compromise. Whether there is a need to do so depends upon a consideration of all of the circumstances existing at the time of the offer.
Eighthly, it is not necessary for the applicant for an indemnity costs order to establish matters which might be relevant to other, well-recognised, grounds for indemnity costs. Such conduct is not a pre-requisite for a finding that the rejection of the Calderbank offer was unreasonable.
Ninthly, an “all in” offer is permitted in a Calderbank offer.”[4]
[4]Ibid at [58]-[67]
16Southstar contends that:
· its offer represented a major discount on the amount it claimed in the writ;
· its offer excluded any claim for interest and costs;
· the defendants had ample time in which to consider the offer;
· in the circumstances, it was imprudent and unreasonable for the defendants to reject the offer.
17For their part, the guarantors contended that while the plaintiff achieved a better outcome in the litigation than it sought in the offer, the allegation about the implied term upon which the plaintiff succeeded at trial was only raised for the first time on 10 July 2023 when the plaintiff applied to amend its statement of claim. By this time, the offer had expired over a month earlier. In the circumstances pertaining at the time the offer was made, the defendants argued that it was not unreasonable to reject it.
Analysis
18I note that the offer referred to certain aspects of the Walpole Street project which the defendants raised in order to reduce their possible exposure to the plaintiff. For reasons which were not explained at trial, the defendants did not seek to raise any formal set-off or counterclaim against the plaintiff in relation to the goods and services rendered to Form8 by ARC and PTX.[5] Had the evidence and submissions addressed these matters in more detail, the liability of Feeney and Karakatsanis might have been reduced if Form8 had received credit for the costs it incurred in connection with the Walpole Street project.
[5]Perhaps it was due to one or more of the legal issues which the guarantors faced in Indrisie v General Credits Ltd [1985] VR 251.
19The guarantors do not appear to have responded in writing to the offer from Southstar. Because of that, it is not clear precisely why they rejected the offer. To the extent that the conduct of the trial provides any guidance, it appears that the guarantors considered that they had solid legal arguments for opposing the claim. Certainly, the case raised some difficult issues. Overall, I accept that the guarantors acted reasonably in raising some points which were plainly arguable and not without merit.
20In circumstances where:
· Feeney and Karakatsanis had points to raise in their defence;
· some of these points were clearly arguable and depended ultimately upon the court’s view of the matter – if the court accepted the defendants’ argument, they would not be liable;
· the implied term was important to the outcome of the case; and
· the amendment of the statement of claim introducing the implied term occurred weeks after the time for accepting the Calderbank offer had expired
I do not consider that Feeney and Karakatsanis acted unreasonably in rejecting the offer.
21The offer was clear, allowed ample time for acceptance, and foreshadowed the application for indemnity costs. From Southstar’s perspective, it represented a real compromise. While it was made at a time in the proceeding when the parties should have been aware of their respective positions and the case to be met at trial, the offer pre-dated Southstar’s amendment which introduced the implied term. Until then, the defendants had a reasonably arguable case to contend they should not be liable. I consider that it is appropriate to award Southstar costs on a standard basis.
Application for stay
22Feeney and Karakatsanis seek a stay of the court’s orders for at least 42 days from when the final orders are made so that they have sufficient time to apply to the Court of Appeal for a further stay.
23Feeney and Karakatsanis say that:
· unless a stay is granted, there is a chance that any money paid to Southstar would become irrecoverable if the defendants succeed with their appeal. To that extent, the appeal would be rendered nugatory.
· Southstar has a poor financial history. Apart from its issues regarding the administration and the entry into the deed of company administration, it has only $3 paid-up share capital.
24Southstar contends that prima facie, a successful litigant is entitled to the benefit of the judgment given in its favour. The applicant seeking a stay therefore bears the onus of demonstrating that the stay is justified.
25An applicant seeking a stay must show that the circumstances of the case are sufficient to render it inappropriate to follow the general rule that the launching of an appeal does not automatically operate as a stay. Southstar acknowledges that it could be a sufficient basis on which to grant a stay if a successful appellant were to be deprived of the fruits of its appeal because a stay was not granted.
26The prospect that an appeal might be rendered nugatory must be balanced against the principle that the successful party at first instance should be able to execute upon its judgment. Southstar says that a stay should not be granted unless there is an arguable ground for appeal and that the court should not speculate about the ultimate prospects of success. It also contended that the guarantors have not pointed to an arguable ground of appeal, have not offered an undertaking as to damages and have not filed any evidence which would justify the grant of a stay.
Analysis
27I accept that:
· the appeal foreshadowed by the defendant guarantors does not operate as a stay
· prima facie, Southstar, as the successful party at first instance, is entitled to the benefit of its judgment
· Feeney and Karakatsanis bear the onus of establishing it is appropriate to grant a stay
· if an appeal might be rendered nugatory, that is a relevant factor in deciding whether or not to grant a stay.
28The facts of this case reveal that in recent years, Southstar has suffered financial problems. It incurred significant debts which it was unable to meet and, although it had operated successfully in the building industry for about 20 years, it fell into administration. It has minimal paid-up capital and the court in this case ordered Southstar to provide security for costs of $90,000. If the appeal succeeds and the guarantors received nothing to meet their costs, that would represent an unfair outcome for the guarantors.
29Thus far, the defendants have not filed any specific evidence about the stay. But for present purposes, I accept the defendants’ assurance that they will lodge an appeal and argue, inter alia, that the judgment was incorrect regarding the implied term. Given the defendants’ proposed course of conduct, I consider the best approach is to require them to make a prompt application to the Court of Appeal for a further stay.
30In the circumstances I regard it as appropriate to order an interim stay pending the lodging of the appeal and an application to the Court of Appeal to extend the stay. In order to provide Southstar some measure of protection, I direct that any appeal be initiated and the application for further stay be filed within 21 days of today. Given that the principal reasons were handed down over two weeks ago, that does not impose an undue burden on the guarantors. I also direct the defendants to take all reasonable measures to have the stay application heard by the Court of Appeal as soon as the Court can conveniently accommodate it.
Conclusion
31For the reasons set out I find that Southstar is entitled to interest in accordance with section 58 of the SCA from 19 September 2020 to the date of final orders. However, I exclude from the applicable period the time between 12 August 2021 and 14 April 2022. I consider that it is appropriate to award Southstar costs on a standard basis. Finally, I will order an interim stay pending the lodging of the appeal and an application to the Court of Appeal to extend the stay. I order that any application for a further stay be filed within 21 days of the date of judgment.
32For the reasons set out I make the following orders:
1.The second and third defendants pay the sum of $340,000 to the plaintiff.
2.The second and third defendants pay interest on the sum of $340,000 to the plaintiff calculated at the rate prescribed by section 2 of the Penalty Interest Rates Act 1983 from 19 September 2020 to 1 September 2023, excluding the period of time between 12 August 2021 and 14 April 2022, being the sum of $77,501.37.
3.The second and third defendants pay the plaintiff’s costs of the proceeding, including reserved costs, such costs to be taxed on a standard basis in default of agreement.
4.The amounts paid by the plaintiff into Court as security for the defendants’ costs of the proceeding, namely the amount of $40,000 paid on 22 November 2022 and the amount of $50,000 paid on 6 July 2023, together with any interest thereon, be repaid to the plaintiff.
5.Orders 1 to 4 be stayed:
a.for a period of 21 days from the date of this Judgment; and
b.until the hearing and determination by the Court of Appeal of any application for a further stay, provided such application is filed in the Court of Appeal within 21 days from the date of this Judgment.
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