State Securities Pty Ltd and Karas v Dromi No 3 (Ruling)
[2011] VCC 980
•27 May 2011
| IN THE COUNTY COURT OF VICTORIA | Revised |
Not Restricted
AT MELBOURNE
CIVIL JURISDICTION
COMMERCIAL LIST
GENERAL DIVISION
Case No. CI-08-00228
| STATE SECURITIES PTY LTD | First Plaintiff |
| (ACN 079 829 495) | |
| and | |
| TOM KARAS | Second Plaintiff |
| v | |
| MARTHA DROMI | Defendant |
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| JUDGE: | HIS HONOUR JUDGE SHELTON |
| WHERE HELD: | Melbourne |
| DATE OF HEARING: | 20 May 2011 |
| DATE OF JUDGMENT: | 27 May 2011 |
| CASE MAY BE CITED AS: | State Securities Pty Ltd and Karas v Dromi No 3 (Ruling) |
| MEDIUM NEUTRAL CITATION: | [2011] VCC 980 |
| RULING AS TO COSTS |
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Catchwords: Open offer to settle – treated as Calderbank offer – whether unreasonable for offeree to reject – effect on costs order of plaintiff’s conduct being tantamount to fraud – Calderbank v Calderbank [1975] 2 All ER 333; Stipanov v Mier (No 2) [2006] VSC 242; Foster v Galea [2008] VSC 331; Hazeldene’s Chicken Farm Pty Ltd v VWA (No 2) (2005) 13 VR 435; Crane Distribution Ltd v O’Loughlin [2000] VSC 373; Oasis Hotel Ltd v Zurich Insurance Co (1981) 124 DLR (3d) 455; Naomi Marble & Granite Pty Ltd v FAI General Insurance Company Ltd (No 2) [1999] 1 Qd R 518
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| APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr I W Upjohn | Lewenberg & Lewenberg |
| For the Defendant | Mr T J Sowden | Gary Prince |
| HIS HONOUR: |
1 On 8 April 2011, I ordered that there be judgment for the first plaintiff in the sum of $13,178.00 and interest of $8,408.95. The question of costs and payment of $128.00 fee on lodging of caveats was adjourned to 20 May 2011. On that date, a number of matters were canvassed in relation to costs.
2 Firstly, Mr Upjohn, who appeared for the plaintiffs, sought to rely upon an open letter from the plaintiffs’ solicitors to the defendant’s solicitor dated 23 April 2009 which stated:
“In the interests of saving costs we are instructed to make an offer to settle the matters in dispute. This is an open offer and may be referred to in Court.
We advise that the plaintiffs will be prepared to accept the sum of $15,000.00 (payable within 30 days of the date of this letter) plus costs to be taxed according to the appropriate Court scale in full and final satisfaction of the plaintiffs’ claim to the brokerage fees.
…
This offer is open for acceptance until the commencement of the trial on
24 April 2009.In the event that the defendant rejects the above offer and the matter proceeds to judicial determination and judgement is ultimately entered in the plaintiff’s favour in an amount equal to or more than the amount of this offer, the plaintiffs intend to apply to the Court for an indemnity costs order against the defendant.”
3 On the basis of this letter, Mr Upjohn, who appeared for the plaintiffs, sought that an order be made that the defendant pay the first plaintiff’s costs to be taxed on Scale D up to 23 April 2009 and thereafter on an indemnity basis. In support of this submission, he further relied upon the manner in which the defendant conducted herself after this date in the litigation.
4 Mr Sowden, who appeared for the defendant, opposed the application.
5 It was common ground that the offer contained in the open letter of 23 April 2009 should be treated in the same manner as a Calderbank offer, so called after Calderbank v Calderbank [1975] 2 All ER 333.
6 Clearly, with the payment of interest, the plaintiffs have obtained a more favourable result than the offer made. Had the offer been made as an offer of compromise under Order 26 of the County Court Civil Procedure Rules 2008, the plaintiffs would normally have been entitled to an order for costs in the form sought by Mr Upjohn. Although there is no form prescribed for an offer of compromise made pursuant to Order 26, the letter of 23 April 2009 cannot be regarded as an offer of compromise made pursuant to Order 26 for two reasons. Firstly, Rule 26.03(3) requires the offer of compromise to be open for acceptance for not less than fourteen days. Here the offer of compromise was only open for one day. Secondly, the letter of 23 April 2009 states that if the offer of compromise is bettered on judgment, an indemnity costs order will be sought. Pursuant to Rule 26.08(2)(b) however, indemnity costs could only be sought after the date of the making of the offer.
7 In Stipanov v Mier (No 2) [2006] VSC 242, Hollingworth J stated, at paragraph 17, that a Calderbank offer does not have any costs consequences “unless the rejection of the offer was unreasonable in all the circumstances”.
8 The onus is on the offeror to demonstrate the unreasonableness of the offeree – see Foster v Galea [2008] VSC 331 per Byrne J at paragraph 9.
9 In Hazeldene’s Chicken Farm Pty Ltd v VWA (No 2) (2005) 13 VR 435 at 442, the Court (Warren CJ, Maxwell P and Harper AJA) stated that a trial judge should ordinarily have regard to at least the following matters in determining the unreasonableness of an offeree when a Calderbank offer was made:
“(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 to 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 an costs event of the offeree’s rejecting it.”
10 I turn to consider these matters:
(a)
As appears from the letter of 23 April 2009, the offer was received on the eve of the commencement of the trial, even though the commencement of the trial was subsequently adjourned to 29 May 2009. However, when the offer was made it was anticipated that the hearing would commence on the following day. Consideration of the offer in the flurry of activity that normally occurs prior to the commencement of a trial would have been difficult. There would have been little time for cool reflection on the offer made.
(b)
The defendant only had one day at most to consider the offer. Rule 26.03(3) provides that an offer of compromise must be open for at least fourteen days, which implies that this is a reasonable period. One day, in my view, is far too short a time to allow an offer of compromise to be considered.
(c)
Seeing that the plaintiffs were claiming $13,178.00 together with interest of $5,803.98 at the time of trial, the plaintiffs were only minimally compromising their claim.
(d)
It would have been somewhat difficult for the defendant, in my view, to assess its prospects of success given that in an eleven-page judgment of 26 June 2009, I found for the defendant. The Court of Appeal set this judgment aside – [2010] VSCA 264, an eighteen-page judgment which remitted the matter to me to answer certain questions. I then handed down a fifteen-page judgment in favour of the first plaintiff.
(e)
The reference to “costs to be taxed according to the appropriate Court scale” lacks some clarity. Is the plaintiff referring to costs on the appropriate County Court Scale or the Magistrates’ Court Scale given that the sum of $15,000.00 is less than half the jurisdictional limit of the Magistrates’ Court, $100,000.00.
(f)
The offer did foreshadow an application for indemnity costs in the event of its rejection.
11 Taking all the above matters into account, the defendant was not, in my view, unreasonable in rejecting the offer made in the letter of 23 April 2009.
12 As indicated, Mr Upjohn sought to rely upon the manner in which the defendant conducted her case and, in particular, withdrawing her admission that she had entered into two brokerage agreements which required the plaintiff to call a handwriting expert. I ultimately found against the defendant on this issue. Mr Upjohn further relied upon various defences taken by the defendant which were not upheld by me and which turned what he submitted was a simple case into a complicated lengthy matter. In my view, however, the first plaintiff can hardly be heard to complain of the conduct of the defendant given comments I have made in my two judgments as to the conduct of the second plaintiff, the manager of the first plaintiff whose sole shareholder and director was his wife and who, I found, engaged in conduct tantamount to fraud.
13 I conclude that the plaintiffs are not entitled to an indemnity costs order from 23 April 2009.
14 At an earlier stage of the proceeding and again on this costs hearing, Mr Sowden submitted that the proceeding could have been brought in the Magistrates’ Court and therefore costs should be awarded on the Magistrates’ Court Scale. On the basis of comments Hedigan J made in Crane Distribution Ltd v O’Loughlin [2000] VSC 373 at paragraphs 17 to 19, it was appropriate for the plaintiffs to bring proceedings in this Court given the value of the properties in respect of which equitable relief was sought which exceeded that of the Magistrates’ Court jurisdiction. The defendant’s solicitor, as early as 4 June 2008, foreshadowed that it might apply to the Magistrates’ Court to have the matter transferred there but did not do this.
15 Mr Sowden further submitted that on the basis of my finding that the two assignments dated 29 June 2007 were a sham, which was a finding tantamount to a finding of fraud against the second plaintiff, I should order that the second plaintiff. as the instigator of the fraud. should bear the costs of the proceeding. He relied upon the following statement of Lambert JA in the British Columbia Court of Appeal in Oasis Hotel Ltd v Zurich Insurance Co (1981) 124 DLR (3d) 455 at 461-462:
“I conclude that there is no authority in Canada that either binds me or persuades me to the conclusion that in a case where the Court is made the instrument to perpetrate a fraud the Court cannot award the costs of the proceedings that are instigated as part of the fraud to be paid by active mind that put the fraud into effect and directed the institution of the Court proceedings.”
In Naomi Marble & Granite Pty Ltd v FAI General Insurance Company Ltd (No 2) [1999] 1 Qd R 518, at 532, Shepherdson J followed the approach taken in Oasis Hotel. He noted that Oasis Hotel was referred to without disapproval by the High Court in Knight v FP Special Assets Ltd (1992) 174 CLR 178 at 192 and 202.
16 I note that in Naomi Marble & Granite, the hearing lasted for 126 days. Here, by contrast, the fraudulent conduct, even though the plaintiffs sought to make the Court an “instrument to perpetuate a fraud”, was only one aspect of the plaintiffs’ claim and my finding that the assignment was a sham meant only that judgment was entered against the first plaintiff and not the second plaintiff.
17 Mr Upjohn stressed that the claim for costs was made on behalf of the first plaintiff and not the second plaintiff. As mentioned, the sole shareholder and director of the first plaintiff was the second plaintiff’s wife. He managed the first plaintiff. There was evidence before me that the second plaintiff’s wife had wearied with the dispute with the defendant and handed the matter to the second plaintiff to “just sort it out”. There is some, but not great, merit in Mr Upjohn’s submission. In all the circumstances, however, it would, in my view, be inappropriate to make a costs order against the second plaintiff as Mr Sowden seeks.
18 I therefore order that the defendant pay the first plaintiff’s costs to be taxed on Scale D.
19 Mr Upjohn sought certification for his appearance fees at $3,300.00 per day plus GST for 2009 and $3,500.00 per day plus GST for 2011. Mr Sowden submitted that I should certify for counsel’s fees by way of refreshers rather than a daily fee. Certifying for a daily fee is now common place in this Court in commercial litigation and I am prepared to so certify. Given that costs have been awarded on a party and party, I certify for plaintiffs’ counsel’s fees at $3,000.00 per day.
20 I order that the defendant pay the first plaintiff’s costs of lodging two caveats, $128.00, the making of such an order not being opposed.
21 Subject to any further submissions by the parties on the question of costs, I am therefore prepared to make orders as follows:
(1) The defendant pay the first plaintiff’s costs of the proceeding, including
reserved costs, to be taxed on Scale D.(2) Certify for plaintiffs’ counsel for 29 May, 1, 3, 4, 5 and 9 June and 3
March at $3,000.00 per day.(3) The defendant pay the first plaintiff’s costs of lodging two caveats,
$128.00.(4) Liberty to apply on the question of costs. 22 To save the costs of yet another appearance, I am forwarding these reasons to the parties’ legal representatives by email.
23 I would ask that my associate be notified within seven days if there is any comment upon the proposed form of orders, failing which I will make the orders indicated. Hopefully the matter can be finalised without the need for a further appearance.
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