Steadfast ICT Security Pty Ltd v Peak (No 3)
[2022] ACTSC 31
SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
Case Title: | Steadfast ICT Security Pty Ltd v Peak (No 3) |
Citation: | [2022] ACTSC 31 |
Hearing Date: | Decided on written submissions |
DecisionDate: | 1 March 2022 |
Before: | Mossop J |
Decision: | See [27] |
Catchwords: | COSTS – APPLICATION FOR COSTS – Plaintiff seeks costs from the first and fourth defendants on an indemnity basis – where judgment for the plaintiff was significantly more favourable than the plaintiff’s Calderbank offer – all defendants conducted a joint defence and jointly propounded a false narrative to the plaintiff – the defendants’ stance in relation to multiple settlement offers was unreasonable in the circumstances – solicitor and client costs awarded from the date the defendants rejected the initial Calderbank offer COSTS – APPLICATION FOR COSTS – Plaintiff seeks costs from the second, third and fifth defendants on an indemnity basis from the date the plaintiff made a second Calderbank offer – only declaratory relief was granted against the second and fifth defendant but relief included declarations of breach of fiduciary duty – third defendant rejected a settlement offer more favourable than the ultimate outcome of the case – causal connection between the third defendant’s conduct and the plaintiff’s losses and fourth defendant’s profits was not so clear as to make it unreasonable in the circumstances to reject the settlement offer – party and party costs awarded |
Legislation Cited: | Corporations Act 2001 (Cth), s 182 Court Procedures Rules 2006 (ACT), rr 1727, 1751, 1752 |
Cases Cited: | Hulanicki v Walton (No 2) [2015] ACTCA 45 Steadfast ICT Security Pty Ltd v Peak [2021] ACTSC 199 Steadfast ICT Security Pty Ltd v Peak (No 2) [2021] ACTSC 319 |
Parties: | Steadfast ICT Security Pty Ltd ( Plaintiff) Gareth Peak ( First Defendant) Lachlan Watt (Second Defendant) Nenad Stefanovic (Third Defendant) Dreamtime Supply Company Pty Ltd (Fourth Defendant) David Stephen Glavonjic (Fifth Defendant) |
Representation: | Counsel E Cox SC and A Munro ( Plaintiff) B Buckland (Defendants) |
| Solicitors Mackenzie Workplace Law ( Plaintiff) Bradley Allen Love (Defendants) | |
File Number: | SC 333 of 2019 |
MOSSOP J:
Introduction
I have delivered two previous judgments in relation to this matter: see Steadfast ICT Security Pty Ltd v Peak [2021] ACTSC 199 (Steadfast No 1) and Steadfast ICT Security Pty Ltd v Peak (No 2) [2021] ACTSC 319 (Steadfast No 2). These reasons relate to the costs. In these reasons, I refer to the parties in the same manner that I did in my two substantive judgements.
On 30 August 2021, I made orders that Dreamtime Supply Company Pty Ltd (Dreamtime) account to Steadfast ICT Security Pty Ltd (Steadfast) for profits in equity in the sum of $1,187,249.64: see Steadfast No 1 at [452].
On 17 December 2021, I made orders relating to the claims against Mr Peak, Mr Watt, Mr Stefanovic and Mr Glavonjic. Declarations were made of breach of duty by each of these defendants. However, orders to pay compensation were only made against Mr Peak (in the sum of $1,187,249.64) and in relation to Mr Stefanovic (in the sum of $202,378.75): see Steadfast No 2 at [80].
The plaintiff has sought orders that:
(a)Mr Peak and Dreamtime pay costs on an “ordinary basis” up to 12 April 2021 and on an indemnity basis after 12 April 2021; and
(b)Mr Stefanovic, Mr Glavonjic and Mr Watt pay costs on an “ordinary basis” up to 28 April 2021 and that costs be assessed on an indemnity basis after 28 April 2021.
The reference to the “ordinary basis” reflects a New South Wales-centric approach, where that expression has a statutory meaning. The intention, however, was that the “ordinary basis” reflect party and party costs as referred to in r 1751 of the Court Procedures Rules 2006 (ACT).
The defendants accepted that costs would follow the event in relation to Dreamtime and Mr Peak. However, they submitted that only a portion of the plaintiff’s costs should be payable by Mr Stefanovic and that there should be no order as to costs in relation to Mr Glavonjic and Mr Watt. They submitted that overall, the plaintiff should only recover a proportion of its costs, in the order of 70 percent, given the result of the proceedings against Mr Watt and Mr Glavonjic.
Principles
The relevant principles are as summarised in Hulanicki v Walton (No 2) [2015] ACTCA 45 at [11]-[16]:
11.Despite the costs discretion conferred upon this Court (and courts generally), it is settled practice that, absent any special circumstances, a successful litigant is entitled to recover their costs from the opposing party: Oshlack v Richmond River Council (1998) 193 CLR 72 at 86; Pires v DibbsBarker Canberra Pty Limited at [92]. An order to this effect is commonly described as “costs follow the event”: Singer v Berghouse (1993) 114 ALR 521 at [5] per Gaudron J. Ordinarily, costs follow the event and are awarded on a party/party basis: r 1751 of the CPR.
12.However, “[t]he disposition which is ultimately to be made in any case where there are competing considerations will reflect a broad evaluative judgment of what justice requires”: Gray v Richards [No 2] [2014] HCA 47 at [2].
13.The acceptance of reasonable offers of compromise is in the interests of litigants and the public; it minimises the personal and financial costs to litigants and it enables the courts to focus resources on claims that are not amenable to compromise. “The non-acceptance of a Calderbank offer is a factor, in some cases a strong factor, to be taken into account on an application for indemnity costs”: Stewart v Atco Controls Pty Ltd (In Liquidation) (No 2) (2014) 252 CLR 331 at [4]. On the other hand, it is critical that litigants have ready access to justice and do not feel unreasonably constrained to compromise cases.
14.When a Calderbank offer has been made, the issue is whether it was unreasonable to reject the offer, considering all the circumstances of the case, including the apparent strength of each party’s case at the time that the offer was made: Quirk v Bawden (1992) 112 ACTR 1 at 6; Leichhardt Municipal Council v Green [2004] NSWCA 341 at [56]; South Eastern Sydney Area Health Service v King [2006] NSWCA 2 at [90]. In Hazeldene’s Chicken Farm Pty Ltd v Victorian Workcover Authority (No 2) (2005) 13 VR 435 at [25] the Victorian Court of Appeal noted that other matters that should be taken into consideration when evaluating the reasonableness of a rejection are:
(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.
(f)Whether the offer foreshadowed an application for indemnity costs in the event of the offeree’s rejecting it.
15.Even where it is found that a Calderbank offer should have been accepted and the offeree achieves a result that is no better than the offer, it does not automatically follow that indemnity costs will be awarded against the offeree: Evans v Braddock (No 2) [2015] NSWSC 518 at [49]
16.The applicant for indemnity costs bears the onus of showing that rejection of the offer was unreasonable: Evans Shire Council v Richardson (No 2) [2006] NSWCA 61 at [26]; Vizovitis v Ryan (No 2) [2014] ACTSC 301 at [17].
Calderbank offers
Prior to the hearing, the following settlement offers were made by the parties:
(a)On 1 April 2021, the defendants offered to settle the matter on the basis of judgment against each of the defendants except for Mr Watt in the sum of $82,500, that those defendants would be jointly and severally liable for that amount and that those defendants would pay three-quarters of the plaintiff’s costs as agreed or assessed subject to r 1725 of the Court Procedures Rules. There was required to be judgment for the second defendant with no order as to the costs of those proceedings. The offer was open until 22 April 2021.
(b)On 12 April 2021, the plaintiff made an offer of settlement to the defendants. The plaintiff indicated that it would accept the sum of $400,000 from the defendants, plus costs on an “ordinary basis” (which would have been understood as a party and party basis). The defendants were to be jointly and severally liable for the judgment amount. The offer was open until 26 April 2021.
(c)On 15 April 2021, the plaintiff’s offer was rejected. A revised Calderbank offer was put. It involved all defendants paying a total of $88,000, being jointly and severally liable for this amount and paying 80 percent of the plaintiff’s costs but subject to r 1725 of the Court Procedures Rules. The offer was open until 27 April 2021.
(d)On 23 April 2021, the defendants made a further offer of $99,000 for which they would be jointly and severally liable and to pay the plaintiff’s costs but subject to r 1725 of the Court Procedures Rules. The offer was open until 29 April 2021.
(e)On 28 April 2021, the plaintiff made a Calderbank offer which involved judgment against the defendants in the sum of $150,000, that the defendants be jointly and severally liable for this amount and that the defendants pay the plaintiff’s costs on an “ordinary basis”. It is clear from the letter that this was intended to convey that costs would be assessed without regard to the limitations in r 1725.
At the time of the making of the Calderbank offers, both sides were aware of the evidence upon which they were to rely. The 10-day hearing was listed to commence on 3 May 2021. The terms of each offer were clear. The offers were open for a reasonable time.
Having regard to the material available and the nature of the correspondence passing between the parties, it is clear that the plaintiff’s offer on 12 April 2021 was a genuine attempt to settle the case and not merely an attempt to trigger a costs sanction against the defendants. The genuineness of the plaintiff’s attempt to settle was emphasised by its subsequent offer of $150,000 plus costs.
Plainly, the plaintiff has obtained a judgment against Peak and Dreamtime considerably more favourable than the judgment for which it offered to settle in its letter of 12 April 2021. The further offer made on 28 April 2021 for the lesser sum of $150,000 was also rejected by the defendants. The plaintiff has also obtained a judgment against Mr Stefanovic more favourable than this offer.
Dreamtime
The judgment against Dreamtime significantly exceeded the amount in relation to which the plaintiff had offered to settle the proceedings against all defendants. The precise arrangement between the defendants resulting in joint representation is not disclosed by the evidence.
So far as the terms of the offer were concerned, no submission was made arising from the erroneous reference to costs being payable on the “ordinary basis”. In my view, so far as Dreamtime is concerned, the rejection of the plaintiff’s offer of 12 April 2021 was unreasonable and warrants the making of an order for costs more favourable than an order for costs on a party and party basis. The reasons for that are as follows.
The point at which the offers were made was in the immediate run up to the trial, which was listed to commence on 3 May 2021. At the time of the offers the key affidavit evidence of both parties had been served. Both the letter from the defendants on 1 April 2021 and the letter from the plaintiff on 12 April 2021 contained detailed discussions of the amount of damages or compensation likely to be recovered. It is clear, having regard to the detailed nature of the evidence referred to in the letters of 1 April 2021 and 12 April 2021, that the parties had a detailed understanding of the case and the evidence to be led by each side at the time when the letters were written.
It must however be recognised that the pleading of the plaintiff’s claim was less than ideal. In particular, the smorgasbord of causes of action pleaded against the different defendants tended to obscure rather than emphasise the principal basis upon which the plaintiff succeeded against the first defendant at trial, namely an account of profits received by a knowing participant in Mr Peak’s breach of fiduciary duty. Minor amendments were made to the pleading at the beginning of the trial, but these amendments do not affect the assessment of the reasonableness of the position adopted by the defendants when making and responding to offers of settlement.
The question of the reasonableness of the defendants’ conduct may be resolved by examining their approach to the factual basis for the plaintiff’s claim. The position adopted by the defendants was based upon the proposition that Mr Peak gave honest evidence as to his reasoning for the creation of the “Transition Document”. Even though that was accepted as “ill-advised”, it reflected his concerns about the business being “derailed” by Mr Joy and Ms Batley and anticipated the Steadfast business dying: see the letter of 1 April 2021 at [14]. To adopt such a position in light of the affidavit evidence that was available at that point was unreasonable. As the principal judgment makes clear, an assessment of the contemporaneous documentation reflects a thoroughly dishonest course of conduct on Mr Peak’s behalf: see Steadfast No 1 at [255]-[261]. That course of conduct was undertaken with the knowledge and support of Mr Glavonjic, Mr Stefanovic and, to a lesser extent, Mr Watt. It is important to bear in mind that the assessment of the plaintiff’s evidence was to be undertaken in the context of full knowledge on the part of Mr Peak, and hence the other defendants, of the full details of what he had done. This was knowledge denied to the plaintiff. However, even that which was disclosed by the forensic reconstruction evidenced in Mr Joy’s affidavit evidence ought to have been sufficient to disclose that the anodyne explanation contended for in the defendants’ letter of 1 April 2021 was unlikely to be accepted. The position adopted by the defendants involved the propounding of a false narrative to the plaintiff. While this false narrative may have been propounded in the hope that it would persuade either the plaintiff or the court, that does not demonstrate that it was a reasonable approach to adopt. On the contrary, in light of the facts as found, which must have been known to the defendants, the stance that they adopted in relation to settlement offers was unreasonable.
In my view, having regard to the definitions of solicitor and client basis and indemnity basis (see rr 1752(3) and 1752(4) of the Court Procedures Rules), in the absence of evidence as to the terms upon which the plaintiff’s solicitors were engaged, it is appropriate to make an order for costs on the former rather than the latter basis. I will therefore order that the fourth defendant pay the plaintiff’s costs of the proceedings from 15 April 2021 on a solicitor and client basis. The reason for selecting 15 April 2021 rather than 12 April 2021 is that it is the date upon which the offer of settlement was rejected as opposed to when it was made.
Mr Peak
The position in relation to Mr Peak is the same as in relation to Dreamtime. The amount of the judgment awarded against him was the same as against Dreamtime. He was aware of what he had done and hence aware of the full range of his conduct insofar as it went beyond what could be demonstrated by the plaintiff’s evidence arising from the forensic reconstruction. For the reasons given in relation to Dreamtime, the rejection of the plaintiff’s offer was unreasonable. The appropriateness of the making of an order on a better-than-usual basis is reinforced by the fact that what was proved were very significant breaches of his fiduciary obligations to the plaintiff. The order will be that the first defendant pay the plaintiff’s costs of the proceedings from 15 April 2021 on a solicitor and client basis. The reason for that date is explained above.
Mr Watt
So far as Mr Watt, Mr Stefanovic and Mr Glavonjic are concerned, it is significant that the findings of the court included findings of dishonesty on the part of Mr Peak in the course of conduct that he adopted and that each of the other individual defendants were aware, at least in general terms, of that course of conduct. Notwithstanding that, each participated in a joint defence of the proceedings which sought to downplay or excuse Mr Peak’s course of conduct. While a money judgment has only been entered against some of the defendants, relief has been granted against each defendant and the position of the plaintiff vindicated to that extent. Mr Watt, Mr Stefanovic, and Mr Glavonjic at no time sought to distance themselves in the proceedings from the dishonest course of conduct engaged in by Mr Peak.
Only declaratory relief was granted in relation to Mr Watt. The relevant conduct involved a breach of his employment contract, his fiduciary duty and s 182 of the Corporations Act 2001 (Cth): see Steadfast No 2 at [35].
The defendants submitted that a money judgment was the primary goal of the proceedings and declaratory relief was only ancillary. They therefore submitted that the absence of a money judgment against Mr Watt meant that there should be no order as to costs of the proceedings against him.
I do not accept that submission. Relief was granted against him in the form of a declaration. That this may not have been the primary purpose of the plaintiff in bringing the proceedings does not detract from the proposition that relief was granted. It is significant that one of the declarations related to a breach of fiduciary duty. Such duties are of considerable significance and a declaration of breach should not be treated lightly. Having regard to the very significant judgments entered against the first, third and fourth defendants, I do not consider that the making of the joint offers of settlement by the defendant along with the other defendants, which might involve the payment of a money sum, provide any reason to deny to the plaintiff the cost of the proceedings against Mr Watt.
Mr Stefanovic
The order made against Mr Stefanovic was for an amount which was less than the amount which the plaintiff offered to settle on 12 April 2021, but more than the amount which the plaintiff offered to settle on 28 April 2021. The plaintiff is clearly entitled to an order for costs against Mr Stefanovic. Notwithstanding that Mr Stefanovic, collectively with the other defendants, refused an offer of settlement which was more favourable to him than the ultimate outcome of the case (the offer of 28 April 2021), I do not consider that a costs order more favourable to the plaintiff than an order for party and party costs should be made against Mr Stefanovic. Essentially, that is because I am not satisfied that his conduct in rejecting the offer can be considered to be unreasonable. While Mr Stefanovic knew of Mr Peak’s plans, that, of itself, only provided an indirect route to liability on his part. I consider that the causal connection between Mr Stefanovic’s conduct and the losses of Steadfast, or profits made by Dreamtime, was not so clear that the rejection of Steadfast’s offer can be characterised as unreasonable.
Therefore, Mr Stefanovic will be ordered to pay Steadfast’s costs on a party and party basis.
Mr Glavonjic
Notwithstanding that Mr Glavonjic conspired with Mr Peak to appropriate the business opportunities that had been available to Steadfast, that was principally done after his resignation as a director of Steadfast: see Steadfast No 1 at [340]. One of the particularised breaches was established. That was sufficient to warrant the making of a declaration as to breach of fiduciary duty: see Steadfast No 2 at [66].
For the reasons given in relation to Mr Watt, I do not accept the defendant’s submission that because only declaratory relief was granted, there should be no order as to costs. Mr Glavonjic will be ordered to pay Steadfast’s costs on a party and party basis.
Orders
The orders of the Court are:
1. The first defendant is to pay the plaintiff’s costs on a party and party basis up until 15 April 2021 and on a solicitor and client basis after that date.
2. The second defendant is to pay the plaintiff’s costs on a party and party basis.
3. The third defendant is to pay the plaintiff’s costs on a party and party basis.
4. The fourth defendant is to pay the plaintiff’s costs on a party and party basis up until 15 April 2021 and on a solicitor and client basis after that date.
5. The fifth defendant is to pay the plaintiff’s costs on a party and party basis.
| I certify that the preceding twenty-seven [27] numbered paragraphs are a true copy of the Reasons for Judgment of his Honour Justice Mossop. Associate: Date: 1 March 2022 |
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