Strategic Property Reservoir Pty Ltd v Condec Pty Ltd (No 2)

[2013] VSC 29

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION

S CI 2011 3218

STRATEGIC PROPERTY RESERVOIR PTY LTD (formerly STRATEGIC FSG PROPERTY PTY LTD (ACN 134 480 61) (As trustee for the STRATEGIC RESERVOIR UNIT TRUST))	Plaintiff
V
CONDEC PTY LTD (ACN 079 453 955) (As trustee for the PLENTY ROAD RESERVOIR UNIT TRUST)	Defendant

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JUDGE:	ALMOND J
WHERE HELD:	Melbourne
DATES OF HEARING:	8 February 2013
DATE OF JUDGMENT:	13 February 2013
CASE MAY BE CITED AS:	Strategic Property Reservoir Pty Ltd v Condec Pty Ltd (No 2)
MEDIUM NEUTRAL CITATION:	[2013] VSC 29	Revised 14 February 2013

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COSTS – Whether defendant entitled to indemnity costs – Calderbank offer – Plaintiff refused defendant’s offer - Whether unreasonable to reject offer – General principles – Complex and large scale dispute – Sum offered so modest as to be uncommercial – Rejection of offer not unreasonable – Indemnity costs not awarded.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr J Kramersh	HWL Ebsworth Lawyers
For the Defendant	Mr P Bick QC and Mr L Hawas	Rigby Cooke

HIS HONOUR:

1. On 19 December 2012, I delivered reasons for judgment in this proceeding.[1]  I rejected the plaintiff’s claim for variation of the Development Agreement, for breach of the Heads of Agreement and the Development Agreement and for wrongful termination of the Development Agreement.  I found that the defendant Condec did not owe the plaintiff Strategic fiduciary duties and was not estopped from relying on the exclusion of “the Owner’s Equity” as a basis for alleging that the ANZ “offer” in its indicative terms sheet did not comply with clause 4.1(f) of the Development Agreement.[2]

   [1]Strategic Property Reservoir Pty Ltd v Condec Pty Ltd [2012] VSC 634. For a recitation of the facts see [1]-[14].

   [2]Ibid at [195].

1. I indicated that the plaintiff’s claims would be dismissed and fixed a date for hearing the parties on the question of costs and for the purpose of pronouncing final orders.

1. Strategic accepts that having been unsuccessful at trial it should be required to pay the defendant’s costs assessed on a party and party basis.  There is a dispute about whether some of those costs should be assessed on an indemnity basis.

1. By letter dated 16 April 2012, the solicitors for Condec wrote to the solicitors for Strategic making a formal settlement offer from Condec to Strategic on a without prejudice basis save as to costs.  The offer was expressed to be made “purely on a commercial basis to avoid the cost and uncertainty of litigation” and was on terms that:

(a)the parties would consent to an order that Strategic’s claim be dismissed on the basis that the parties bear their own costs;

(b) Condec would pay Strategic $25,000 in full and final settlement of its claim in the proceeding within 14 days of any agreement being reached;

(c)Strategic would give a full release to Condec from all claims arising from the subject matter of the proceeding or the development of the property at 850 Plenty Road, Reservoir; and

(d)the parties would conclude a formal deed of settlement recording the above terms, (which would include consent to  discontinue the proceeding) .[3]

(e)if Strategic did not accept the offer and its claims were dismissed at trial, or if it obtained a judgment at trial that was less than the amount of the offer the letter would be produced to the court to support an application for an order that Strategic pay Condec’s costs from the date of the letter on an indemnity basis in accordance with the principles in Calderbank v Calderbank.[4]

[3]Affidavit of Robert Daniel Oxley sworn 6 February 2013, [4] and Exhibit RD01 thereto.

[4](1975) 3 All ER 333.

1. The offer remained open for acceptance by Strategic until 5.00pm on Friday 27 April 2012.

1. Senior counsel for Condec submitted that:

(a)the offer was made at a relatively advanced stage of the proceeding.  Ten months had elapsed since the proceeding had been commenced, the pleadings had been largely settled, the Court had made pre-trial directions and had set the matter down for trial in August 2012;

(b)the pleadings filed on behalf of both parties in the proceeding were detailed and Strategic knew (or should have known) of the substance of Condec’s defence and the nature of the evidence that Condec would lead in support of its defence;

(c)Strategic knew (or should have known) that some elements of Condec’s defence would turn on the construction of the Development Agreement, the Feasibility Report and the ANZ Indicative Terms Sheet without the need for further evidence;

(d)as the plaintiff, Strategic was in a position to assess with precision the strength of its case, the strength of Condec’s defence and its chance of succeeding at trial generally;

(e)Strategic’s ability to assess those matters would not have improved markedly as the proceeding advanced from 16 April 2012 and that accordingly Condec’s application does not suffer from the difficulty of the offer being made at a very early stage of the proceeding when the plaintiff’s ability to assess the strength of its case is hampered.[5]

(f)Strategic had sufficient time to consider the offer;

(g)the terms of the offer were sufficiently clear; and

(h)Condec had adequately warned Strategic of the consequences of rejecting the offer.

[5]Simply Irresistible Pty Ltd v Couper [2011] VSC 33 per Kyrou J at [2].

1. In the circumstances, Condec submitted that it was unreasonable for Strategic to reject the offer and that Condec should be entitled to the costs on an indemnity basis from the date of the letter (16 April 2012).

Was it unreasonable for Strategic to reject Condec’s Calderbank offer?

1. In Hazeldene’s Chicken Farm v Victorian Workcover Authority (No 2), the Court of Appeal (Warren CJ, Maxwell P and Harper AJA) said:

The discretion with respect to costs must, like every other discretion, be exercised taking into account all relevant considerations and ignoring all irrelevant considerations.  It is neither possible nor desirable to give an exhaustive list of relevant circumstances.  At the same time, a court considering a submission 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 to the offeree to consider the offer;

(c)     the extent of the compromise offered;

(d)     the offeree’s prospects of success assessed as at the date of the offer;

(e)     the clarity with which the terms of the offer were expressed; and

(f)whether the offer foreshadowed an application for indemnity costs in the event of the offeree rejecting the offer.[6]

[6]Hazeldene’s Chicken Farm v Victorian Workcover Authority (No 2) (2005) 13 VR 435, 442, [25].

1. In this case, the offer was expressed clearly, and the time given to Strategic to consider the offer was reasonable.  The offer foreshadowed an application for indemnity costs from the date of the letter, in the event that Strategic rejected the offer.

1. Viewed in isolation the extent of the compromise in monetary terms was not insignificant.  I infer that by April 2012 Condec would have incurred substantial legal costs.  Had the offer been accepted, Strategic would have eliminated the risk of paying those costs and no further costs would have been incurred. In addition Condec offered to pay Strategic $25,000.

1. However the proceeding involved a joint venture to redevelop the Reservoir Shopping Centre, which for the retail stage, would have required finance in the order of $70 million. The projected end value on completion was approximately $95 million.[7]  Strategic had incurred substantial costs to architects, engineers and planning consultants[8] and had procured development approval for the project.  Strategic’s claim for damages exceeded $21 million[9] comprising claims with respect to management fees ($3.6 million), monies owed to the third party consultants ($2.37 million) and a foregone share of profits ($15.1 million).[10]  Both Strategic and Condec would have incurred substantial legal costs by April 2012.

   [7]Judgment at [21].

   [8]Under the terms of the Development Agreement the developer incurred such expense at its own risk prior to the first drawdown of funds.

   [9]Amended Statement of Claim dated 7 July 2011.

   [10]Further Amended Statement of Claim at [109].

1. Though Strategic had a difficult case to prove there was a very significant amount at stake, and it could not be said at the time the offer was made that Strategic had no real prospect of success.  In this regard, I note that as at April 2012, Strategic had the benefit of the reasons for decision of Zammit AsJ, who in September 2011 had refused Condec’s application to strike out the fiduciary claim made against it.  On this question, her Honour observed:

Whether the relationship was a fiduciary relationship requires an analysis of the contracts, the express terms, the conduct of the parties, and the factual matrix underlying the case.  …  The facts are complex and traverse an area of law which is far from settled and in which categories of fiduciary relationships are expanded.  This is an issue, which needs to be investigated and determined at trial.[11]

[11]Reasons for decision Zammit AsJ dated 20 October 2011, [73] – [74].

1. I respectfully endorse these remarks having had the benefit of hearing the evidence at trial.  The facts were detailed and involved complex dealings between the parties.  Whilst Strategic was in a position to assess the strength of the elements of the defence that relied on the construction of documents, the unsustainability of the variation by conduct and estoppel cases only emerged with clarity during the trial and after extensive cross-examination.  Having regard to the scale and complexity of the dispute, I consider the offer was so modest as to be uncommercial.  In my view, it was tantamount to a demand to capitulate.[12]

   [12]Berrigan Shire Council v Ballerini & Anor (No 2) [2006] VSCA 65 [17], [20]; Truenergy Pty Ltd v Dispute Resolution Panel (No 2) [2009] VSC 612, [4]; Ipex ITG Pty Ltd (in liq) v State of Victoria (No 2) [2011] VSC 39, [29]-[31].

1. The timing of the offer and its expiry appears to have been carefully considered. I have the impression  it was made more for tactical reasons than as a serious attempt to compromise the proceeding.  The offer lapsed (at 5pm on 27 April 2012) before the parties had had an opportunity to attend a mediation which was due to occur less than a week later (on 3 May 2012).  Had it accepted the offer, Strategic would have foregone any opportunity to discuss the issues  at the mediation on a “without prejudice” basis and would have foregone any opportunity to procure a more favourable offer at the mediation.

1. Counsel for Strategic submitted, correctly, that the offer failed to list reasons why Condec denied “any  liability … under the Heads of Agreement, the Development Agreement (as allegedly modified or not ) or at all”.  I accept Condec’s submission to the effect that there is no technical requirement that a Calderbank offer provide reasons why an offer should be accepted. However, a statement of that kind is a material factor in deciding whether an offer ought reasonably to have been accepted.[13]  In this case, the offer lapsed prior to the mediation, and before the parties had exchanged witness statements. Strategic did not have the benefit of Condec’s witness statements, an opportunity to discuss the issues at a mediation or a statement of reasons in the letter of offer to take into account when considering whether to accept the offer.  In my view, Strategic was not in a position to appreciate that its prospects of success were so poor that it should at that stage accept the modest offer from Condec and abandon its claims.

   [13]Mediterranean Olives Financial Pty Ltd & Ors v Gita Lederberger & Ors (No 2) [2011] VSC 333, [10].

1. On balance, I am not satisfied that rejection of Condec’s offer was unreasonable.  Accordingly, in the exercise of my discretion I refuse Condec’s application for costs on an indemnity basis.

1. I will hear counsel on the proposed form of final orders.