Transformer Development Group Pty Ltd v Tait Street Investments Pty Ltd (No 2)
[2023] VCC 991
•19 June 2023
| IN THE COUNTY COURT OF VICTORIA AT Melbourne commercial DIVISION | Revised Not Restricted Suitable for Publication |
Case No. CI-22-04584
| TRANSFORMER DEVELOPMENT GROUP PTY LTD (ACN 632 055 988) | Plaintiff |
| v | |
| TAIT STREET INVESTMENTS PTY LTD (ACN 617 871 879) | Defendant |
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JUDGE: | HIS HONOUR JUDGE COSGRAVE | |
WHERE HELD: | MELBOURNE | |
DATE OF HEARING: | Determined on the papers | |
DATE OF RULING: | 19 June 2023 | |
CASE MAY BE CITED AS: | Transformer Development Group Pty Ltd v Tait Street Investments Pty Ltd (No 2) | |
MEDIUM NEUTRAL CITATION: | [2023] VCC 991 | |
REASONS FOR RULING (No 2)
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Subject: COSTS
Catchwords: Costs – Indemnity costs – Calderbank offer – unreasonableness of refusal of Calderbank offer – reasonable construction of novel legislation
Legislation Cited: Sale of Land Act 1962
Cases Cited:BHP Billiton Olympic Dam Corporation Pty Ltd v Steuler Industriewerke GmbH (No 3) [2012] VSC 414; Grynberg v Muller [2002] NSWSC 350; Hazeldene’s Chicken Farm Pty Ltd v Victorian Workcover Authority (No 2) (2005) 13 VR 435
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr P H Barton | MLG Lawyers |
| For the Defendant | Mr T P Warner | HWL Ebsworth |
HIS HONOUR:
Introduction
1I delivered my reasons dismissing the plaintiff’s application in this matter on 1 June 2023. At the time, I directed that the parties file submissions regarding the form of final order and costs. The parties agreed that the proceeding should be dismissed but disagreed about the question of costs. The plaintiff contends that costs should be payable on a standard basis whereas the defendant seeks indemnity costs from 2 March 2023.
Background
2The defendant contends that costs should be awarded on a higher scale because the plaintiff rejected a reasonable offer of settlement.[1]
[1] Defendant’s submissions at [2]
3The defendant relies upon correspondence which passed between the parties on and after 22 February 2023. The defendant’s solicitors sent a Calderbank offer to the plaintiff dated 22 February 2023. The letter was marked “without prejudice save as to costs” and set out the terms upon which the defendant was prepared to settle the litigation. It stated that the offer was open for acceptance until 4.00pm on 24 February 2023 and that, if the plaintiff refused the offer, the defendant would rely upon it in seeking a special order for costs.
4The offer set out the factual background to the litigation including Special Conditions 5.1 – 5.3 of the contract of sale. It noted the crucial difference between the parties: the plaintiff argued that Special Conditions 5.1 – 5.3 were sunset clauses and therefore void due to section 10C of the Sale of Land Act 1962 (“SLA”); the defendant argued that the Special Conditions were not sunset clauses but were operative terms which permitted a vendor to rescind a contract in certain circumstances.
5The terms of the offer were as follows:
10. Our client proposes that it will enter into a contract of sale with your client to sell the land that is the subject of proposed lots 801 to 818 on the proposed Plan of Subdivision PS8442877C as a single superlot with the following terms:
(a) a total purchase price of $2,400,000 for the superlot;
(b) 10% deposit payable on the Day of Sale;
(c) settlement date on or before 30 June 2023; and
(d)the superlot is sold on an ‘as is’ basis (that is englobo as one title, without approval for future subdivision or approval for the connection of services, on the basis that your client is responsible for all future development and subdivision costs, fees, charges and levies),
(Offer 1)
11. Alternatively, our client proposed that it will:
(a) pay to your client $500,000; and
(b)if and when the lots are able to be delivered (including, but not limited to, once our client has obtained approval for the connection of services and registration of the Plan of Subdivision), offer to your client a first right of refusal to exclusively market a ‘house and land package’ in respect of six lots for a defined period of time and on terms acceptable to our client. In the event that your client accepts that offer and subsequently sells all six lots within an agreed defined period, our client will offer to your client a further six lots on the same basis. Providing that all lots exclusively allocated to your client are sold within the defined period, our client will continue to offer groups of six lots to your client on the same basis until all lots on the Proposed Plan of Subdivision are sold.
(Offer 2)
12. In consideration of Offer 1 or Offer 2, your client must:
(a) withdraw the above proceedings with no orders made as to costs;
(b) agree to terminate the Contracts of Sale by mutual agreement; and
(c)release our client from any action or claim arising out of or in connection with the Contracts of Sale and their termination.
(Settlement Offer)
6On 24 February 2023, the plaintiff’s solicitors emailed the defendant’s solicitors confirming receipt of the Calderbank offer. The plaintiff’s solicitor:
(a) asked that the defendant keep its offer open for acceptance until 4.00pm on 1 March 2023 to enable the plaintiff to thoroughly consider the proposal;
(b) asked the defendant to clarify Offer 1 – was the purchase price $2,400,000 minus the deposits paid or an additional sum of $2,400,000?
(c) asked the defendant to clarify Offer 2 – did the offer of $500,000 include the deposits paid by the plaintiff under the contracts of sale or was the $500,000 an amount additional to the refunding of the deposit monies?
7Later the same day, the defendant’s solicitors advised by email that in relation to Offer 1, the plaintiff would be required to pay the difference between the current deposits and $2,400,000. They also stated that, regarding Offer 2, the defendant would pay the plaintiff $500,000 and refund the deposit monies paid upon termination of the contract of sale.
8In a letter dated 1 March 2023 marked “without prejudice save as to costs” the plaintiff’s solicitor advised the defendant’s solicitor that it would accept the defendant’s offer of settlement on the terms proposed if the amount of $1,200,000 were substituted for the sum of $500,000. The plaintiff gave reasons for its counter-proposal. The reasons were consistent with the submissions made by the plaintiff at the hearing. The plaintiff’s offer was open for acceptance until 4.00pm on 15 March 2023. The letter advised that if the defendant rejected the offer the plaintiff would seek to rely upon it in seeking indemnity costs for the period after the offer were made.
Defendant’s submissions
9The defendant relied upon well-established authorities to contend that an award of indemnity costs was appropriate in this case. The defendant argued that:
(a) the Calderbank offer was made at a time when the defendant’s position on the merits of the case had been clearly set out in correspondence between the parties;
(b) the Calderbank offer explained why the plaintiff’s case was misconceived;
(c) the Calderbank offer was made on 22 February 2023 and the plaintiff was given, as a result of an agreed extension, until 1 March 2023 to accept the offer;
(d) Offer 2 in the Calderbank letter of offer gave the plaintiff $500,000 in cash plus the return of the deposit monies paid and a right of first refusal to buy back the lots in the subdivision in the future. This was a considerably better outcome than the plaintiff achieved at the final hearing;
(e) the plaintiff rejected the Calderbank offer made by the defendant;
(f) the Calderbank offer expressly stated that the defendant would rely upon the letter on the question of costs if the plaintiff rejected the offer.
10In summary, the defendant argued that the plaintiff’s case was misconceived from the outset and it persisted with the proceeding notwithstanding the defendant taking reasonable steps to try and settle the matter.
Plaintiff’s submissions
11The plaintiff submitted that there was, for various reasons, no proper basis to award indemnity costs against it.
12First, the time allowed to accept the 22 February 2023 offer was too short, being originally only two days before a five day extension was granted. The offer was complicated and it was too short a period in which to undertake a thorough assessment of the offers: was Offer 1 better than Offer 2? was either offer better than simply obtaining a refund of the deposit monies?
13Secondly, the court has to be able to discern that the plaintiff had suffered a worse outcome from the litigation than what the defendant proposed in its offers. The plaintiff argued that this was not possible with Offer 1 because, without extensive evidence, one could not say, having regard to the likely problems with a future subdivision of the land, that it was better to buy all the lots for $2,400,000 instead of simply accepting a refund of the deposit monies.
14Thirdly, although Offer 2 did provide a better outcome for the plaintiff than the judgment, it was reasonable for the plaintiff to reject the offer and contest the proceeding because:
(i)the state of the law was unclear, there being no authorities governing the construction of the relevant provisions of the SLA; and
(ii)it was a legitimate argument that the vendor would not be permitted to rescind or would be permitted to rescind only if it paid compensation to the purchasers.
Legal principles
15There are some well accepted legal principles with respect to the court’s powers regarding costs:
(a) the award of costs is within the discretion of the court;
(b) the discretion must be exercised judicially. It cannot be exercised arbitrarily or capriciously. Nor can it be exercised on grounds unconnected with the litigation or the circumstances leading up to the litigation;
(c) costs are compensatory in the sense that they are awarded to indemnify the successful party against the expense to which it has been put by reason of the legal proceedings. The aim of a costs order is not to punish the unsuccessful party.
16Further, there are some principles regarding Calderbank offers and their potential impact on an award of costs. The position with respect to Calderbank offers was 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]
Analysis
17From the above, it is clear that the defendant has the onus of showing that the plaintiff’s rejection of the offer of compromise was sufficiently unreasonable that the court should exercise its discretion to award costs on an indemnity basis rather than the more usual standard basis.
18The defendant’s offer was made at a time when the parameters of the proceeding were established. The scope of the dispute was limited primarily to a legal issue concerning the construction of some contracts of sale having regard to provisions of the SLA which are relatively new. Each party adopted a different interpretation of certain Special Conditions in the contracts of sale.
19The Calderbank offer made by the defendant was expressed clearly and should have been readily understood by the plaintiff. Indeed, the response to the offer by the plaintiff’s solicitor and his counter-proposal indicates that the plaintiff did understand the terms of the offer.
20Initially, the defendant gave the plaintiff only two days in which to analyse the offer. This was a short time, substantially shorter than the time normally allowed for acceptance of such an offer. However, the plaintiff asked for an extension until the close of business on 1 March 2023 to assess the defendant’s offer. The defendant agreed to the additional time sought by the plaintiff. Nonetheless, the plaintiff now complains that the time permitted for its consideration of the offer was too short. This was said to be a reason for refusing indemnity costs.
21While I accept that a party in the plaintiff’s shoes needs adequate time to properly consider an offer of compromise, I am by no means certain that the plaintiff had insufficient time. It seems puzzling that the plaintiff should complain about the time allowed when it was granted the precise period it sought. Absent other evidence on the issue, I would expect that the letter from the plaintiff’s solicitors seeking additional time was drafted and sent only after the plaintiff determined the time it required to examine and respond to the offer.
22The offer specifically refers to the defendant’s intent to seek indemnity costs if the plaintiff rejects the offer and the result of the hearing is less favourable to the plaintiff than the terms of the offer.
23One offer which the defendant made meant that the plaintiff would have recovered $500,000 in addition to the return of deposit monies paid in anticipation of the plan of subdivision being registered. This is a manifestly better outcome for the plaintiff than the dismissal of its proceeding and the return of the deposit monies.
24The critical question is whether the plaintiff acted unreasonably in rejecting the defendant’s settlement offer. A problem with the proceeding here is that it is of an “all or nothing” nature. Given the different constructions of the contracts of sale and their interaction with sections 10A – E of the SLA, only one party can be correct. It is not a situation in which each party could give some ground and each walk away, albeit unsatisfied, but with some benefit.
25While I have found that the defendant’s construction of the contract of sale and legislation represented the better view, the plaintiff’s position was not baseless and without some foundation. To that extent, at the time the offer was made, it seems to me that the plaintiff’s prospects were sufficiently arguable that it could not be said that the plaintiff was unreasonable in pursuing the proceeding to a hearing. Further, the application’s outcome was largely dependent upon the court interpreting legislation which had not been previously considered in this kind of context. The novelty of the legislation and its construction is a significant matter. In the circumstances I am not satisfied that the plaintiff’s refusal of the defendant’s offer was sufficiently unreasonable as to warrant the imposition of indemnity costs.
Conclusion
26For the reasons set out, I order that:
(a) the plaintiff’s summons dated 28 October 2022 is dismissed.
(b) the plaintiff pay the defendant’s costs of the proceeding, such costs to be taxed on a standard basis in default of agreement.
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