Treffers v Phung - [2021] SASC 38

SUPREME COURT OF SOUTH AUSTRALIA
(Magistrates Appeal: Civil)
TREFFERS v PHUNG
[2021] SASC 38
Judgment of the Honourable Justice Nicholson
16 April 2021

MAGISTRATES - APPEAL AND REVIEW - SOUTH AUSTRALIA - APPEAL TO SUPREME COURT - COSTS
PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - COSTS - OFFERS OF COMPROMISE, PAYMENTS INTO COURT AND SETTLEMENTS - INFORMAL OFFERS AND CALDERBANK LETTERS - PARTICULAR CASES
The appellant successfully appealed against an order at trial that he was to pay the respondent $80,000 in damages, a special costs order of $60,871.25 and an order to pay $11,000 in pre-judgment interest. The appellant was found to have breached a contract for the installation of a floating timber floor. On appeal, it was held that Truflor Corporation, the company through which the appellant conducted the flooring business, and not the appellant, had been the contracting party.
The appellant now seeks orders that the respondent pay his costs of the trial for the period up to 22 August 2017 on the standard scale and that, for the period thereafter, the respondent pay either indemnity or solicitor client costs with respect to both the trial and the appeal. The appellant relies on an all-inclusive offer made on the second day of trial as a basis for any special order. The respondent contends that the usual approach that costs follow the event should not be adopted, rather each party should meet their own costs of the trial and of the appeal.
Held:
1.The respondent is to pay 25 per cent of the appellant’s costs of the trial and of the appeal on the applicable standard scales.

Magistrates Court Act 1991 (SA) s 37; Supreme Court Act 1935 (SA) s 40; Uniform Civil Rules 2020 (SA), referred to.
Holt v Bunney (No 2) [2020] SASCFC 120; Essential Beauty Franchising (WA) Pty Ltd v Pilton Holdings Pty Ltd (No 2) (2014) 120 SASR 433; Nominal Defendant v Dighton (No 2) [2012] SASCFC 97, considered.

TREFFERS v PHUNG
[2021] SASC 38

Magistrates Appeal: Civil
NICHOLSON J.
Introduction

Following a trial in the Magistrates Court, the respondent (Mrs Phung and plaintiff at trial) was successful in obtaining an award of $80,000 by way of damages for the breach by the appellant (Mr Treffers and second defendant at trial) of a contract to install a floating timber floor in Mrs Phung’s house. Prior to the trial hearing, the first defendant at trial (Truflor Australia Pty Ltd, referred to as “Truflor Corporation”) was deregistered. Mrs Phung pursued her claim at trial only as against Mr Treffers. In a separate judgment, the Magistrate ordered that Mr Treffers pay Mrs Phung’s costs by way of a special order in the amount of $60,871.25 together with pre-judgment interest of $11,000.
Following an appeal by Mr Treffers to this Court, I found that Mrs Phung had proceeded against, and the Magistrate had found to be liable, the incorrect party. The party who was contractually obliged to install the floor and who…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

Continue reading Treffers v Phung

Details

AGLC: Treffers v Phung [2021] SASC 38
Case: [2021] SASC 38
Decision Date: 16 April 2021

CaseChat Overview and Summary

The case of Treffers v Phung involved an appeal by Mr Keith Treffers against the decision of the Magistrate in the Magistrates Court of South Australia, which had found him liable for damages in a contractual dispute with Mrs Hoa Phung. The primary issue was whether Mr Treffers, as the controlling mind behind Truflor Corporation, was liable for the corporation's contractual obligations, or if Truflor Corporation itself was the liable party. The Supreme Court of South Australia held that Truflor Corporation, not Mr Treffers personally, was the contracting party, and thus he was not liable. Consequently, the Court set aside the orders for damages, costs, and pre-judgment interest against Mr Treffers.

The legal issues that the court needed to decide included the interpretation of the contractual obligations, the applicability of the doctrine of piercing the corporate veil, and the appropriate allocation of costs between the parties. The court had to consider whether Mr Treffers' conduct during the litigation warranted any adjustment in the usual rule that costs follow the event. This was particularly pertinent given that Mr Treffers had made an all-inclusive offer of $90,000 that was rejected by Mrs Phung, which was a significant factor in determining the costs allocation.

In its reasoning, the court highlighted that Mr Treffers, while being the controlling mind of Truflor Corporation, could have conceded liability and negotiated or defended only as to the correct party and quantum. This could have potentially reduced the costs of litigation and enhanced the likelihood of a settlement. The court also noted that Mrs Phung had a strong case on the merits, and Mr Treffers was entirely responsible for the failure of Truflor Corporation to comply with its contractual obligations. The court further found that Mr Treffers' conduct during the litigation was unreasonable, which prolonged the trial. Given these considerations, the court decided that while Mrs Phung should not bear the full costs of the trial and appeal, Mr Treffers should not escape liability entirely either.

The court concluded that each party should bear their own costs of the trial and appeal, but with a specific allocation. Mrs Phung was ordered to pay 25 per cent of Mr Treffers' costs of the trial and of the appeal, calculated on the applicable standard scales. This decision reflected the court's discretion, taking into account the various factors, including the unsuccessful nature of most of Mr Treffers' appeal grounds and the limited success in the substantive issues.

Orders

Orders of the court

Held:

1. The respondent is to pay 25 per cent of the appellant’s costs of the trial and of the appeal on the applicable standard scales.

Background

Background to the litigation

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Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

NICHOLSON J

These matters together with various of the considerations in Essential Beauty and Dighton (No 2) lend considerable support to Mr Treffers’ contentions. However, a number of other relevant considerations arise in this rather unusual matter. (i)Mr Treffers, as the controlling mind of Truflor Corporation, the contracting party, was fully cognisant of Mrs Phung’s case and could have, and as it turns out, should have conceded liability and negotiated or defended only as to the correct party and quantum.(ii)If so, the likelihood of settlement may well have been enhanced but, in any event, the costs of the litigation would have been greatly reduced.(iii)Notwithstanding that Mrs Phung failed, she had a strong case on the merits. Furthermore, Mr Treffers, personally, was entirely responsible for the failure by Truflor Corporation to comply with its contractual obligations.(iv)Truflor Corporation had been deregistered prior to the trial hearing. Mrs Phung’s former solicitors (those who initiated the proceedings) were aware that an application for deregistration of Truflor Corporation had been made but made no attempt to resist deregistration. Mrs Phung’s current solicitors were engaged after deregistration had taken effect but did not apply for re-registration. It would appear that both firms took the view that the assets of Truflor Corporation (or lack thereof) and the insurance available (or lack thereof) were such as to militate against making any effort to maintain the registration of or to re-register Truflor Corporation. As such, Mrs Phung had little choice but to abandon her claim entirely or continue to proceed against Mr Treffers personally. All of Mrs Phung’s dealings had been with Mr Treffers and he had signed the minor works agreement in a way that rendered the capacity in which he signed quite ambiguous. Notwithstanding my finding that, on the application of the objective theory of contract, the only contracting party was Truflor Corporation, it cannot be said that Mrs Phung or her legal advisers were unreasonable in the view they took and in endeavouring to establish liability in Mr Treffers.(v)The Magistrate made the following findings concerning Mr Treffers’ conduct during the litigation which were not challenged on appeal and which led to the prolongation of the trial.[10][10] Hoa Phung v Truflor Australia Pty Ltd and Keith Treffers, AMCCI-16-1424, 24 September 2019 at [25].•A continuation of his pre-trial refusal to disclose whether he had indemnity insurance... . .•Refusing to disclose to [Mrs Phung] the manufacturer of the flooring and the manufacturer specifications.•Refusing to provide an expert report. Without telling Mr Holgate of the purpose to be put to Mr Holgate’s advice in an email pretended this advice was an expert’s report when it was no more than answers to questions posed by Mr Treffers.•Seeking an adjournment of the trial for Mr Holgate to give evidence, without telling Mr Holgate what he was being asked to give evidence about. When Mr Holgate conducted an inspection of the flooring part way through the trial and told Mr Treffers to concede that part of the plaintiff’s claim which required a removal and replacement of all ground floor Mr Treffers accepted this advice, then changed his mind, which further prolonged the trial.•Pretending an invoice under a supposedly commercial letterhead as to the cost of removing and replacing the flooring was genuine. This invoice was a creation of Mr Kingsnorth, an unqualified and unlicensed flooring labourer who occasionally works for Mr Treffers and assisted to install the flooring at the plaintiff’s home. He was presented as an independent witness and needed to be cross-examined for his association with Mr Treffers to be discovered.The Magistrate was also very critical of Mr Treffers’ conduct during the litigation in her first (liability and damages) judgment.[11][11] Hoa Phung v Truflor Australia Pty Ltd and Keith Treffers, AMCCI-16-1424, 9 April 2019 at [7]-[10], [29] and [37].Conclusion

Ratio Decidendi

Legal Principle Established

Established by: NICHOLSON J

Following an appeal by Mr Treffers to this Court, I found that Mrs Phung had proceeded against, and the Magistrate had found to be liable, the incorrect party. The party who was contractually obliged to install the floor and who had breached the contract was not Mr Treffers but Truflor Corporation, the corporate entity through which Mr Treffers had conducted the flooring business. I set aside the Magistrate’s orders for damages, costs and pre-judgment interest.[1] It is necessary to revisit the costs of the trial and to determine the costs of the appeal.[1] Treffers v Phung [2020] SASC 228.The parties’ positions and consideration Mrs Phung contends that in the circumstances of this matter, the usual approach that costs follow the event should not be adopted; rather each party should meet their own costs of both the trial and the appeal. Mr Treffers contends that Mrs Phung should pay his scale costs for the period prior to 22 August 2017 but for the period thereafter he should be entitled to a special order, either indemnity or solicitor client costs, with respect to both the trial and the appeal. Mr Treffers relies on the fact that, on the second day of trial (8 August 2017), he made an all inclusive offer of $90,000 that was not accepted. Plainly, so the submission goes, Mrs Phung now finds herself in a far worse position with no damages allowed and facing two orders for costs. The trial went for eight days. I estimate that at least 90 per cent of the time (and virtually all of the preparation) was devoted to issues concerning the terms of the flooring contract, multiple allegations of defective work and a detailed factual analysis of damages. The question of who was the contracting party occupied very little time; an analysis of a limited number of verbal and documentary exchanges and the application of relevant aspects of the law of contract formation. Mrs Phung succeeded comprehensively at trial. Mr Treffers’ notice of appeal raised 12 grounds. He succeeded on the basis of the wrong contracting party. All other appeal grounds, raising substantive issues, were dismissed but for a reduction in the damages award to $65,000 which required a commensurate, modest, reduction in pre-judgment interest. However, this also rested on limited effort by both the parties and the Court. Again, I estimate that about 85 per cent of the appeal (both in Court and preparation) was devoted to Mr Treffers’ unsuccessful appeal grounds. In short, the vast majority of the trial and appeal effort was devoted to issues on which Mrs Phung ultimately succeeded.General costs principles It is sufficient to repeat that which the Full Court recently stated in Holt v Bunney (No 2).[2][2] [2020] SASCFC 120 at [6]-[9] (Kourakis CJ, Nicholson and Hughes JJ).Of present relevance, and unless otherwise ordered by the Court, the Uniform Civil Rules 2020 apply to a proceeding commenced or a step in a proceeding taken on or after the commencement date of the Rules[3] (18 May 2020). Both the trial and the appeal were instituted before 18 May 2020. However, the definitions in rule 2.1 of the Uniform Civil Rules 2020 of “proceeding” (paragraph (d)) and “step in a proceeding or appellate proceeding”, when read together with the chapeau to the definition of “appeal” and the definition of “appellate proceeding” in rule 211.1 of the Uniform Civil Rules 2020, give rise to an ambiguity as to whether the appeal in this matter is an aspect of the trial proceeding or a separate proceeding. [3] Uniform Civil Rules 2020 (SA) rule 1.4(1).It is not necessary to resolve this issue. The definition in rule 2.1 of “step in a proceeding or appellate proceeding” includes “action taken” and an “order made in a proceeding”. The Judge’s costs orders were set aside in the principal judgment on appeal.[4] The applications made before this Court for the costs of the trial and of the appeal and the costs orders to be made as a consequence of these reasons will be steps, in either the original trial proceeding or the appellate proceeding, taken after 18 May 2020, and the Uniform Civil Rules 2020 apply.[4] Holt v Bunney [2020] SASCFC 89 at [215].Rule 194.5 of the Uniform Civil Rules 2020 provides for a series of general principles relevant to the awarding of costs. Material to this matter are subrules 194.5(1) and (2).(1) Each of the following principles are subject to—(a)the presumptive costs rules in rule 194.4 (to the extent that the Court does not otherwise order);(b)other applicable rules;(c)other applicable principles; and(d)the overriding discretion of the Court as to costs.(2) Costs follow the event.Rule 194.6 provides for a number of discretionary factors that may need to be taken into account.194.6—Discretionary factors(1) In exercising its discretion as to costs, the Court may have regard to any factors it considers relevant.(2) For example, the Court may have regard to the following factors—(a) any misconduct or unreasonable conduct of a party in connection with a proceeding;(b) any breach by a party of overarching obligations, these Rules or an order of the Court;(c) any breach by a party of the pre-action obligations imposed by Chapter 7 Part 1;(d) the making or not making of an offer by a party to resolve the proceeding;(e) the non-acceptance by a party of an offer made by another party to resolve the proceeding;(f) the value and importance of the relief sought or any relief obtained;(g) any public interest in the subject matter of the proceeding or public benefit from the prosecution or defence of the proceeding; or(h) whether costs awarded are to be met by a person or out of a fund.Note—See also rule 61.16 in relation to pre-action steps and rule 132.11 and rule 132.12 in relation to formal offers.I do not understand the fundamental position following the introduction of the Uniform Civil Rules to be any different from that existing under previous rules of court; when the Rules are read in conjunction with subsection 40(1) of the Supreme Court Act 1935 (SA),[5] there has been conferred on courts and judges an unfettered discretion as to costs.[6] Of course, the discretion must be exercised judicially by not relying on irrelevant considerations and by having regard to all relevant considerations,[7] including those discretionary considerations identified in subrule 194.6(2).[5] Subsection 40(1) provides:(1) Subject to the express provisions of this Act, and to the rules of court, and to the express provisions of any other Act whenever passed, the costs of and incidental to all proceedings in the court, including the administration of estates and trusts, shall be in the discretion of the court or judge, and the court or judge shall have full power to determine by whom and to what extent such costs are to be paid.[6] See generally Copping v ANZ McCaughan [1995] SASC 4917; (1995) 63 SASR 523 at 527, Gwinnett v Day (No 2) [2012] SASC 61.[7] House v The King [1936] HCA 40; (1936) 55 CLR 499.