Victorian Securities Corporation v Hay Property; Consultants and Ors (No.2)

[2009] VCC 248

IN THE COUNTY COURT OF VICTORIA Revised from Tape

Not Restricted

AT MELBOURNE
COMMERCIAL LIST

EXPEDITED CASES DIVISION

Case No. CI-07-05038

VICTORIAN SECURITIES CORPORATION	Plaintiff
LIMITED (A.C.N 004 496 208)
v
HAY PROPERTY CONSULTANTS PTY LTD	Firstnamed Defendant
(A.C.N. 006 368 985)
&
PETER MCARTHUR HAY	Secondnamed Defendant
&
CRAIG FITZGERALD	Thirdnamed Defendant
&
AMIR BURZIC	Fourthnamed Defendant
&
INDIRA BURZIC	Fifthnamed Defendant

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JUDGE:	HER HONOUR JUDGE KENNEDY
WHERE HELD:	MELBOURNE
DATE OF HEARING:	13 March 2009
DATE OF JUDGMENT:	13 March 2009
CASE MAY BE CITED AS:	Victorian Securities Corporation v Hay Property Consultants & Ors (No.2)
MEDIUM NEUTRAL CITATION:	[2009] VCC 0248

REASONS FOR JUDGMENT REVISED FROM TAPE

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr. S. Senathirajah	Hall & Wilcox
For the Defendants	Mr. N. Andreou	DLA Phillips Fox
HER HONOUR:

1          On 6 March 2009, I delivered my reasons in this matter and determined that judgment should be entered for the plaintiff in the sum of $170,601.74 plus interest from the date of the commencement of the proceeding. I stood the matter over until today for the parties to consider those reasons for judgment and to address the cost issues, if any, that arose.

2          I have since received submissions from the plaintiff which were dated 13 March 2009, and this morning have also received an outline of submissions on behalf of the first and second defendants. I have read and considered those submissions and have also heard from both Counsel this morning.

3          I have been informed that on 26 June 2008 the plaintiff made a Calderbank offer to compromise its claim in return for a payment by the defendants of $40,983.80.

4          The offer read, in part:

“Our client will accept payment to it by your clients of the sum of $40,983.80, being the difference between the debt owing to our client by the borrowers at the date of settlement of the Contract of Sale and Mr Taylor’s adopted valuation of the property as at 17 December 2004 of $520,000, plus interest on this amount since the Proceeding was issued at the penalty interest rate and costs.”

5          The offer was rejected by correspondence from DLA Phillips Fox of 14 July 2008. That correspondence also contained a counter-offer to the effect that the defendants were prepared to settle on the basis that each party walk away and bear their own costs. This counter offer was also made pursuant to the Calderbank principles. Further, the correspondence stated that in the event that the offer was not accepted then the letter would be produced to the court on the question of costs and that indemnity costs would be sought.

6          The plaintiff relies on the terms of the offer and its rejection and submits, in accordance with the principles set out in the Court of Appeal decision in

Hazeldene Chicken Farm Pty Ltd v Victorian WorkCover Authority No.2

(2005) VSCA 298, that it is appropriate for the court to make an order that the first and second defendants pay the plaintiff’s costs in the proceeding on a party and party basis until 14 July 2008, and on an indemnity basis from 15 July 2008 until 13 March 2009.

7          The plaintiff, in brief, submits that the conduct of the defendants in rejecting the offer was unreasonable.

8          The defendants submit that implicit in the offer were two matters:

(a) firstly, that the defendants were not responsible (contrary to the court’s ultimate decision) for the subsequent diminution of the property by reason of the damage sustained to it;

(b) that the valuation of Mr Taylor would be accepted by the court.

9          These matters were referred to in the correspondence of DLA Phillips Fox of 14 July 2008. Thus, that correspondence suggests that “your client must concede that our clients, as valuers, will not be held, by a Court, to be responsible for the damage caused to the property…” It was said to follow that “the contentious point” was then the true value of the property.

10        The correspondence went on to refer to various amounts said to represent the true value of the subject property and gave reasons why the valuation of Mr Taylor would not be accepted. The correspondence suggests that if either the valuation of Mr Crittle or Mr Hayes were preferred (which both valued the property at $675,000) over that of Mr Taylor then the plaintiff’s loss would be nil. Further that in their view a valuation of at least $561,000 would be arrived at, and accordingly no loss would be attributed to the defendants at trial at all.

11        The defendants highlighted the fact that the parties ultimately did agree that the true value of the property was $575,000 which in effect rejected Mr Taylor’s valuation. Further that it was reasonable to argue the discrepancy of valuations especially on the assumption of the rational regarding the diminution of value.

12        The principles that the Court should apply are those set out in the decision of Hazeldene. Pursuant to Hazeldene the correct approach is to treat the rejection of the Calderbank offer as a matter to which the court should have regard when considering whether to order indemnity costs (at [20]). Further, that the competing considerations can be sufficiently accommodated by applying a test of unreasonableness. Thus, the critical question is whether the rejection of the offer was unreasonable in the circumstances (at [23]).

13        The court in Hazeldene also states that the discretion with respect to costs must be exercised taking into account all relevant considerations, although it is neither possible nor desirable to give an exhaustive list of relevant circumstances. At the same time a court should ordinarily have regard at least to certain matters (at [25]).

14        I propose, in examining the question before me, then to have regard to those matters referred to in Hazeldene. This approach was acknowledged by Counsel as appropriate.

Application of principles

Stage of proceedings at which the offer was received

15        Firstly, in terms of the stage at which the offer was received, the plaintiff has alleged that it was received after the close of proceedings; after the plaintiff had filed the expert statement of Wayne Taylor; and one week after the plaintiff had attended a court ordered mediation. There was no point taken with these propositions and it seems to me that on this front the factor weighs in the plaintiff’s favour. The issues were well-advanced, the parties were well- informed.

Time allowed to consider offer

16        In terms of the time allowed, this also appears to weigh in the plaintiff’s favour. The Calderbank offer gave the defendants 14 days to accept the offer and the defendants rejected the offer on 14 July 2008. Despite some delay, there is nothing to suggest that there was any difficulty in the defendants being able to assess the appropriateness of the offer and the stance that the defendants wished to take.

Extent of compromise

17        In terms of the extent of the compromise I accept the submission of Mr Senathirajah that it was a generous compromise. The plaintiff was prepared to accept the sum of $40,983.80 in circumstances where its amended Statement of Claim sought a figure of $205,788.42. The plaintiff was ultimately entitled to a judgment of $170,601.74.

18        This factor weighs heavily on the side of the plaintiff.

Prospects of success

19        Mr Andreou, Counsel for the first and second defendants, highlighted this factor alone as weighing strongly in favour of the first and second defendants. Given the structure of the offer and response, he submitted that the diminution in the value of the property issue was effectively “taken out of” the process. In those circumstances, it was reasonable to reject the offer on the basis of the valuation figures particularly given, in the result ,the parties had in fact agreed to a true value of the property at $575,000 as at 17 December 2007.

20        I have given this matter some careful consideration. At one level it does appear to weigh in favour of the defendants. However, although, by reason of the plaintiff’s concession, the question of diminution was taken apparently out of the process of making an offer, it was not in fact taken out of the process of the litigation and remained a live issue The fact that the plaintiff thereby was prepared to concede the diminution point was significant in my view. Moreover, the fact that the defendants apparently gave little weight to this concession, in my view, was not reasonable.

21        In terms of the valuations themselves, the whole question of valuation was very squarely debatable at the time the offer was under consideration. Moreover the fact that the plaintiff subsequently agreed to a value of $575,000 does not take that matter further on behalf of the first and second defendants when considering the prospects of success at the date of the offer.

22        Thus, although there is some merit on the defendants’ side, ultimately the “prospects of success” factor is still weighed towards the plaintiff’s side given the total concession of the plaintiff on a point that was, at the very least, arguable.

Clarity

23        The terms of the Calderbank offer were clear and the contents of the letter from the defendants’ solicitors dated 14 July 2008 demonstrate this amply.

foreshadowing of application for indemnity costs

24        The Calderbank offer explicitly states that the plaintiff would seek indemnity costs if the defendants rejected the plaintiff’s offer.

Summary

25        Having regard then to all of the factors, and particularly having regard to the extent of the compromise and the important concession made regarding diminution, I am satisfied that the defendants have acted unreasonably in rejecting the offer.

26         I am accordingly prepared to make the orders as sought by the plaintiff and will now hear further from the parties as to the precise form of final orders.