Winky Pop Pty Ltd v Mobil Refining Australia Pty Ltd
[2015] VSC 580
•19 October 2015
| IN THE SUPREME COURT OF VICTORIA AT MELBOURNE | Not Restricted |
COMMON LAW DIVISION
VALUATION, COMPENSATION & PLANNING LIST
S CI 2009 6345
| WINKY POP PTY LTD (ACN 082 744 769) and OR AUSTRALIA PTY LTD (ACN 073 102 520) | Plaintiffs |
| v | |
| MOBIL REFINING AUSTRALIA PTY LTD (ACN 004 300 163) and STATE OF VICTORIA | First Defendant Second Defendant |
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JUDGE: | Digby J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | This costs ruling was the subject of written submissions filed by Mobil on 3 August 2015, the State of Victoria on 3 August 2015, the Plaintiffs on 24 August 2015 and Mobil on 28 August 2015. |
DATE OF JUDGMENT: | 19 October 2015 |
CASE MAY BE CITED AS: | Winky Pop & anor v Mobil & anor (Costs) |
MEDIUM NEUTRAL CITATION: | [2015] VSC 580 |
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COSTS – Allocation of costs – Effect of Offer of Compromise and Calderbank offer – Evaluation of prospects of success of offeree at time of offers – Whether interest payable on judgment in the circumstances – Whether sum payable as damages should be paid into court or set off against the successful parties entitlement to costs – General discretion as to costs.
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| WRITTEN SUBMISSIONS: | Counsel | Solicitors | Filed |
| For the Plaintiffs | Mr C Scerri QC with Mr S Senathirajah and Ms M Foley | King & Wood Mallesons | 24 August 2015 |
| For the First Defendant | Ms P Neskovcin with Ms F Spencer | Ashurst Australia | 3 August 2015 28 August 2015 |
| For the Second Defendant | Mr S Horgan QC with Ms E Latif | Clayton Utz | 3 August 2015 |
HIS HONOUR:
Introduction
This costs ruling is related to the decision in this proceeding in Winky Pop & anor v Mobil & anor[1] (‘the judgment’), handed down on 13 July 2015.[2] The dispute addressed in that judgment centred on the appropriate remedy in circumstances where leaking of petroleum hydrocarbons from a Mobil pipeline had contaminated the groundwater beneath the plaintiffs’ land in Williamstown North (the Mobil Leak).
[1][2015] VSC 348.
[2]For convenience, the same abbreviations and acronyms will be used in this costs ruling as in the judgment.
The plaintiffs sought an injunction requiring Mobil to remove contamination, alternatively loss of opportunity damages for the profits the plaintiffs claimed they would have made from the residential development of the land. The plaintiffs also sought recovery of costs incurred in relation to investigating the Mobil Leak.
Mobil contended that the appropriate remedy, if any, should be damages for the diminution in value of the plaintiffs’ land, together with the costs incurred by the plaintiffs in investigating the leak. Mobil’s case in this regard was in part based upon the fact that Mobil had for some time been in the process of remediating the contamination caused by the leak as mandated by the EPA.
General background
Summary of Judgment
It is convenient to set out the following summary of findings[3] from the judgment:
[3]Extracted from [9] and [753] of the judgment.
1.The proper basis for the measurement of damages in relation to the plaintiffs’ causes of action is diminution in the value of the plaintiffs’ land.
2.In this matter the assessment of damages on a loss of opportunity basis would be unacceptably uncertain and is more likely to lead to an unjust result than diminution of value damages and is also otherwise inappropriate.
3.Prior to the Mobil leak it was most unlikely that the plaintiffs’ land would be rezoned by the relevant planning authority so as to be able to be developed for residential use.
4.Prior to the Mobil leak it was most unlikely that the relevant planning authority would grant development permits for the plaintiffs to develop their land for residential purposes.
5.At the time of the Mobil leak and thereafter the plaintiffs have not established that they had, or but for the Mobil Leak would have had, the opportunity to develop the plaintiffs’ land residentially.
6.The plaintiffs have not lost the opportunity to develop the plaintiffs’ land because of the Mobil leak.
7.The opportunity to develop the plaintiffs’ land residentially, as identified by the plaintiffs, has no real prospect of being successfully pursued and is therefore of negligible or no value.
8.The Mobil leak, in itself, will not prevent or impair the plaintiffs’ ability to develop their land for residential purposes.
9.In case I am incorrect in relation to my above findings, I have also determined that in the event that the plaintiffs were entitled to damages on the bases which they assert (which I have rejected) the sum of those damages would be $66,829,900, subject to interest entitlements.
10.The plaintiffs are entitled to be paid the sum of $104,273.93 by Mobil in relation to the plaintiffs’ costs incurred in investigating the Mobil leak.
11.The plaintiffs are also entitled to interest, in relation to the sum of $104,273.93.
As is clear from the above summary and the following reasons, Mobil was the ‘successful’ party at trial, with all the key issues, in my view, being determined in Mobil’s favour. In summary, the plaintiffs conceded their claim for an injunction in closing submissions and were unsuccessful on the remaining substantive claim for loss of opportunity damages.
It is also noteworthy that the plaintiffs did not in their submissions on the question of costs seek to claim that the award of the costs of investigating the Mobil leak of $104,273.93, a component of the plaintiffs’ claims on which the plaintiffs were successful, rendered the plaintiffs the ‘successful’ party at trial. At all events, the reasonable costs of investigating the Mobil leak had been conceded by Mobil as early as 27 March 2009.
Costs
Following the delivery of judgment, questions as to costs were reserved so as to give the parties time to consider the implications of the judgment. Submissions in respect of cost and interest were then, by agreement, made on the papers, the parties being content to address the issue of costs, applicable interest, if any, and associated matters, without further oral argument.
The parties written submissions in relation to the matter referred to in the preceding paragraph give rise to three substantive issues for determination:
(i) Was the plaintiffs’ rejection of two offers to settle made by Mobil on 17 May 2013 unreasonable, making an award of indemnity costs appropriate in the circumstances?
(ii) Should the plaintiffs be denied an award of interest in relation to their entitlement to their costs of investigating the leak?
(iii) Should the amounts payable by Mobil to the plaintiffs be paid into Court and set-off in due course against the costs to which Mobil may be entitled?
Mobil’s submissions dated 3 August 2015
Broadly summarised Mobil’s submissions are as follows.
Legal costs
Mobil submits that on the basis of the case initiated by the plaintiffs, the plaintiffs’ abandonment of its claim for an injunction to force Mobil to remove contamination, and on the ultimate outcome of all the live issues in the proceedings, the plaintiffs only succeeded in relation to the cost of investigating the Mobil Leak, a cost Mobil had accepted as to its account since 27 March 2009. Therefore Mobil was the overwhelmingly successful party, and costs should follow that event.
On 27 March 2009, a without prejudice proposal was made by Mobil to the plaintiffs that Mobil would bear responsibility for the remediation of any contamination of the plaintiffs’ land caused by the loss of containment, in accordance with the EPA Clean Up Notice, and would pay any reasonable costs incurred by the plaintiffs in investigating the contamination of the plaintiffs’ land caused by the Mobil leak.
On 17 May 2013 (two weeks prior to the commencement of trial), Mobil made the following settlement offers:
(a) an offer of compromise under r 26.02 of the Supreme Court Rules in the amount of $1.7m plus costs; and
(b) a Calderbank type offer for $2.3m inclusive of legal costs.
Mobil submits that it should be awarded costs, including any reserved costs, on a party and party basis until 31 March 2013 and on a standard basis from 1 April 2013 up until 17 May 2013.[4] Further, Mobil should be awarded costs on an indemnity basis from 17 May 2013 as the rejection of the Mobil offers of 17 May 2013 was unreasonable in the circumstances.
[4]On 31 March 2013 the Rules of Court altered replacing the term for usual party party costs charged from ‘party and party costs’ to a ‘standard basis’. See generally Gruma Oceania Pty Ltd v Sehriban Bakar [2014] VSCA 259.
Mobil’s written submissions detail why, in its contention, the plaintiffs’ rejection of its offers was unreasonable. This issue is addressed below.
Set-off of award to plaintiffs against Mobil’s costs
Mobil submits that the damages awarded to the plaintiffs should be paid into court by Mobil so that they can be set-off against any costs order made, because that cost order is likely to exceed the sum awarded to the plaintiffs.
Mobil submits that the financial circumstances of the plaintiffs give rise to uncertainties in the plaintiffs’ financial position (excluding its asset position) and as a result there is some doubts as to whether the plaintiffs will be in a position to meet any ultimate costs order in Mobil’s favour. In particular Mobil submits that the consolidated accounts of Hallmarc Limited produced at trial reveal that:[5]
[5]Mobil Submissions as to costs dated 3 August 2015, [76(d)].
(a) Winky Pop Pty Ltd is the trustee of the Winky Pop Unit Trust and OR Australia Pty Ltd is trustee of the OR Australia Unit Trust. Hallmarc Limited has a 50% interest in each unit trust.[6]
[6]The Affidavit of Fiona Jane Hudgson sworn 3 August 2015 at [87] refers to company searches being done on each of the plaintiff companies and attaches the company searches as exhibit FJH-71. Winky Pop Pty Ltd has 100 shares issued for $100, (50 shares held by Omnico Developments Pty Ltd, 50 shares held by Hallmarc Developments Pty Ltd). OR Pty Ltd has 10 shares issued for $10 (5 shares held by Omnico Developments Pty Ltd and 5 shares held by Hallmarc Developments Pty Ltd).
(b) The ownership of the other 50% in each said unit trust is unknown.
(c) The unit trusts are special purpose vehicles for the development of the plaintiffs’ land. It should be inferred the plaintiffs are not trading and have no income.
(d) Adamco Investments Unit Trust (a director related entity of Mr Cini) had advanced some $1.98 million to the OR Australia Unit Trust by 30 June 2012 and during 2011 and 2012 that intercompany loan had increased by $565,000 and $260,000 in those years.
(e) The increases to the Adamco/OR Australia intercompany loan in 2010 and 2009 were $415,000 and $330,000 in those years.
(f) The increases to the Adamco/OR Australia intercompany loan in 2008 and 2007 were $200,000 and $160,000 in those years.
(g) There may be other loans to the plaintiffs which are not recorded in the Hallmarc consolidated accounts because they are not from entities related to Hallmarc. In particular loans to pay legal costs and expenses related to the conduct of this proceeding may not be visible.
(h) To the best of Mobil’s knowledge the plaintiffs do not own any assets in Australia other than their interest in the land the subject of these proceedings, which the plaintiffs do not intend to sell.
Plaintiffs’ interest claim
Mobil also submits that the plaintiffs should not be entitled to interest on the judgment sum from 27 March 2009, alternatively from 17 May 2013, because it is necessary to do justice in all the circumstances, and there is good reason why the interest over the whole period should not be awarded because of the plaintiffs delay in prosecuting the proceeding and because the plaintiffs refused to accept Mobil’s settlement offers.
Mobil contends that the plaintiffs delayed in prosecuting the action by:
(a) filing a deficient statement of claim which was struck out (1 May 2009 to 18 September 2009);
(b) for a time failing to comply with court orders in relation to the filing of expert evidence (30 September 2010 to 8 August 2011);
(c) for a time failing to comply with court orders in relation to the filing of lay evidence (11 November 2011 to 5 April 2012); and
(d) the plaintiffs’ late application to join the State that Mobil was first notified about two months prior to the date on which the proceeding was fixed for hearing, which occurred after the proceeding had been on foot for over three years, and caused the vacation of the hearing date.
Plaintiffs’ submissions dated 24 August 2015
Rejection of the offers not unreasonable
The plaintiffs submit that rejection of the Mobil offers made on 17 May 2013 was not unreasonable for the following reasons:
(a) there was a large amount of evidence that needed to be tested at trial;
(b) approximately one third of the statements filed in the proceeding were filed after 17 May 2013;
(c) almost half of the statements filed by Mobil were filed after 17 May 2013; and
(d) discovery was still taking place during the trial (in particular before the recommencement of the trial in October 2013).
Further the plaintiffs contend that:
(a) Mobil’s offers were premised on the view that the plaintiffs’ land would not be rezoned. The plaintiffs submit that they considered that the land would be rezoned as a result of the C74 amendment application that was before the Minister and the plaintiffs believed that the Minister would intervene and rezone.
(b) the plaintiffs did not consider that the buffer zone which overlays the plaintiffs’ land would prevent rezoning. The plaintiffs also assert that their views have subsequently been borne out by Hobsons Bay C96 Panel Report – 17 April 2015, recommending that land within the 2km buffer zone be residentially developed; and
(c) for most of the proceedings there were no reasons why a mandatory injunction could not have been awarded. The plaintiffs submit that the impracticality of pursuing a claim for such an injunction was not apparent to the plaintiffs until the trial was underway.
Interest payable on the judgment sum
In response to Mobil’s submissions that the plaintiffs should not receive interest on their damages awarded as a result of Mobil’s early stated position in relation to the cost of investigating the Mobil Leak, the plaintiffs’ refusal of Mobil’s offers and Mobil’s assertion that the plaintiffs delayed the progress of the proceeding, the plaintiffs submit that:
(a) despite Mobil stating on 27 March 2009, prior to the commencement of the proceeding that “Mobil further proposes to pay any reasonable costs which [the plaintiffs] have incurred to date in investigating any contamination of the Hallmarc land caused by the loss of containment…”, Mobil has to date not paid the plaintiffs the amount of $104,272.93 for which Mobil accepts liability;
(b) on each occasion that the plaintiffs sought an extension of time in which to file evidence Mobil consented; and
(c) Mobil itself also failed to comply with the dates ordered by the Court in respect of the filing of evidence.
Set-off of award to plaintiffs against Mobil’s costs
The plaintiffs submit that no evidence has been tendered which shows that the plaintiffs are unable to meet any costs order, or are in some way unwilling to pay any costs to which Mobil is entitled. The plaintiffs submit that there is no basis upon which it can be concluded that the plaintiffs are unable or unwilling to pay Mobil’s rightful legal costs. The plaintiffs also submit that account should be taken of the financial substance of the Hallmarc group of companies.
Mobil’s submissions in reply dated 28 August 2015
Rejection by the plaintiffs of Mobil’s offers were unreasonable
Mobil submits in reply that the plaintiffs’ rejection of Mobil’s offers were unreasonable because:
(a) the key evidence upon which the issues at trial turned had been exchanged well before Mobil’s offers were made – including the evidence of Messrs Milner, Pollock, Davies and Mirkov.[7]
[7]A summary of the witness, when filed and by who is contained in a table attached as a Schedule to the Fiona Hudgson Affidavit sworn 3 August 2015 (Mobil).
Prior to 17 May 2013, Mobil had filed the following lay witness evidence:
(iv) Mr Peter Reale on 30 November 2011;
(v) Mr James Hadwen on 9 December 2011;
(vi) Mr Kenyon de Greene on 21 December 2011.
Prior to 17 May 2013, Mobil had filed the following expert evidence:
(vii) Mr Leslie Brown on 28 September 2011 and 12 April 2013;
(viii) Mr Peter Mirkov on 7 December 2011 and 12 April 2013;
(ix) Mr Robert Milner on 21 November 2011;
(x) Mr Matthew Davies on 2 December 2011;
(b) the additional evidence filed by Mobil after the time the offers remained open dealt with peripheral issues namely the evidence of Ms Burchell, supplementary witness statement of Mr de Greene, Ms Shieh-Ling Tan and Mr Stewart; and
(c) the impracticality of the injunction should have been apparent to the plaintiffs at the time the offers were made as a result of Mr Nunn’s evidence, on which the plaintiffs based their case in reinstatement and injunctive relief, not at the end of the trial when the injunction application was abandoned. Nr Nunn’s evidence preceded upon the faulty premise that it would be necessary for the plaintiffs to remove all the hydrocarbons from the plaintiffs’ land before it could undertake residential development.
Interest
As to the plaintiffs’ asserted interest entitlement in relation to the damages awarded arising from investigating the Mobil Leak, Mobil argues that delay by a party otherwise entitled to interest may constitute ‘good cause’ as to why statutory interest should not be payable over the whole period from the commencement of the proceeding to judgment (or should be reduced) even though the plaintiff has been kept out of its money over that period. Mobil submits that there was disentitling delay on the plaintiffs’ part.
Payment into Court and set-off
Mobil also argues that its costs will far exceed the plaintiffs’ judgment sum and that the financial circumstances of the plaintiffs raise some concern. Mobil asserts that there are sufficient doubts and concerns as to the plaintiffs’ ability to pay Mobil’s cost entitlements.
Mobil submits that the plaintiffs’ submissions (as to the financial state of the Hallmarc group as a whole) ignore ordinary principles of separate corporate personality. The companies in the Hallmarc group, other than the plaintiffs, are not parties to the proceeding and would not be required to comply with costs orders made against the plaintiffs. The other companies have not provided any form of guarantee or security for any costs orders made against the plaintiffs in the proceeding (and nor have they offered to do so).
State’s submissions dated 3 August 2015
The State seeks to have its costs reserved in the cause, and to have the proceeding as against the State adjourned to a directions hearing on a date to be fixed.
The State submits that its liability to the plaintiffs has yet to be determined.
The State makes no submission regarding costs or interest as between Mobil and the plaintiffs.
The State submits that the appropriate orders with regard to it are:
(a) That the costs of the State in the current trial be reserved in the cause.
(b) That the proceeding as against the State be adjourned to a directions hearing on a date to be fixed.
The plaintiffs do not object to the course proposed by the State and do not seek any costs as against the State.[8]
[8]Plaintiffs’ Submissions dated 24 August 2015, [3].
Neither does Mobil object to the course proposed by the State and it does not seek any costs against the State.
The Court’s discretion as to costs
Section 24 of the Supreme Court Act 1986 (Vic) gives the Court a broad discretion in relation to the awarding of costs. That discretion extends to determining by which party, or other relevant person, to whom and to what extent costs are to be paid. This discretion as to costs must however be exercised judicially; that is, in accordance with the well-known principles enunciated in House v R.[9]
[9]Hazeldene’s Chicken Farm Pty Ltd v Victorian Workcover Authority (No 2) (2005) 13 VR 435, [25] citing House v R (1936) 55 CLR 499 at 505.
General principles and approach to an award of costs
I accept the following general principles and approach are applicable to the proper exercise of the court’s discretion as to costs:
(xi) Costs will ordinarily follow the event, that is costs will ordinarily be awarded to the successful party;
(xii) Ordinarily the ultimate outcome of the litigation is the most important factor which will inform the proper exercise of the discretion as to the allocation of legal costs.
(xiii) When determining what order as to costs the justice of the case requires, the Court should have regard to the reality of the outcome of the case.
(xiv) The reality of the outcome of a case may be such that although a party has succeeded in obtaining an award, that award is so small in the relevant context of all the issues and claims and outcomes in the case, that the party which succeeds in obtaining the award is in reality an unsuccessful party.[10]
[10]Oshlack v Richmond River Council (1998) 193 CLR 72, [70] citing Alltrans Express Ltd v CVA Holdings Ltd (1984) 1 WLR 394, 401, 403-404 and Anglo-Cyprian Trade Agencies Ltd v Paphos Wine Industries Ltd (1951) 1 All ER 873, 874.
Justification for at least the usual cost order
In this matter I am overwhelmingly of the view that the reality of the outcome of this litigation is that Mobil was the successful party.
Here, the plaintiffs pursed Mobil to recover very substantial damages. To the extent to which the plaintiffs’ claim for a mandatory injunction could be regarded as qualifying this position, that element of the plaintiffs’ case does not in my view detract from the conclusion that Mobil has been overwhelmingly successful. This is because the plaintiffs’ injunction claim was not pursued to judgment by the plaintiffs and that part of the plaintiffs’ case was, in any event, a weak claim for the reasons addressed in the judgment and could be seen to be so before the commencement of the trial.[11]
[11]Winky Pop & anor v Mobil & anor [2015] VSC 348, [199]-[201], [205]-[206], [488]-[498], [549]-[550]. See Calderbank letter at paragraph 4, 5, and at schedule 4.4-4.5, 4.8-4.9.
In the end result the plaintiffs failed to establish that the appropriate measure of damages for their cause of action was loss of opportunity damages. The plaintiffs’ very large financial claim for loss of opportunity was wholly unsuccessful and the plaintiffs were awarded but a small sum in the context of the overall case and that award was discrete in that it was limited to the costs of investigating the Mobil Leak. In addition, Mobil had conceded the claim against it for costs of investigation of the Mobil Leak from the outset of the trial, and had earlier offered to compromise with the plaintiffs on the costs of investigation as early as 27 March 2009.
I accept Mobil’s submission that an order for costs in favour of Mobil is the just and appropriate result in all the relevant circumstances, because the plaintiffs, having put Mobil to the time and expense of meeting the plaintiffs’ injunction claim, ultimately abandoned that claim and focused solely on the recovery of substantial damages from Mobil based on loss of opportunity to develop the subject land residentially. That claim failed.
Finally, viewing the case with regard to overall fairness and proportionality, the relatively small sum the plaintiffs have recovered with respect to a very narrow issue, is far outweighed by the cost of the overall litigation which the plaintiffs pursued, and did so notwithstanding the offer to settle discussed below. Further, in substance, the one narrow issue on which the plaintiffs succeeded had been, in effect, conceded by Mobil since 27 March 2009.
Accordingly, Mobil has clearly been the successful party in that case, and in my view resoundingly so. Therefore the plaintiffs should, as a starting point, pay Mobil’s costs of the proceedings.
Special Costs Order
The Supreme Court (General Civil Procedure) Rules 2005 (‘the Rules’) provide a clear prima facie position as to the exercise of the relevant discretion, subject to the court’s overriding power to order otherwise. Rule 63.16 states that where an offer of compromise has been made and not accepted, liability for costs shall be determined in accordance with Rule 26.08.[12]
[12] Further, the Civil Procedure Act 2010, provides further statutory support in s 65C for the court to make such costs orders as it considers appropriate.
Rule 26.08 gives parties a prima facie entitlement to costs in various circumstances. Relevantly for present purposes, rule 26.08(3) and (4) state:
Rule 26.08(3)
Where an offer of compromise is made by a defendant and not accepted by the plaintiff, and the plaintiff obtains a judgment on the claim to which the offer relates not more favourable to the plaintiff than the terms of the offer, then, unless the Court otherwise orders—
(a)the plaintiff shall be entitled to an order against the defendant for the plaintiff's costs in respect of the claim before 11.00 a.m. on the second business day after the offer was served, taxed on the ordinarily applicable basis; and
(b)the defendant shall be entitled to an order against the plaintiff for the defendant's costs in respect of the claim thereafter taxed on the ordinarily applicable basis.
Rule 26.08(4)
Where an offer of compromise is made by a defendant and the plaintiff unreasonably fails to accept the offer and the claim to which the offer relates is dismissed or judgment on the claim is entered in favour of the defendant, then unless the Court otherwise orders—
(a)the defendant shall be entitled to an order against the plaintiff for the defendant's costs in respect of the claim until 11.00 a.m. on the second business day after the offer was made, taxed on the ordinarily applicable basis; and
(b)the defendant shall be entitled to an order against the plaintiff in respect of the defendant's costs after the time referred to in paragraph (a) taxed on an indemnity basis.
Mobil’s offers to the plaintiffs
The above Rules speak of entitlement, at the same time recognising the Court’s residual discretion to make an appropriate order in respect of the entitlements referred to in Rule 26.08.
Mobil would have an entitlement to indemnity costs if the plaintiffs had not been awarded the $104,273.93 and it could be shown that the plaintiffs’ failure to accept the offer was unreasonable, under Rule 26.08(4). As the matter stands, Mobil’s prima facie entitlement is to be found under Rule 26.08(3).
The question for the Court is whether the Court should exercise its discretion and make the order for indemnity costs as sought by Mobil.
While Calderbank offers, and offers of compromise, serve essentially the same functions including encouraging settlement and discouraging the undesirable litigation of weak or hopeless claims, they do not operate in the same way.
Offers of compromise create a presumption in favour of the offeror in certain circumstances and prima facie entitlements (subject to the Court’s discretion) by virtue of Rule 26.08; Calderbank offers create no such presumption.[13] However, the rejection of a Calderbank offer is a matter to which the Court should have regard when considering whether to order indemnity costs.[14]
[13]Blackman v Gant (No 2) (2010) 29 VR 29, [12]-[14].
[14]Hazeldene’s Chicken Farm Pty Ltd v Victorian Workcover Authority (No 2) (2005) 13 VR 435; BHP Billiton Olympic Dam Corporation v Steuler Services GmbH & Co KG (No 3) [2012] VSC 414 at [104]; and Protec Pacific Pty Ltd v Steuler Services GmbH & Co KG; BHP Billiton Olympic Dam Corp Pty Ltd v Steuler Services GmbH & Co KG (No 2) [2015] VSCA 123 [31], [49]-[50].
The existence of a Calderbank offer is a factor, perhaps in certain circumstances a weighty factor, in the exercise of the Court’s discretion as to costs.
It is also a relevant matter that the offeror has disclosed information and arguments which, considered reasonably, should have caused the offeree to give serious consideration to accepting the offer. Such information or arguments were in this instance communicated in Mobil’s Calderbank offer itself. The weight which should have been given to such considerations depends on the circumstances.
However, ultimately the burden of establishing that a special costs order should be made is on the offeror. In Alpine Hardwoods (Aust) Pty Ltd v Hardys Pty Ltd[15], Weinberg J (as his Honour then was) observed:
The offeree does not bear the onus of showing why indemnity costs should not be ordered. The fact that the offeree was ultimately unsuccessful in the litigation, and could have accepted a reasonable settlement at an earlier stage does not of itself show that the course adopted by the offeree was relevantly unreasonable or imprudent.[16]
[15](2002) 190 ALR 121; see also Rickard Constructions Pty Ltd v Rickard Hails Moretti Pty Ltd [2005] NSWSC 481 at [30] as to subsidiary related considerations.
[16]Ibid, [35].
The justification for ordering special costs in circumstances when there has been a failure to accept an offer made to compromise the relevant proceedings ordinarily focuses on whether, in the circumstances, the unsuccessful party can be said to have acted unreasonably in failing to accept the offer to settle.
A conclusion as to whether the rejection of an offer was unreasonable, usually necessitates some enquiry as to the relevant factors, at the time the offer was made, because the rejection of a reasonable offer will not necessarily amount to an unreasonable rejection of that offer.
Courts and tribunals have long regarded it as most desirable that parties seek to compromise their claims, thereby minimising potential antagonism, uncertainties and risks and avoiding legal costs. Additionally, courts and public tribunals have regarded the same course as desirable so as to limit the demands on courts and public tribunals, thereby conserving court resources and reducing public expense. Accordingly, the courts have in part approached the allocation of costs in a way which encourages and provides incentive to parties to appropriately settle their disputes.
In relation to an offer, unregulated by the Rules, such as a Calderbank offer, there is no rule or prima facie presumption that failure by the offeree to obtain judgment more favourable than the offer which has been rejected will result in a special order as to costs. However, there may be circumstances which justify such an order.
Usually, the critical consideration in relation to when the rejection of a Calderbank offer will give rise to indemnity costs is whether the rejection was unreasonable in the circumstances.
In Hazeldene’s Chicken Farm Pty Ltd v Victorian Workcover Authority (No 2), Warren CJ, Maxwell P and Harper AJA, set out a non-exhaustive list of factors that a Court should ordinarily have regard to when determining if the rejection of a Calderbank offer was unreasonable in the circumstances:
(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.
Unreasonableness of the rejection of the offers
Taking these factors into account, as I have, I am strongly of the view that the plaintiffs’ failure to accept Mobil’s Calderbank offer of 17 May 2013 was unreasonable, assessed objectively in the relevant circumstances. I am also strongly of the view that the plaintiffs’ failure to accept Mobil’s Offer of Compromise of 17 May 2013, which was an alternative open to them at that time, was also unreasonable.
The Mobil offers were received on 17 May 2013, two weeks prior to the commencement of trial. At this point in time the parties were likely to have had acquired a good understanding of the respective strengths and weaknesses of each other’s position.
On this issue the plaintiffs submit that a third of the statements filed in the proceeding were filed after 17 May 2013, with half of Mobil’s statements filed after this date. This however does not in my view reflect the substantive position in relation to the overall nature and extent of the evidentiary material filed at 17 May 2013.[17] As rightly pointed out by Mobil, the majority of the statements which had not been filed by 17 May 2013 were not critical to the determination of the central key issues in dispute between the parties.
[17]Refer to [62(ii)].
Further, at 17 May 2013, in my view the plaintiffs were well able to evaluate their position in the litigation in relation to the key question as to whether they were likely to succeed in their claim on the basis of damages for loss of a commercial opportunity and the prospects of the plaintiffs obtaining the mandatory injunction they were seeking.
The plaintiffs also submit that until the time of the trial in this proceeding, the parties could not properly test the evidence. The plaintiffs say that their inability to evaluate their position was further reduced by Mobil’s late disclosure of documents and non-provision of certain witness statements.
However, at the time of the Mobil offers:
(xv) the proceeding had been on foot for four years, the pleadings had closed and the issues had also been long defined;
(xvi) the parties had exchanged the substance of their expert evidence, save only for two supplementary expert statements which updated material filed and served long before;[18]
[18] The key evidence in the proceeding had been filed by the time of Mobil’s 17 May 2013 offer. There was time for it to be assessed by the experts involved in the proceeding and in some cases reply expert reports had been filed. That key evidence included:
(xvii) at the time of the Mobil offer for the reasons I have referred to, the plaintiffs were well placed to evaluate their prospects of success on the two central planks of the case, namely loss of opportunity damages and their claim for a mandatory injunction.[19]
[19]Refer [64] and [71].
(xviii) Mobil’s Calderbank offer of 17 May 2013 explained why the plaintiffs were likely to fail on their pleaded case, except for the $104,273.95 in relation to investigation costs (which Mobil conceded);
(xix) Notwithstanding the plaintiffs’ assertions now in their submission on costs, during the 14 days after service of the Mobil offers, the plaintiffs did not at that time seek clarification as to any aspect of those offers nor did they assert that they could not adequately evaluate the Mobil offers and assess whether or not they should accept one or other of them. Nor did the plaintiffs at that time in any way assert that it was unreasonable of Mobil to expect the plaintiffs to make a decision about the offers within the time they were open for acceptance.
Mobil’s offer of $1.7m (plus costs) and $2.3m (inclusive of costs) were both substantial offers and, in the result, those offers substantially exceeded the award which the plaintiffs ultimately achieved.
In my view the extent of the evidence filed at the date of the offer of Mobil’s compromise and Calderbank offer was sufficient to allow the plaintiffs and their advisers to evaluate the merits of the parties’ cases and defences, taking into account the pleadings at that time, what the discovered documents available at that time revealed, and taking into account instructions which the plaintiffs had provided to their advisers.
In considering the plaintiffs’ ability to evaluate the Mobil Offer of Compromise and Calderbank offer of 17 May 2013, it is also reasonable, in my view, to infer that the Court ordered mediation which had taken place shortly before 10 May 2013 would have further relevantly informed and enabled the plaintiffs and their advisers, in the exercise of evaluating their prospects of success in the proceeding and whether they should accept the Mobil offers which arrived shortly thereafter.
Further, I observe that it is commonly the place that such evaluations are undertaken in a necessarily incomplete setting including where it is not yet clear whether all the evidence filed and served in a matter will ultimately be admitted into evidence and where the potential evidence has not been tested at trial and also where further evidence, including that elicited in cross-examination cannot yet be taken into account.
If it were necessary for the offeree to be able to precisely evaluate their prospects of success in the subject litigation armed with practically all the evidence to be adduced at trial before the offeree could be said to have unreasonably rejected an offer, one most undesirable possible consequence would be that Calderbank offers made early in the proceeding could be rendered ineffective.
The position here argued by the plaintiffs approaches the impractical contention that until the end of a trial, when all evidence is in and tested, an offeree cannot be said to have unreasonably refused to accept a Calderbank offer to settle the case. Save perhaps in an unusual case, acceptance of this argument would have the potential to fetter the effectiveness of Offers of Compromise under the Rules, and likewise fetter the effectiveness of Calderbank offers.
Furthermore, although as I have acknowledged in this context that the court will ordinarily consider the offeree’s prospects of success, assessed at the date of the offer, it would be undesirable and impractical to burden courts and tribunals, with a requirement to undertake such an assessment extensively, or in a detailed way, when considering whether the offeree was in the circumstances acting unreasonably in rejecting an offer. A broad-brush and robust approach is likely to be appropriate, although the correct approach in each case will depend on its own facts and circumstances.
At all events, in this matter an extensive evaluation of the evidence was not required to enable the plaintiffs to assess the central issues, including whether damages as diminution in value or loss of opportunity should be awarded and as to the implications of the costs of complete removal of the contamination which were equal to, or exceeded, the potential profits from development. Furthermore, in my view from the close of pleadings the plaintiffs and their legal advisers should have been able to ascertain that they faced the serious risks in the case referred to in the Mobil Calderbank letter, and the plaintiffs and their legal advisers should have been able to sufficiently assess the risk of failing at trial on the major issues, and evaluate the likely consequence of doing so.
Ultimately, the plaintiffs failed to establish their case on the threshold issue; namely that loss of opportunity damages represented the proper and appropriate measure of damage for their cause of action. This risk was in my view clearly identifiable at the time of the Mobil offers as was the weakness of their case for an injunction for the reasons I have addressed elsewhere.
The offers were expressed to be open for acceptance for 14 days after service. This was in the circumstances a long enough period of time for the plaintiffs to adequately consider the two offers in light of all available materials at that time and to assess the plaintiffs’ reasonable prospects of success in the proceeding and respond to Mobil. The plaintiffs at no point sought an extension of time within which to consider the Mobil offers.
The offer of compromise was for $1.7m (plus party/party costs). The Calderbank letter offered the plaintiffs the sum of $2.3m (inclusive of all claims and legal costs). The Calderbank letter explained that Mobil conceded the costs of investigating the leak of $104,273.95 and also that Mobil valued the diminution in value of the plaintiffs’ land as a result of impact of the leak as $1m.
Further, at the time of the offer, the plaintiffs’ loss of opportunity damages claim and the costs associated with the injunctive remedy sought by the plaintiffs at the time of the offer, namely the cost of complete decontamination of the plaintiffs’ land caused by the leak, were far greater than the small amounts offered by Mobil in the Offer of Compromise and Calderbank offer. The reasons why, notwithstanding these great disparities, the Mobil offer was reasonable was made clear in the Mobil Calderbank offer, which itself included a clear communication that it was predicated on diminution of value being the proper basis for any assessment of the plaintiffs’ damages.
The issue of whether an injunction was economical was referred to in the judgment, amongst other places, at [206]:
The evidence of Mr Nunn, to which I have referred, was that reinstatement costs range between $93M and $206M. Such costs render it very likely that the Nunn remediation proposals would be uncommercial given the evidence of the yield of the plaintiffs’ proposed development, which Mr Brown opines has a total upper likely selling price being between $65M (subdivision only) and $234M. Mr Papworth put the total upper likely selling price as being $79M (subdivision only) to $304M. Further, once the construction costs involved in the residential development of the land are factored in, Mr Nunn’s remediation costs would probably exceed any profits the plaintiffs could achieve by residentially developing the land. Mr Keighran’s evidence was that the subdivisional profit would be between $74M (subdivision only) and $175M.
The evidence referred to above was to be found in the experts’ reports filed prior to 17 May 2013, except for Mr Keighran’s evidence which was filed in 10 June 2013. However, it is to be noted that Mr Keighran was the Construction Director for the Hallmarc Group and his opinion, it is reasonable to infer, would have been known to the plaintiffs. The values of $74M and $175M, referred to above, were also contained in the feasibility reports attached to the Supplementary Witness Statement of Marco Cini filed 24 May 2013. Mr Cini was the plaintiffs’ principal witness. Accordingly, the plaintiffs were aware, at 17 May 2013, of the magnitude of their estimated likely profits for the three alternative development scenarios and the relationship those sums had to Mr Nunn’s reinstatement cost of between $93m and $206m.
The judgment also dealt with the plaintiffs’ lack of special attachment to the land[20] and, as in this matter where reinstatement damages or the costs associated with a mandatory injunction significantly exceed the cost of damages for diminution in value, the plaintiffs should have taken into account that the court is likely to award the lesser value of diminution in value unless the plaintiffs can show that they have a special interest in the land, such as to justify a larger award. Furthermore, the plaintiffs should have taken into account that the costs of reinstatement, and associated with a mandatory injunction were likely to exceed the damages claimed based on the plaintiffs’ profits to be made from residential development.
[20]See judgment at [192]-[197].
When assessing the plaintiffs’ prospects of success, assessed at the date of offer, it is also necessary to be cautious of the wisdom of hindsight.[21] However, the Mobil Calderbank letter of 17 May 2013 relevantly stated in regard to the plaintiffs’ claim at that point in time:
[21]Richfield Investments Pty Ltd v Oversea-Chinese Banking Corporation Ltd [2004] VSC 351, [36]-[37].
(a) Mobil has no liability to the plaintiffs other than in respect of the costs of investigating the leak and any diminution in value of the plaintiffs’ land caused by the leak;
Mobil can be seen to have been wholly successful by reference to this assertion. It offered the cost of investigating the leak and the plaintiffs did not seek to pursue a claim for diminution of value.
(b) Mobil disputes the plaintiffs’ entitlement to the costs of remediating the leak as Mobil is already remediating the plaintiffs’ land in line with the EPA standard of CUTEP;
The plaintiffs, in substance, accepted this position. The plaintiffs did not seek the costs of remediation or pursue a mandatory injunction to force remediation.
(c) The environmental experts of Mobil and the plaintiffs have acknowledged that CUTEP is the appropriate standard so as to allow residential development;
This was the evidence of Mr Mirkov (which was not challenged). Mobil Closing Submissions at [38] also referred to emails from Mr Nunn, one of the plaintiffs’ experts, to the plaintiffs’ solicitors stating that CUTEP was the likely approach and what was required for residential use. Further, the plaintiffs did not lead evidence on the extent of remediation required to proceed with residential development.
(d) The instruction to the plaintiffs’ expert to assess the costs of remediation based on an assumption that the contamination must be removed from the site was therefore misconceived;
Even if this element of relief (as originally sought) was viable until trial, the plaintiffs withdrew this claim voluntarily and failed substantially on the alternative claims they sought to pursue. The mandatory injunction would probably not have been awarded because it was not economical, considering the costing of Mr Nunn and the costing of Mr Papworth and Mr Stewart as to likely profits. As property developers, the plaintiffs had no special attachment to the land to warrant an injunction, and remediating the contamination completely would probably be at least comparable in cost to the profits to be made from development.
(e) The plaintiffs are not entitled as a matter of law to the complete removal of contamination from the site;
The plaintiffs did not seek to pursue a mandatory injunction to force complete removal of contamination.
(f) The plaintiffs are not entitled to loss of profits or damages based on a loss of opportunity to make profits from a residential development of the site as the proposed developments were already prevented by an inability to rezone the land from industrial to residential and not by the leak;
This is supported by the judgment.
(g) Even if the land was rezoned the plaintiffs were highly unlikely to gain planning permission for their proposed developments;
This is supported by the judgment.
(h) Even if the proposed developments were to take place they would not make the profits asserted from those developments.
This is supported by the judgment.
In a schedule to the Calderbank letter, that was seven pages in length, further detail was given of the deficiencies that Mobil perceived in the plaintiffs’ claims as broadly outlined in the above paragraph.
Mobil’s detailed critique of the plaintiffs’ case and Mobil’s available defences, in my view, should have provided much assistance to the plaintiffs in relation to their assessment of the merits of the plaintiffs’ case at the time of the Offers. Furthermore, in substance, and in the great majority of the points made by Mobil in its Calderbank letter, the Mobil evaluations and conclusion proved to be correct as reflected in the judgment.
Putting hindsight to one side, it can be readily seen from a comparison of the summary of findings at [4] above and the asserted deficiencies in the plaintiffs’ case identified in the Calderbank letter at [78] above that Mobil’s evaluations were very largely correct. It is also apparent that the key evidence upon which the judgment turned was already in the parties hands, namely the reports of Messrs Milner, Mirkov, McGurn, Pollock and Nunn. The evidence adduced by the parties after 17 May 2013 went to less significant issues that were generally not so central to the principal findings in the judgment.[22]
[22] By 17 May 2013 the following reply statements that had been filed, as extracted above, were as follows:
Further, the evidence did not need to be tested for its legal implication to be apparent. By way of example, the evidence of Mr Nunn (filed 15 July 2011) that it would cost between $95m and $206m to fully remove the contamination caused by the leak, when compared with the estimated profits of the plaintiffs’ three alternative developments derived from the evidence of Mr Papworth and Mr Williams, should have alerted the plaintiffs to the likely conclusion that the claim for an injunction was prima facie an uneconomical course.
The plaintiffs also make a submission in support of it being reasonable that they rejected the Mobil offers of May 2013 because the plaintiffs considered that their land would be rezoned from Industrial to Residential for the reasons referred to in [20] above and the plaintiffs’ submissions of 24 August 2015, including reference to a Hobsons Bay C96 Planning Report dated 17 April 2015. In my view, this does not support the plaintiffs’ assertion that it acted reasonably in rejecting the Mobil offers of May 2013.
Whether the plaintiffs were justified in their view as to this and other key issues should be tested to an appropriate degree by the other factors I have identified to do with the plaintiffs’ ability at the time of the offer to evaluate their prospects of success and, in my view, cannot relevantly be informed by material such as the Hobsons Bay C96 Panel Report which was not sought to be relied upon, nor in evidence. Further, I note that the 17 April 2015 Report to which the plaintiffs refer, does not appear in any event to apply to the whole of the plaintiffs’ land in question.
The terms of the offer were clear and the plaintiffs made no submissions in this regard nor did they seek to suggest that the offer of compromise of 17 May 2013 was not compliant with the Rules. Further, I have earlier noted that on or after 17 May 2013 the plaintiffs did not seek to clarify any aspect of the offers nor to assert that it was not reasonable to expect them to assess and respond to the offers at that stage of the proceedings.
The Calderbank letter clearly states at page 2, paragraph 4, last sentence, that
If the plaintiffs pursue their claims and do not accept either the offer of compromise or the alternative offer set out below, Mobil puts them on notice that it will seek its costs from them on an indemnity basis.
Conclusion
For reasons referred to above, I consider that it was, in the relevant circumstances I have mentioned, unreasonable of the plaintiffs to reject the Mobil offers of May 2013 and, for the reasons I have explained, the plaintiffs should pay Mobil’s cost from 18 May 2013 on an indemnity basis.
Interest on judgment sum
Prima facie the plaintiffs have an entitlement to interest on the sum of $104,273.93 which they have succeeded in recovering in relation to the leak investigation costs.
Section 60(1) of the Supreme Court Act 1986 (Vic) compensates a party for being deprived of money to which they are rightfully entitled. This provision also provides an incentive to achieve the early resolution of litigation.
The Mobil submissions correctly acknowledge that the court may reject an award of interest for so much of the period over which interest would otherwise accrue, if in the relevant circumstances, it is necessary to do so in the interests of justice. The prima facie entitlement to interest may be displaced in appropriate circumstances.
Mobil submit that in this case there is good cause why interest over the whole of the period claimed should not be awarded in this case.
The question is whether there is a “good cause” to disentitle the plaintiffs to interest.[23] Mobil’s submission is that the plaintiffs have both delayed the prosecution of their own proceeding and also been dilatory, in Mobil’s view, in applying to join the State.
[23]Clarke v Foodland Stores Pty Ltd [1993] 2 VR 382 at 394.
Mobil also argues that the plaintiffs should not be awarded interest on the sum of $104,273.93 in circumstances where they rejected offers in March 2009 and May 2013 to settle, which offers included an offer in relation to the said sums.
The plaintiffs argue that Mobil delayed the proceeding and defaulted in relation to interlocutory directions. The plaintiffs rely on the affidavit of Ms Chloe Marion Johns, sworn 24 August 2015. The Johns Affidavit in Exhibits ‘CMJ-1’ and ‘CMJ-2’ exhibits emails which outline the Mobil delays asserted by the plaintiffs.
The plaintiffs submit that although Mobil proposed to pay the reasonable cost of investigating contamination in March 2009, Mobil did not actually pay the sum for which it admitted liability.
The plaintiffs also point out that each time they sought an extension of the time within which to file evidence, Mobil consented and furthermore the plaintiffs say that Mobil was itself late in filing evidence on occasions.
In summary, “CMJ-1” refers to the following timeline:
(a) Email of Friday 6 September 2013 states that the Mobil expert quantity surveyor report (Stewart) will not be filed this afternoon and will be filed as soon as possible next week.
(b) Email of Friday 13 September 2013 states that Mobil now expect to file the expert quantity surveyor report by next Friday, Mobil will grant an extension to the plaintiffs for the filing of the reply and joint report and this should not jeopardise the current hearing timetable.
(c) Email of Monday 23 September 2013 from solicitors for the plaintiff to Mobil’s solicitors stating that the report had not been filed and they had not received a further update in relation to the preparation of the report.
(d) Email of Wednesday 25 September 2013 from Mobil’s solicitors apologising for the delay in the filing of the expert quantity surveyors report. It also attaches the supplementary witness statement of de Greene and witness statement of Farrah Tan, and states that a further tranche of discovery will be provided prior to the recommencement of the hearing, including the documents referred to in these witness statements.
The Johns exhibit, “CMJ-2” (dated 27 September 2013) attaches a letter from the plaintiffs’ solicitors to Mobil’s solicitors requesting the discovery of the documents referred to by the solicitors for Mobil in the email of 25 September urgently, and complains of late discovery by Mobil throughout 2013 more generally.
Conclusion - interest
In my view the plaintiffs should receive interest under the Supreme Court Act 1986 in relation to the sum which they have recovered. Mobil’s March 2009 acceptance of liability in relation to the investigation sum ultimately recovered was not offered in unequivocal terms which were capable of acceptance at that time. Mobil merely proposed to pay reasonable costs at that time unquantified.
Further, I am unpersuaded by Mobil’s submissions that the plaintiffs delayed the prosecution of the proceedings. I consider that some delay to the proceedings occurred as a result of conduct by both the plaintiffs and Mobil. However, in my view there was no disentitling delay on the plaintiffs’ part.
As for the Mobil offers of May 2013, in my view they should have a cost consequence alone. Those offers were directed to attempting to settle the litigation, otherwise however their primary purpose was to achieve a cost consequence if not accepted. That is reflected by the terms in which both offers were couched because the Offer of Compromise referenced the court’s rules which give rise to likely cost consequences and the Calderbank letter expressly referred to the potential cost consequences of non-acceptance. In my view Mobil’s offers to settle of May 2013 should not in this case have the dual effect, in the circumstances, of a cost consequence and disentitling the plaintiff to interest on its successful leak investigation cost claim.
For these reasons I shall order that Mobil pay interest at the relevant default rate from the date this proceeding commenced to the date of judgment, in respect of the sum of $104,272.93.
Payment into Court and set-off
Mobil submits that the Court should exercise its inherent power to ensure that justice is done between the parties and to protect the integrity of the court’s processes by ordering that Mobil pay the amount of the plaintiffs’ judgment against it into court (together (if it arises) with any amount Mobil might be liable to pay to the plaintiffs by way of interest), so that those amounts can be set-off against any amount the plaintiffs are liable to pay Mobil in respect of Mobil’s legal costs. Mobil observes that the plaintiffs’ liability to Mobil is likely to exceed the amount of the judgment ($104,273.93 and interest) which Mobil is obliged to pay.
Mobil submits that uncertainties in the plaintiffs’ financial position (excluding their asset position) justify a set-off order. Mobil asserts that it would be unfairly prejudiced if it is required to pay the judgment amount and then later seek to enforce its own costs entitlement, because the plaintiffs have not been able to pay Mobil’s costs. Mobil seeks orders such as will ensure the judgment amount to which the plaintiffs are entitled is preserved to ensure that justice is done between the parties.
The plaintiffs submit that Mobil’s assertions that the plaintiffs have an inability to pay Mobil’s legal costs is unfounded, not supported by the evidence and should be disregarded. The plaintiffs submit that Mobil ignores that the Hallmarc Group of Companies had inventory of $36.7m (approximately) in the financial year ended 30 June 2014 and investment prospects valued at $122,689,400 (less liabilities of $96,242,837) in the same financial year. In response to these submissions Mobil submits that the plaintiffs have ignored the ordinary principles of separate corporate personality.
Mobil however neither submits that the plaintiffs were impecunious nor that they are unable or unwilling to pay the costs to which Mobil is entitled.
Mobil submits that it is likely that their cost entitlement against the plaintiffs in the proceeding will far outweigh the sum which has been awarded to the plaintiffs.
Mobil also points out that the financial standing of the Hallmarc Group, is of no clear comfort to Mobil because there are companies in that group other than the plaintiffs, which are not parties to these proceedings. Those other companies and the Hallmarc Group Limited would not be required to meet any cost order made against the plaintiffs.
Mobil’s submissions and evidence[24] directed to establishing that the plaintiffs have an inability to meet the likely substantial sum of Mobil’s legal costs in this proceeding, put the plaintiffs’ position in this regard no higher than that there were uncertainties in the plaintiffs’ financial position (excluding its asset position), and that the financial circumstances of the plaintiffs raise some doubts and concerns as to whether the plaintiffs will be in a position to meet any costs order in Mobil’s favour.
[24]See Mobil’s submissions 3 August 2015, [69] and [76(d)]; and Mobil’s Reply Submissions [20].
Conclusion (set-off)
The court has power to order a set-off of one judgment or entitlement against another in the exercise of its discretion.[25] Such exercise is to be in accord with the well understood principles regulating judicial discretion, and the overriding principle in such exercise will be what is just as between the parties in each particular situation.
[25]See Rules 63.55(1); Reid v Cupper [1915] 2 KB 147 at 152, 154 and 155; and Slaveski v State of Victoria [2013] VSC 76.
A common reason for exercising the discretion to set-off is that a party’s insolvency or impecuniosity gives rise to an unacceptable risk that an unfair result will arise unless an order is made setting off one party’s entitlement against another or delaying recovery until after the party which is insolvent or impecunious effect payment or provides some form of security for payment.
Here, Mobil has clearly generated significant legal cost in defending the plaintiffs’ claims, including substantial cost after the plaintiffs rejected Mobil’s settlement offers. Furthermore, I accept that Mobil’s legal costs are likely to substantially exceed the sum awarded to the plaintiffs.
However, I am not persuaded that there is sufficient material upon which to conclude that the plaintiffs’ financial situation gives rise to an unacceptable risk that they will be unable to pay Mobil’s legal costs, thereby resulting in the plaintiffs receiving the sum of $104,272.93, plus interest from Mobil, but at the end of the day not paying to Mobil all to which it will be entitled in relation to legal costs.
I note that Mobil’s submissions do not seek to characterise the plaintiffs’ financial situation as more than uncertain, and one which raises some doubts and concerns as to whether the plaintiffs will be in a position to meet any cost order in Mobil’s favour. Furthermore, as I have already noted, Mobil does not submit that the plaintiffs are impecunious or likely to be unwilling to pay Mobil’s costs.
In my view the plaintiffs’ financial position does not establish an unacceptable risk that were the sum of the plaintiffs’ judgment to be paid by Mobil, by the time Mobil is in a position to pursue the sum of its costs entitlements the judgment sum received by the plaintiffs may well be unavailable and the plaintiffs may well be unable to pay Mobil’s costs.
Finally, I note in relation to this issue that Mobil did not, before judgment, obtain an order for security for costs against the plaintiffs.
For the above reasons I decline to make the set-off order sought by Mobil.
Orders
I make the following orders.
1.The plaintiffs pay the first defendant’s costs of the proceeding, including any reserved costs, such costs to be taxed on a party and party basis until 31 March 2013 and on a standard basis from 1 April 2013 up until 17 May 2013 and thereafter on an indemnity basis.
2.The first defendant pay the sum of $104,273.93 together with interest to the plaintiffs calculated at the applicable penalty interest rate per annum on that sum from the commencement of the proceeding to recover the said sum to the date of judgment.
3.The costs of the second defendant in the current trial be reserved in the cause.
4.The proceeding as against the second defendant be adjourned to a directions hearing on a date to be fixed.
Marco Cini witness statement filed 5 April 2012 by the plaintiffs;
Peter Reale witness statement filed 30 November 2011 by Mobil;
James Hadwen witness statement filed 9 December 2011 by Mobil;
Kenyon de Greene witness statement filed 21 December 2011 by Mobil;
Stuart McGurn first expert report filed 15 April 2011 by the plaintiffs;
Stuart McGurn third expert report filed 17 April 2013 by the plaintiffs;
Timothy Pollock first expert report filed 15 April 2011 by the plaintiffs;
Timothy Pollock third expert report filed 16 April 2013 by the plaintiffs;
Trevor Gilbert first expert report filed 14 July 2011 by the plaintiffs;
Craig Williams expert report filed 15 July 2011 by the plaintiffs;
Andrew Nunn expert report filed 15 July 2011 by the plaintiffs;
Bradley Papworth expert report filed 9 August 2011 by the plaintiffs;
Peter Ramsey expert report filed 10 April 2013 by the plaintiffs;
Leslie Brown first expert report filed 28 September 2011 by the first defendant;
Peter Mirkov first expert report filed 7 December 2011 by the first defendant;
Peter Mirkov second expert report filed 12 April 2013 by the first defendant;
Robert Milner expert report filed 21 November 2011 by the first defendant;
Matthew Davies expert report filed 2 December 2011 by the first defendant.
The following reply expert reports had also been filed prior to 17 May 2013:
Stuart McGurn second expert report filed 23 February 2012 by the plaintiffs (responding to Milner report filed 21 November 2011);
Timothy Pollock second expert report filed 23 February 2012 by the plaintiffs (responding to Davies report filed 2 December 2011);
Trevor Gilbert second expert report filed 23 February 2012 by the plaintiffs (responding to Mirkov report filed 7 December 2011);
Bradley Papworth second expert report filed 23 February 2012 by the plaintiffs (responding to Brown report filed 28 September 2011);
Leslie Brown second expert report filed 12 April 2013 by the first defendant (responding to Papworth report filed 9 August 2011).
(a) Mr Stuart McGurn second expert report filed 23 February 2012 by the plaintiffs (responding to Milner report filed 21 November 2011)
(b) Mr Timothy Pollock second expert report filed 23 February 2012 by the plaintiffs (responding to Davies report filed 2 December 2011)
(c) Mr Trevor Gilbert second expert report filed 23 February 2012 by the plaintiffs (responding to Mirkov report filed 7 December 2011).
(d) Mr Bradley Papworth second expert report filed 23 February 2012 by the plaintiffs (responding to Brown report filed 28 September 2011)
(e) Mr Leslie Brown second expert report filed 12 April 2013 by the first defendant (responding to Papworth report filed 9 August 2011).
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