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Velvet Glove Holdings Pty Ltd v Mount Isa Mines Limited (No 2)

 

[2011] QSC 156

 

 

SUPREME COURT OF QUEENSLAND

 

PARTIES:

FILE NO/S:

Trial Division

PROCEEDING:

Trial

ORIGINATING COURT:

DELIVERED ON:

3 June 2011

DELIVERED AT:

Brisbane

HEARING DATES:

Written submissions on costs 16, 20, 23 May 2011

JUDGE:

Margaret Wilson J

ORDERS:

That the plaintiff pay the defendant’s costs of and incidental to the proceeding, including reserved costs, but excluding costs associated with the provision of the kitchen, mess and laundry facilities as pleaded in paragraphs 5, 5A, 6, 7(b) and 8(c) of the amended statement of claim, on the indemnity basis.

CATCHWORDS:

PROCEDURE – COSTS – DEPARTING FROM THE GENERAL RULE – ORDER FOR COSTS ON INDEMNITY BASIS – where plaintiff’s claim dismissed – where defendant made Calderbank offer – whether unreasonable refusal of offer to compromise – whether there was a basis for awarding indemnity costs

Uniform Civil Procedure Rules 1999 (Qld), r 681, r 698, r 702

Aljade & MKIC v OCBC [2004] VSC 351, cited

Calderbank v Calderbank [1975] 3 WLR 586, cited

Colgate Palmolive Company v Cussons Pty Ltd (1993) 46 FCR 225, cited

Grbavac v Hart [1996] VSC 37; [1997] 1 VR 154, cited

Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) (2005) 13 VR 435; [2005] VSCA 298, cited

House v R (1936) 55 CLR 499, cited

Maitland Hospital v Fisher (No. 2) (1992) 27 NSWLR 721, cited

M T Associates v Aqua-Max Pty Ltd (No. 3) [2000] VSC 163, cited

Pearson v Williams [2002] VSC 30, cited

Re Minister for Immigration and Multicultural Affairs; ex parte Applicant S20/2002 (2003) 77 ALJR 1165, cited

COUNSEL:

P J Dunning SC, with D A Quayle, for the plaintiff

J K Bond SC, with S J Armitage, for the defendant

SOLICITORS:

HopgoodGanim Lawyers for the plaintiff

Carter Newell Lawyers for the defendant

 

[1] MARGARET WILSON J:  This proceeding was commenced on 21 May 2009.  There were two distinct elements to it –

(i)a claim for $3,779,265.60 (including GST) in relation to what the parties have called the accommodation lump sum issue;

(ii)a claim for $1,516,365.56 (including GST) in relation to reimbursable expenses. 

[2] On 16 October 2009 the reimbursable expenses part of the proceeding was settled on the basis the defendant would pay the plaintiff $770,000 inclusive of GST, interest and costs.  Thus only the accommodation lump sum issue went to trial.

[3] On 27 April 2011 the plaintiff’s claim was dismissed.[1]  The parties have now made written submissions on costs.

[4] It is common ground that there should be an order that the plaintiff pay the defendant’s costs of and incidental to the proceeding, including reserved costs, but excluding the costs of the reimbursable expenses issue.  The question for determination is whether those costs should be assessed on the standard basis or the indemnity basis.

[5] Before the litigation was commenced the parties engaged in a compulsory dispute resolution process.  This was exhausted on 14 May 2009.  The next day the defendant made a Calderbank offer to pay the plaintiff $1,215,000 plus GST ($1,336,500 including GST).  The plaintiff did not accept that offer and commenced the proceeding on 21 May 2009.

[6] The defendant has submitted that the plaintiff’s rejection of the Calderbank offer was unreasonable and that in consequence the plaintiff should be ordered to pay indemnity costs.

[7] A Calderbank offer is a “without prejudice” offer in which the offeror reserves the right to waive the confidential nature of the offer to rely on it for the purposes of making an application for indemnity costs.[2]  In the present case the defendant wrote to the solicitors for the plaintiff summarising its position in relation to the two aspects of the claim, referring to the plaintiff’s rejection of an offer of $1,165,175.03 plus GST and continuing:

 

“In any event, to both incorporate a buffer and as a final attempt to reach a resolution in advance of any litigation, MIM is prepared to round its offer upwards, by offering to pay to your client the sum of $1,215,000 plus GST (equating to $1,336,500 incl GST), all inclusive, in satisfaction of the claim.  The offer is made as a genuine attempt to reach a resolution to avoid the time and expense of a trial.

 

The offer is:

 

(a)subject to the execution of a mutually agreeable deed of release and discharge;

(b)put forward on the basis that payment of the settlement sum would be made to your client within 14 days of your client’s execution of the deed;

(c)put forward on the basis that your client is provided with full ownership of the kitchen/laundry facilities, including all chattels;

(d)open for 14 days for your client’s consideration;

(e)made pursuant to the principles in Calderbank v Calderbank [1975] 3 All ER 333.

 

Should it be necessary, the offer shall be relied upon by MIM on the subsequent issue of costs, including for the purpose of seeking costs on an indemnity basis.  We have provided your client with details of the basis upon which the claim will be defended at the conference yesterday morning, and again as summarised above, and as such we believe your client to be in a position to make a fully informed decision.

 

We look forward to hearing from you.  Alternatively, should your client be intent on pursuing litigation, service ought to be carried out at Level 9 of the Riverside Centre.”

[8] The costs of litigation are in the discretion of the Court but follow the event unless the Court orders otherwise or the rules provide otherwise.[3]  Unless the rules or an order of the Court provides otherwise, the costs are to be assessed on the standard basis.[4]  Where the costs of an application in a proceeding are reserved, the reserved costs follow the event unless the Court otherwise orders.[5]

[9] In Colgate Palmolive Company v Cussons Pty Ltd[6] Sheppard J listed a number of circumstances which may warrant the exercise of the discretion to award indemnity costs.  He included “an imprudent refusal of an offer to compromise”.  It is well accepted that a party who unreasonably refuses to accept a Calderbank offer on terms more favourable than the Court’s subsequent order may be ordered to pay indemnity costs.  In Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2)[7] the Victorian Court of Appeal considered the relevant principles and authorities.  Their Honours said:-

 

Encouraging settlement

 

21In Grbavac v Hart,[8] Hayne, J.A. cited with approval what the New South Wales Court of Appeal had said in Maitland Hospital v Fisher (No. 2)[9] about the policy rationale underlying the availability of special orders for costs where offers of compromise are rejected. Like his Honour, we think that what was there said is equally relevant to the exercise of the costs discretion where a Calderbank offer has been made. The policy objectives were said to be:

 

‘(1)To encourage the saving of private costs and the avoidance of the inherent risks, delays and uncertainties of litigation by promoting early offers of compromise by defendants which amount to a realistic assessment of the plaintiff’s real claim which can be placed before its opponent without risk that its ‘bottom line’ will be revealed to the court;

 

(2) To save the public costs which are necessarily incurred in litigation which events demonstrate to have been unnecessary, having regard to an earlier (and, as found, reasonable) offer of compromise made by a plaintiff to a defendant; and

 

(3) To indemnify the plaintiff who has made the offer of compromise, later found to have been reasonable, against the costs thereafter incurred. This is deemed appropriate because, from the time of the rejection or deemed rejection of the compromise offer, notionally the real cause and occasion of the litigation is the attitude adopted by the defendant which has rejected the compromise. In such circumstances that party should ordinarily bear the costs of litigation.’

 

22 At the same time, as Redlich, J. said in Aljade,[10] there are other competing objectives of equal importance.

 

‘Potential litigants should not be discouraged from bringing their disputes to the Courts. It is such considerations which underlie the general rule that an order for special costs should only be made in special circumstances.’

 

The test of unreasonable rejection

 

23 In our view, these competing considerations can be sufficiently accommodated by applying a test of (un)reasonableness. The critical question is whether the rejection of the offer was unreasonable in the circumstances.[11] We see no justification for a more stringent test such as “manifestly” or “plainly” unreasonable.

 

24 Of course, deciding whether conduct is ‘reasonable’ or ‘unreasonable’ will always involve matters of judgment and impression. These are questions about which different judges might properly arrive at different conclusions. As Gleeson, C.J. said recently, ‘unreasonableness is a protean concept’.[12] But a test of reasonableness is, we think, entirely appropriate to the exercise of a discretion such as this.

 

Factors relevant to assessing reasonableness

 

25 The discretion with respect to costs must, like every other discretion, be exercised taking into account all relevant considerations and ignoring all irrelevant considerations.[13] It is neither possible nor desirable to give an exhaustive list of relevant circumstances. At the same time, a court considering a submission that the rejection of a Calderbank offer was unreasonable should ordinarily have regard at least to the following matters:

 

(a)the stage of the proceeding at which the offer was received;

 

(b) the time allowed to the offeree to consider the offer;

 

(c) the extent of the compromise offered;

 

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

 

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

 

(f) whether the offer foreshadowed an application for an indemnity costs in the event of the offeree’s rejecting it.”

See also the comprehensive discussion of Calderbank offers by Beazley JA in an address given to the Australian Lawyers Alliance in 2008[14] and the decision of Martin J in St Clair v Timtalla Pty Ltd (No 2).[15]

[10] Here the offer was made after a mandatory dispute resolution process had been exhausted.  The 14 days allowed to the plaintiff to accept the offer was reasonable in the circumstances.

[11] At the time the offer was made both the accommodation lump sum issue and the reimbursable expenses issue were unresolved.  The defendant made it plain that it had no apparent concerns about being liable for the accommodation lump sum issue but acknowledged it was at some risk in relation to the reimbursable expenses claim.  The amount offered was close to the amount claimed for reimbursable expenses.  Nevertheless, it was an offer to settle the whole dispute and not just the reimbursable expenses claim.  That the defendant subsequently made an offer to settle the reimbursable expenses claim which was accepted by the plaintiff does not alter the scope of the Calderbank offer.

[12] The offer contained express reference to the decision in Calderbank, and foreshadowed an application for costs on the indemnity basis.

[13] After the defence was filed the plaintiff applied for summary judgment.  This was resisted by the defendant which relied upon extensive affidavit material and asserted complexity such that the matter ought not to be determined summarily.  The application was dismissed and costs were reserved.

[14] The reimbursable expenses claim was subsequently settled and the defence was amended by the deletion of material relating to that claim.

[15] The Calderbank offer clearly set out the basis for the defendant’s rejection of the accommodation lump sum issue.  This was not a case which turned on the evidence.  At the end of the day it was purely a question of construction unaided by any substantial evidence.

[16] In all the circumstances, I consider that the plaintiff’s rejection of the Calderbank offer was unreasonable.  This is an appropriate case for an order for indemnity costs.

[17] The plaintiff should pay the defendant’s costs of and incidental to the proceeding, including reserved costs, but excluding costs associated with the provision of the kitchen, mess and laundry facilities as pleaded in paragraphs 5, 5A, 6, 7(b) and 8(c) of the amended statement of claim, on the indemnity basis.

Footnotes

[1] [2011] QSC 95.

[2] See Calderbank v Calderbank [1975] 3 WLR 586; [1975] 3 All ER 333.

[3] Uniform Civil Procedure Rules 1999 (Qld) r 681.

[4] Uniform Civil Procedure Rules 1999 (Qld) r 702.

[5] Uniform Civil Procedure Rules 1999 (Qld) r 698.

[6] (1993) 46 FCR 225; [1993] FCA 536.

[7] [2005] VSCA 298; [21] (2005) 13 VR 435.

[8] [1997] 1 VR 154, 164-165.

[9] (1992) 27 NSWLR 721 at 724, see also M T Associates v Aqua-Max Pty Ltd (No. 3) [2000] VSC 163, [71].

[10] Aljade & MKIC v OCBC [2004] VSC 351.

[11] See, for example, Brymount Pty Ltd v Cummins (No.2) [2005] NSWCA 69, [16]; Pearson v Williams [2002] VSC 30, [17] per Ashley, J; Aljade & MKIC v OCBC [2004] VSC 351, [68] and the cases there cited.

[12] Re Minister for Immigration and Multicultural Affairs; ex parte Applicant S20/2002 (2003) 77 ALJR 1165, 1170.

[13] See House v R (1936) 55 CLR 499, 505.

[14] Beazley JA, Calderbank Offers, speech to Hunter Valley Conference, Australian Lawyers Alliance, (14–15 March 2008) Lawlink NSW

ll_sc.nsf/vwfiles/beazley140308.pdf/$file/beazley140308.pdf>.

[15] [2010] QSC 480.

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Editorial Notes

  • Published Case Name:

    Velvet Glove Holdings Pty Ltd v Mount Isa Mines Limited (No 2)

  • Shortened Case Name:

    Velvet Glove Holdings Pty Ltd v Mount Isa Mines Limited (No 2)

  • MNC:

    [2011] QSC 156

  • Court:

    QSC

  • Judge(s):

    M Wilson J

  • Date:

    03 Jun 2011

Litigation History

Event Citation or File Date Notes
Primary Judgment [2011] QSC 95 27 Apr 2011 -
Primary Judgment [2011] QSC 156 03 Jun 2011 -
Appeal Determined (QCA) [2011] QCA 312 04 Nov 2011 -

Appeal Status

{solid} Appeal Determined (QCA)