Fraser v The Irish Restaurant and Bar Company
[2008] QDC 26
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- Unreported Judgment
- Fraser v The Irish Restaurant and Bar Company[2008] QDC 26
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Fraser v The Irish Restaurant and Bar Company[2008] QDC 26
Fraser v The Irish Restaurant and Bar Company[2008] QDC 26
DISTRICT COURT OF QUEENSLAND
CITATION: | Fraser v The Irish Restaurant and Bar Company [2008] QDC 26 |
PARTIES: | FRASER (Plaintiff) v THE IRISH RESTAURANT AND BAR COMPANY (Defendant) |
FILE NO/S: | BD 3448 / 05 |
DIVISION: | Civil |
PROCEEDING: | Trial – costs order |
ORIGINATING COURT: | District Court, Brisbane |
DELIVERED ON: | 28 February 2008 |
DELIVERED AT: | Brisbane |
HEARING DATE: | Written submissions |
JUDGE: | Searles DCJ |
ORDER: |
|
COUNSEL: | D. Kent for the plaintiff N. Ferrett for the defendant |
SOLICITORS: | Hall Payne Lawyers for the plaintiff Hopgood Ganim Lawyers for the defendant |
- [1]I delivered judgment in this matter on 19 February 2008 dismissing the plaintiff’s claim with costs. The defendant’s solicitor Mr Smith foreshadowed an application for indemnity costs and I ordered that the question of costs be adjourned, for the defendant and plaintiff to provide written submissions.
- [2]By letter from the defendant’s solicitors to the plaintiff’s dated 6 June 2006, the defendant made the following offer of settlement:
“I am writing this offer to you pursuant to Part 5 of the Uniform Civil Procedure Rules [UCPR].
I have instructions from my client, the defendant, that it is prepared to resolve this matter on the basis that are discontinued and each party bear its own costs.
This offer is open for acceptance for a period of 14 days from the date of receipt by you and can be accepted by sending a written notice of acceptance to me.
If this offer is not accepted then my client will be relying upon this offer, the open communication sent to you today and Rule 361[2] of the UCPR, to ask the Court for an Order that the defendant’s costs be paid on an indemnity basis.”
That offer was not accepted.
- [3]The defendant argued that the plaintiff’s case failed at the trial on the basis that, whilst the plaintiff’s evidence as to the relevant Profit Share Agreement and the Share Repurchase Agreement was accepted by me, his action to enforce them failed. That was because as to the first, because there was no present entitlement of the plaintiff to payment under it. As to the second, as a result of my interpretation of a Deed of Agreement signed by parties the Plaintiff released the defendant from that liability. The defendant correctly points out that my factual findings were almost entirely in favour of the plaintiff.
- [4]The plaintiff in opposing the application rests its argument on four bases. Firstly, that rule 361(2) of UCPR makes no provision for the payment of indemnity costs to a successful defendant. Secondly, that the offer made by the defendant had little if any element of compromise in it, because it required the plaintiff to abandon what appeared, at that point, to be a meritorious claim. Thirdly, the offer was not unreasonably rejected because at the point of offer and for its seven days duration, the plaintiff’s claim for the $40,000 under the Share Repurchase Agreement appeared meritorious and the defendant’s case on that issue was rejected. The plaintiff further argues that Exhibit 5 evidenced an admission by the defendant that the $40,000 was owing despite the absence of the rendering by the plaintiff of the third party invoice from his own builder. Finally, the plaintiff argues that as most, if not all, of the questions of fact were found in favour of the plaintiff, that makes the rejection by the plaintiff of the defendant’s offer reasonable in all the circumstances.
- [5]There is no doubt under UCPR 704(1) the Court has power to order costs on an indemnity basis where appropriate. The question is whether it is appropriate in this case.
- [6]The traditional starting point on the issue in recent times is Colgate-Palmolive Company & Colgate-Palmolive Pty Ltd v Cussons Pty Ltd[1] where Sheppard J embarked on an extensive review of the authorities and distilled the principles and guidelines which he considered those authorities established.[2] The five principles are these:-
- (1)The problem arises in adversary litigation and different considerations apply where parties are to be paid out of a fund or assets administered by a trustee liquidator or the like;
- (2)The ordinary rule is that, where the Court orders the costs of one party to litigation to be paid by another party, the order is for payment of those costs on the party and party basis;
- (3)This practice is entrenched in Australia and if it is to be altered it should be done by legislation (rule amendment) or by decision of an intermediate Court of Appeal or High Court;
- (4)In consequence of the settled practice, the Court ought not usually make an order for the payment of costs on some basis other than the party and party basis. The circumstances of the case must be such as to warrant the Court in departing from the usual course. Various tests have been described such as “as and when the justice of the case might so require” or “that there should be some special or unusual feature in the case”;
- (5)Some instances of circumstances which would warrant the exercise of the discretion to depart from the usual practice were making allegations of fraud knowing them to false; evidence of particular misconduct causing loss of time to the Court and to the other parties; the commencement or continuation of proceedings for some ulterior motive; the making of allegations which ought never to have been made; the undue prolongation of the case by groundless contentions; or the imprudent refusal of an offer to compromise;
- (6)Finally, even though circumstances may exist warranting the exercise of the discretion to award indemnity costs, that does not mean that the Court is necessarily obliged to exercise that discretion to make such an order.
His Honour accepted that the categories of circumstances where it would be appropriate to order indemnity costs were not closed and that, apart from the examples he mentioned, others would arise in the future with different features.[3]
- [7]In Di Carlo v Dubois & Ors[4] the Court of Appeal considered an appeal from an order awarding indemnity costs and at paragraph 40 said:-
“It is important that applications for the award of costs on the indemnity basis not be seen as too readily available when a particular party against whom the order is sought is seen to carry responsibility for the state of affairs calling for a costs order without some further facts analogous to those mentioned in Colgate and other considered decisions.”
- [8]The following year his Honour Chesterman J in Emanuel Management Pty Ltd (in liquidation) & Ors v Foster’s Brewing Group Ltd & Ors and Coopers & Lybrand & Ors[5] considered the question of indemnity costs in a situation where the plaintiff’s action against the defendants had been dismissed as is the situation presently under consideration and where offers of settlement were made. His Honour said:-
“[35] … Rule 361 which regulates offers to settle made by defendants provides that if a defendant makes an offer to settle which is not accepted by the plaintiff which then obtains a judgment no more favourable than the offer, and the offer was made on the first or later day of trial (as happened here) the defendant is entitled to its costs from the commencement of the trial on the indemnity basis.
[36] The rule is not applicable because the plaintiffs did not obtain any judgment. This may be an oversight in the Rules but r 361 does not give rise to a prima facie right in the defendants to have their costs on the indemnity basis from the commencement of the trial subject only to the court ‘otherwise’ ordering.
[37] Nevertheless it is clear that r 361 does not by implication prevent an order for indemnity costs being made in favour of a defendant save in the particular circumstances covered by the rule. A defendant who has been completely successful and has made an offer to settle better than the result for the plaintiff should not be in a worse position than a partly unsuccessful defendant who made such an offer.
[38] I was referred to a debate in the authorities as to what response is appropriate where a successful defendant had offered to compromise on terms which gave the plaintiff something and the offer was rejected. There are slightly conflicting views: on the one hand there is said to be a ‘presumption’ that the defendant should have its costs on the indemnity basis and the plaintiff must show some good reason why another order should be made. The second view is that the defendant must show that the offer was rejected unreasonably, judged in the circumstances known at the time it was made.
[39] An order for costs being a matter always for the discretion of the court I do not know that it is sensible to adopt either position as a ‘rule’. The making of an offer in the circumstances in question is a very relevant circumstance to be taken into account when exercising the discretion. If there are no countervailing circumstances the order for indemnity costs is likely to be made.
[40] In this case I can see no countervailing circumstances. Indeed as I have explained the plaintiffs should have appreciated that their case had no worthwhile prospect of success. It was, therefore, unreasonable not to accept the offer.”
- [9]In Anderson v AON Risk Services Australia Ltd & Anor[6] McMurdo J considered an application for indemnity costs by two defendants, the action against the first having been discontinued by leave at the commencement of the trial, and against the second defendant dismissed after the hearing. His Honour said in relation to the Court’s power to award indemnity costs under UCPR 704:-
“The discretion is a broad one, but clearly there must be something about the facts and circumstances beyond the demerits of a party’s case, as reflected in the outcome, before such an order is warranted.”
In the result, relevantly, he found in relation to the second defendant’s application that the second of three offers made by the second defendant to the plaintiff prior to trial was such that the plaintiff should have, by the time of the offer, appreciated that he had no reasonable prospect of doing better than the offer so that, in his Honour’s view, the plaintiff’s refusal of the offer was unreasonable.[7] He ordered the plaintiff pay the second defendant’s indemnity costs from the date of the subject offer.
- [10]The decisions of Chesterman and McMurdo JJ are examples of the exercise of a discretion to award indemnity costs in circumstances where a plaintiff has unreasonably failed to accept an offer by the defendant.
- [11]The question is whether the plaintiff in this case acted unreasonably in not accepting the defendant’s offer. Before doing so, it should be said that the provision in the UCPR for the making by parties of compromise offers is designed to ensure that parties to litigation have addressed the issue of settlement before they seek the assistance of the Court by way of trial. Other examples are to be found in Part 4 of UCPR dealing with the alternative dispute resolution processes of mediation and case appraisal.
- [12]As with the ADR processes, the offer of compromise provisions in r 360 and r 361 oblige parties to genuinely take part in those processes and to properly consider any offer made before rejecting it or allowing it to lapse. Sometimes the proper consideration of an offer by a party may be difficult for that party without the assistance of a legal advisor to explain the relevant merits or demerits of the party’s case or the prospects of success and the like to arm the party with all possible information to allow that party to decide whether or not to accept or reject any offer made.
- [13]As to the defendant’s argument that r 361(2) makes no provision for the payment of indemnity costs to a successful defendant, that is dealt with in the above decision of Chesterman J in Emanuel. Put shortly, rule 361 does not apply to a situation where a defendant has made an offer and after trial has been completely successful. As to the plaintiff’s second point that the defendant’s offer contained little if any element of compromise I do not agree. Certainly it did not contain any offer of payment of monies to the plaintiff but what it did offer was the opportunity for the plaintiff to exit the action without payment of any costs to the defendant to that point.
- [14]Dealing first with the $40,000 claim under the Share Repurchase Agreement. That claim failed because, whereas an agreement for payment was reached between the parties, it was a precondition of liability in the defendant that the plaintiff render the third party invoice from his builder up to a sum of $40,000 which would then have obliged the defendant to pay that invoice to that amount. No such invoice was ever rendered by the plaintiff. I consider that it should have been reasonably clear to the plaintiff at point of offer on 6 June 2006 and for the following seven days before it expired, that, even if all the factual matters asserted by the plaintiff were accepted by the Court, any liability in the defendant was contingent upon the rendering of the third party invoice.
- [15]I find that the acceptance by the plaintiff of the defendant’s offer would not have amounted to the abandonment of a meritorious claim for $40,000 because at that point, on proper analysis, the plaintiff’s claim had a fundamental defect fatal to his claim, namely the failure to deliver the third party invoice.
- [16]Exhibit 5 does not assist the plaintiff. That was a letter dated 16 April 2004 from the defendant addressed to the plaintiff, but not received by him, seeking to vary the Share Repurchase Agreement already reached. It proposed scheduling the payment of the balance $40,000 over 12 months with 12 monthly instalments in substitution for the lump sum payment of $40,000 due to the plaintiff upon presentation of the third party invoice. Not only was that variation not accepted by the plaintiff, the evidence from the plaintiff was that he never received that letter and the proposal contained in it was never put to him.
- [17]As to the balance claim under the Profit Share Agreement, as I have said, I found it was caught by the release provisions of the Deed of Agreement. As with the other claim I consider that, if the plaintiff had carefully considered the operation of that Deed at point during the currency of the offer it should have been reasonably clear to him that this aspect of his claim would be caught by the release provisions, as has been found.
- [18]In all the circumstances I consider that the plaintiff’s rejection of the defendant’s offer was unreasonable and I can find no countervailing circumstances to found a claim by the plaintiff to disentitle the defendant to indemnity costs.
- [19]I accordingly order:-
- (a)The plaintiff pay the defendant's costs of and incidental to the proceeding (including any reserved costs), calculated on the standard basis, up to and including 13 June 2006 being the date of expiration of the defendant’s offer of 6 June 2006; and
- (b)The plaintiff pay the defendant’s costs of and incidental to the proceeding (including any reserved costs) calculated on the indemnity basis, from and after 13 June 2006.