Dudney v Larsson (No 2)[2017] QDC 249

DISTRICT COURT OF QUEENSLAND

1. [1]
   In this matter I have previously provided to the parties written reasons in relation to the trial of the matter and invited submissions as to the question of interest and cost and as to the form of the orders.

2. [2]
   The plaintiffs’ counsel submits that the following orders would be appropriate:

1. On 18 March 2013, the plaintiff lawfully rescinded the contract of sale of the “Belle de Jour”;

2. On 30 October 2017, the plaintiff, upon payment of the sum set out hereafter, deliver to the defendants the vessel “Belle de Jour”;

3. On that date, the defendants pay to the plaintiffs:

1. (a)
   $340,000;

2. (b)
   interest thereon from 17 November 2011 to 30 October 2017 in the sum of $143,420.63;

3. (c)
   $82,833.35 in damages;

4. (d)
   interest thereon (at half the usual applicable rate) from 17 November 2011 to 30 October 2017 in the sum of $17,470.60;

4. The defendants pay the berthing fees to Abell Point Marina and any management fees to Queensland Yacht Charters for the vessel until delivery of the vessel to the defendants; and

5. The defendants pay the plaintiffs’ costs including reserve costs, on the indemnity basis.

3. [3]
   The defendants counsel agrees with orders numbered 1, 2 and 3(a) above.

4. [4]
   He further submits that interest should be awarded on the sum of $340,000 only from 18 March 2013, being the date of the letter from the plaintiffs’ solicitors rescinding the agreement of sale, and not from the date of completion of the contract, namely 17 November 2011. He calculates such interest, using the Queensland Court Interest Calculator at $98,149.40, rather than the sum sought by the plaintiffs’ counsel.

5. [5]
   In support of this submission, counsel for the defendant submits that the purpose of the award of interest is to compensate the plaintiffs for being kept out of the money represented by the judgment sum. He further submits that because they had the use of the vessel for personal and commercial purposes from November 2011 until November 2012, when the engine seized, they were not “kept out of” that sum during that period.

6. [6]
   The plaintiffs’ counsel submits that because the successful claim was for rescission of the contract of sale, the purpose of the orders should be to put the successful parties in the position they would have been in if the contract had not come into existence. He relied on two High Court cases, Alati v Kruger (1955) 94 CLR 216 and Brown v Smitt (1924) 34 CLR 160. In both cases interest was allowed from the date of payment of the contract price (see the formal orders set out at page 173 of the report of Brown v Smitt (supra) and at page 230 of the report of Alati v Kruger (supra)). Furthermore, in Alati v Kruger (supra) the court emphasised the importance in equity of the court doing “what is practically just between the parties” so as to restore them to the status quo.

7. [7]
   It is, in my view, somewhat disingenuous to submit that because the plaintiff had possession of the boat, and use of it up to early November 2012, that they should not get interest over that period. In each of the 2012 and 2013 financial years the vessel’s income was significantly less than its maintenance and service costs. The personal benefit to the plaintiffs from private use of the vessel has been deducted from damages payable, and was calculated at market cost. Furthermore, in circumstances where, but for the misrepresentation of the male defendant and the defendants’ agent I have found the defendants would not have entered into the contract, they would have had the capital sum available for their use over that period. That I conclude justifies, and indeed requires, that the defendants pay interest from the date of purchase of the vessel.

8. [8]
   I therefore propose to make an order in accordance with those set out in [2] above.

9. [9]
   The next dispute is a minor one; namely whether damages ought be allowed in the sum of $82,833.35 or $78,091 as the defendants contend. The difference represents the plaintiffs’ alleged expenses incurred since the trial, said to amount to some $4,742.35.

10. [10]
    The plaintiffs’ counsel submits recovery of those sums is necessary to give effect to my decision and that the allegation in the further amended statement of claim of “ongoing expenses” and the claim therein for “such further or other relief the court thinks fit” justifies my making such an order.

11. [11]
    Such recovery is opposed by the defendants. Their counsel submits it is improper to put forward evidence which is untested, which is said to justify the award of $4,742.35 claimed.

12. [12]
    I accept that it is not appropriate to now allow evidence of that fact. Evidence of expenses up to 30 October 2017 when the vessel is to be returned would have been available to be led at the trial which concluded on 12 May 2017, that is, 5 months and 18 days ago, (or .47 of a year). At trial, the defendants counsel had suggested to the female plaintiff, and she accepted, that the cost of having the vessel sitting idle in its mooring, as has occurred since November 2012, was $7,000 to $8,000 annually.

13. [13]
    On that basis, I will allow 47% of the lower figure of $7,000, amounting to $3,290 in order to do justice to the parties.

14. [14]
    I therefore allow damages in the sum of $81,381, being the originally calculated sum of $78,091, together with this proportion of the estimated $7,000 annual expense suggested by the defendants’ counsel.

15. [15]
    I also calculate interest thereon, using the Queensland Court Interest Rate Calculator (an approach endorsed by the Court of Appeal in Keeley v Horton [2016] QCA 253 at [12] and [13]), in the sum of $17,129.

16. [16]
    The more substantial issue in dispute concerns the plaintiffs’ claim for indemnity costs. The claim is based on the plaintiff’s solicitor’s letter of 18 March 2013 rescinding the agreement for sale of the vessel. It was marked “Without Prejudice Save As To Costs”. The letter contained an offer to forgo any consequential losses if the purchase price was refunded. No payment of interest of legal costs were sought.

17. [17]
    I note that the letter, states “A copy of this letter will, ultimately, be produced to the court, if necessary, on the question of costs.”

18. [18]
    The plaintiff’s counsel submits that, consistent with the Court of Appeal approach in J & D Rigging Pty Ltd v Agripower Australia Limited & Ors (No 2) [2014] QCA 23 at [5] and [6] that the failure of the defendants to accept the Calderbank offer contained in that letter is a matter which I should have regard to. He submitted:

1. That the defendants’ rejection of the offer was unreasonable.

2. The offer was made at an early stage.

3. The offer constituted a significant compromise.

4. The defendant ought of known the plaintiff’s prospects of success were very significant.

5. The defendants’ conduct in making the deliberate misrepresentation referred to in the judgment, was a significant favour.

19. [19]
    In relation to the compromise offer, he referred to the significant interest which would have accrued between settlement of the contract of sale in November 2011 and the date of the offer, namely the 18 March 2013, and to the losses incurred over that time. He submitted the male defendant at least knew he had misrepresented the true history of the engines of the vessel when speaking to Mr Reintals.

20. [20]
    Whilst the plaintiffs’ counsel accepted the letter did not foreshadow a claim for indemnity costs, he submitted this was only a fact to be taken into account. He referred to a decision of Carruthers AJ in Assaf v Skalkos [2000] NSWSC 935 where at [110] his Honour said:

“…any prudent solicitor with experience in litigation in this Court, would construe the phrase "without prejudice except as to costs", continually repeated in settlement negotiations of this nature, as an indication that, if a settlement offer is unreasonably refused, then the rejecting party would be at risk of a subsequent application for a costs order on an indemnity basis.”

21. [21]
    In relation to the defendants’ conduct, the plaintiffs’ counsel relied also on observations of Gilmour J in Barrett Property Group Ltd v Metricon Homes Pty Ltd (No 2) [2007] FCA 1823, concerning what were described as “a conscious and deliberate effort on the part of the respondents to mislead the court” which were of essential importance in the case. In that case, as in this, it is said the offending party knew their assertions to be false and that, consequently, very significant costs were incurred by the plaintiffs.

22. [22]
    I accept that is the case. The male defendant’s evidence before me was deliberately deceptive. It is, as in the Barrett Property Group case, not a case of a party giving evidence believing it to be true, but being mistaken. Here the conduct of the male defendant was deliberately deceptive as to the central issue in the case.

23. [23]
    In my view, such findings are of critical significance in my consideration of the issue of whether to award indemnity costs.

24. [24]
    The defendants’ counsel submits I should order only that the defendants pay standard basis costs. He relies on the following:

1. The correspondence was well prior to the commencement of proceedings.

2. The correspondence gave only a period of 14 days to accept the plaintiffs’ offer, and was sent directly to the defendants before they had legal representation.

3. The correspondence failed to warn of the specific costs consequences now sought.

4. The correspondence did not particularise reasons why the offer should be accepted.

25. [25]
    Principles concerning the making of Calderbank offers and their effect on costs were considered by the New South Wales Court of Appeal in Elite Protective Personnel Pty Ltd v Salmon [2007] NSWCA 322. McColl JA said at [98]:

“The general principles concerning Calderbank offers were set out in Jones v Bradley (No 2) where the Court approved Giles JA’s statement in SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 (at [37]) that:

‘The making of an offer of compromise in the form of a Calderbank letter … where the offeree does not accept the offer but ends up worse off than if the offer had been accepted, is a matter to which the Court may have regard when deciding whether to otherwise order, but it does not automatically bring a different order as to costs. All the circumstances must be considered, and while the policy informing the regard had to a Calderbank letter is promotion of settlement of disputes an offeree can reasonably fail to accept an offer without suffering in costs. In the end the question is whether the offeree’s failure to accept the offer, in all the circumstances, warrants departure from the ordinary rule as to costs, and that the offeree ends up worse off than if the offer had been accepted does not of itself warrant departure …’”

At [99] McColl JA said (omitting references):

“…such a letter would only justify an order for costs on an indemnity basis, rather than the ordinary basis, if it constituted a genuine offer of compromise, which it was unreasonable for the appellant not to accept: … Among the issues germane to the question of the reasonableness of the offeree’s conduct will be whether the offeree had an ‘appropriate opportunity … to consider and deal with the offer.’”

26. [26]
    So too, Beazley JA in the same case said at [7]:

“…I consider that the proper approach to any such offer of compromise is to consider it according to its terms and determine whether, in all the circumstances, the court should exercise its discretion to award indemnity costs.”

27. [27]
    Importantly, Basten JA, after referring to the approach of Rogers J in Messiter v Hutchinson (1987) 10 NSWLR 525  that, so long as it may “fairly be done, the court should do nothing which would dissuade or discourage a party from making bona fide offers of settlement” said at [135] (again, omitting citations):

“Subsequently, more detailed rules for offers of compromise have been introduced in courts exercising civil jurisdiction, with increasingly precisely defined consequences for costs orders. Even as the rules have become more sophisticated, there have remained gaps and the courts have encouraged parties to fill the gaps by making appropriate offers of settlement. Of course, where a particular rule operates, an offer which does not comply with the rule may not have the desired effect. However, except in a case of direct inconsistency, the courts have regularly acknowledged a degree of flexibility in assessing Calderbank offers which flexibility is not available under the rules. Such flexibility is likely to promote the overriding purpose of the Civil Procedure Act 2005 (NSW), as defined in s 56.”

28. [28]
    Whilst it is of some importance that the defendants were not represented at that time and were given only 14 days to accept the offer, I note that they in fact consulted their present solicitors, who responded within 10 days, during which time the compromise was open for acceptance.

29. [29]
    The defendants’ solicitor’s letter (see page 204 of Exhibit 1 of the trial bundle) did not assert that their clients had insufficient time to consider the matter. Rather the letter asserted three matters as justifying the defendants’ rejection of the offer, namely:

1. The difficulty of ascertaining the basis on which the plaintiffs could seek rescission, given that the vessel had been operating without problem for some 12 months.

2. The content of the exclusion clause in the contract on which it was said the defendants relied (and which I have dealt with in my primary judgment).

3. The fact that there had been no misrepresentations made.

30. [30]
    That last assertion must be seen against the specific content of the earlier letter of the plaintiffs’ solicitors which set out, inter alia, the following assertions:

1. That prior to purchase the male defendant asserted to the male plaintiff that the boat had previously had one of its engines replaced.

2. The starboard engine failed in November 2012.

3. In fact, since manufacture, the boat had required the replacement of five engines, including replacements in October 2009, March 2010 and August 2010.

4. The plaintiffs would, but for the misrepresentation, not have purchased the vessel.

31. [31]
    This must be seen against their acceptance at the trial of the history of prior engine problems and their replacements and must mean, in my view, mean that they instructed their solicitors specifically that Mr Larsson did not advice Mr Reintals that the boat had previously had only one engine replaced. That, of course, is consistent with his evidence at trial. It is inconsistent with my findings.

32. [32]
    Those instructions cause me to conclude that the defendants’ failure to accept the offer of compromise was essentially based on the false denial of that fact. It was, in my view, unrelated to the fact that they were not as at 18 March legally represented. It was unrelated to any complications of legal or factual matters which might require time for them, or their solicitors to distil. It was not unreasonable to expect the male defendant to have informed their solicitors, of the true position concerning the representations he had in fact made. If he had done so, and the defendants did not accept the offer of compromise because of genuine concern about the possibility of fairly achieving rescission, the position might well have been different. But here it is my view that the rejection of the offer was because, or at least primarily because, of the male defendant’s denial of what he must have known had occurred. That is, that he had misrepresented the position to the plaintiffs.

33. [33]
    In my view, the critical feature in the exercise of my discretion whether to award indemnity costs is the instructions of the defendants to their solicitor that there had been no representation. That was, as I have said, a falsity which the male defendant must have known was false. The particularity of the allegation in the plaintiffs’ solicitor’s letter, and the defendants’ denial of that allegation is critical to the exercise of my discretion.

34. [34]
    In is in my view appropriate that the defendants pay the plaintiffs’ costs on an indemnity basis. The offer of compromise was a significant compromise, was made at a time early in proceedings before significant costs were incurred, was clear and precise in its terms. It ought to have been accepted. It is in my view unnecessary to consider what might be the case if, for example, the defendants had accepted that the misrepresentation had been made but nevertheless not accepted the offer because a concern about the possibility of proper restitution. Alternatively, it is unnecessary to consider what might have occurred if they had asked for more time to consider the matter. The specific denial of the misrepresentation was unambiguous and entirely unreasonable.

35. [35]
    I should also add that whilst the fact that the plaintiffs’ counsel referred, in his written submissions, to the without prejudice correspondence prior to the finalisation of final orders is perhaps regrettable, I do not accept that this disentitles the plaintiffs from recovering indemnity costs, as the defendants’ counsel submitted. Indeed, whilst best avoided, I do not think it is of any relevance to the exercise of my discretion in the particular circumstances of this case.

36. [36]
    In the circumstances I will make the following orders:

1. The Plaintiff is given leave to read and file submissions dated 20 September and submissions in reply dated 21 September 2017.

2. The defendant is give leave to read and file submissions dated 21 September 2017.

3. On 18 March 2013, the plaintiff lawfully rescinded the contract of sale of the “Belle de Jour”;

4. On 30 October 2017, the plaintiffs, upon payment of   the sums set out hereafter, deliver to the defendants the vessel, the “Belle de Jour”;

5. On that date, the defendants paid to the plaintiff:

1. (a)
   $340,000;

2. (b)
   interest thereon from 17 November 2011 to 30 October 2017 in the sum of $143,420.63;

3. (c)
   $81,381 in damages;

4. (d)
   interest thereon, at half of the usual    applicable rate, from 17 November 2011 to 30 October 2017 in the sum of $17,129.

6. The defendants pay the plaintiff’s costs, including reserve costs, of and incidental to the action, on the indemnity basis, provided however that they do not recover costs thrown way by reasons of the adjournment of the trial on 30 May 2016. Further direct that this order does not affect the order that the plaintiffs pay the defendants’ costs thrown away by reason of the earlier adjournment of the trial, also assessed on an indemnity basis.