State Mercantile Pty Ltd v Oracle Telecom Pty. Ltd. (No. 2)
[2017] QDC 60
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- State Mercantile Pty Ltd v Oracle Telecom Pty. Ltd. (No. 2)[2017] QDC 60
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State Mercantile Pty Ltd v Oracle Telecom Pty. Ltd. (No. 2)[2017] QDC 60
State Mercantile Pty Ltd v Oracle Telecom Pty. Ltd. (No. 2)[2017] QDC 60
DISTRICT COURT OF QUEENSLAND
CITATION: | State Mercantile Pty Ltd v Oracle Telecom Pty Ltd (No 2) [2017] QDC 60 |
PARTIES: | STATE MERCANTILE PTY LTD v ORACLE TELECOM PTY LTD |
FILE NO/S: | BD 3275/2013 |
DIVISION: |
|
PROCEEDING: | Civil Trial |
ORIGINATING COURT: | District Court at Brisbane |
DELIVERED ON: | 17 March 2017 |
DELIVERED AT: | Brisbane |
HEARING DATE: | 10 March 2017 |
JUDGE: | McGill SC DCJ |
ORDER: | The plaintiff pay the defendant’s costs of the claim, and of the counter-claim except for the costs of that part of the counter-claim by which the defendant claimed for loss of profits under cl 14 of the agreement between the parties, and for early termination fees, to be assessed on the standard basis. The defendant pay the plaintiff’s costs of that part of the counter-claim by which the defendant claimed for loss of profits under cl 14 of the agreement between the parties, and for early termination fees, to be assessed on the standard basis. The plaintiff pay the costs of the defendant relating to the applications filed 1 September 2016 and 6 October 2013, being the costs reserved by the order of 14 October 2016, to be assessed on the standard basis. All costs covered by this order be assessed on the District Court scale. The plaintiff be allowed no costs in connection with the evidence of the witness Mr McDonald. |
CATCHWORDS: | COSTS – Indemnity costs – when ordered – non-suit at trial – failure to accept offers to settle – whether conduct plainly unreasonable – standard costs ordered. Alborn v Stephens [2010] QCA 58 – considered. Attorney-General (Qld) v Barnes [2014] QCA 152 – cited. BHP Coal Pty Ltd v O & K Orenstein & Koppel AG (No 2) [2009] QSC 64 – cited. Bulsey v State of Queensland [2016] QCA 158 – considered. Colburt v Beard [1992] 2 Qd R 67 – cited. Comgroup Supplies Pty Ltd v Products for Industry Pty Ltd [2016] QCA 130 – considered. Di Carlo v Dubois [2002] QCA 225 – applied. Hadgelias Holdings Pty Ltd v Seirlis [2014] QCA 325 – applied. Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No. 2) (2005) 13 VR 435 – considered. Interchase Corp Ltd v Grosvenor Hill (Queensland) Pty Ltd (No 3) [2003] 1 Qd R 26 – cited. J & D Rigging Pty Ltd v Agripower Australia Limited & Ors [2014] QCA 23 – applied. Kitchen v Vision Eye Institute Ltd [2017] QCA 32 – considered. McDermott v Robinson Helicopter Co (No 2) [2014] QSC 213 – cited. Murdoch v Lake [2014] QCA 269 – considered. Remely v O'Shea & Anor [2008] QCA 111 – considered. Stewart v Atco Controls Pty Ltd (No 2) (2014) 252 CLR 331 – considered. Tabtill Pty Ltd v Creswick [2012] QCA 78 – cited. Todrell Pty Ltd v Finch & Ors [2007] QSC 386 – cited. |
COUNSEL: | A.P.J. Collins for the plaintiff S. Hogg for the defendant |
SOLICITORS: | Burns and Associates for the plaintiff JHK Legal for the defendant |
- [1]After the delivery of judgment in this matter, submissions were received in relation to costs. In respect of the claim, on which the plaintiff non-suited itself at the trial, there was no dispute that the plaintiff should pay the defendant’s costs, but the defendant sought those costs on the indemnity basis. This was because the claim had been pursued for a period of over three years, and was then abandoned only a few days before the trial was due to commence. Such behaviour justifies an order for costs, but ordinarily something more is required in order to justify ordering that costs be assessed on the indemnity basis. The plaintiff, on the other hand, sought costs of those parts of the counter-claim which were unsuccessful (which was not opposed) on the indemnity basis (which was). This was on the basis of an unreasonable failure of the defendant to accept two offers made prior to the trial.
Authorities
- [2]In Di Carlo v Dubois [2002] QCA 225, the Court of Appeal set aside an order for indemnity costs made as a consequence of the plaintiff being granted leave to amend the statement of claim over objection on the fourth day of a civil trial, in a matter being tried with a jury, leading to the trial being abandoned. White J, with whom the other members of the court agreed, noted some earlier decisions concerning the circumstances in which a court would be justified in making an order for indemnity costs, including propositions that there needs to be some special or unusual feature of the case to justify an order departing from the ordinary practice, which would ordinarily involve some misconduct or conduct which was unreasonable on the part of the party liable for costs. At [40] her Honour stated that:
“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.”[1]
- [3]That approach has generally been followed since then, at least in Queensland. One example of that was Remely v O'Shea & Anor [2008] QCA 111, where it was held that an order for indemnity costs would be made against the appellant where the appellant’s failure to accept an offer was “appropriately to be stigmatised as being so unreasonable as to justify the award of indemnity costs in the second respondent’s favour.”[2]That formulation suggests that mere unreasonableness in not accepting an offer of settlement will not necessarily lead to indemnity costs.
- [4]In J & D Rigging Pty Ltd v Agripower Australia Limited & Ors [2014] QCA 23, the Court of Appeal considered an argument that the successful party should get costs on the indemnity basis because of the failure of the other party to accept a Calderbank offer made shortly before the hearing at first instance. The court said at [5]:
“The failure to accept a Calderbank offer is a matter to which a court should have regard when considering whether to order indemnity costs. The refusal of an offer to compromise does not warrant the exercise of the discretion to award indemnity costs. The critical question is whether the rejection of the offer was unreasonable in the circumstances. The party seeking costs on an indemnity basis must show that the party acted ‘unreasonably or imprudently’ in not accepting the Calderbank offer.”
- [5]The court cited a statement in the Victorian Court of Appeal in Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No. 2) (2005) 13 VR 435 at [25] and identified a (non-exhaustive) list of matters to which regard should ordinarily be had:
“(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.”
- [6]The Queensland court went on to consider those matters, and noted that the offer was clear and indemnity costs were foreshadowed. It was said however that giving the other party less than 24 hours to consider the offer made it difficult to say that the other party’s conduct in not accepting it was unreasonable, and that the extent of the compromise was relatively small. With regard to the prospects of success, the court held that there were substantial arguments in favour of the unsuccessful party and that the prospects of success had to be assessed at the date of the offer which at that time could not have been fairly described as poor. The court rejected the argument that indemnity costs should be ordered, citing with approval the proposition that “potential litigants should not be discouraged from bringing their dispute 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.”[3]
- [7]Those decisions stressed that the prospects of the unsuccessful party were to be assessed at the time when the offer was made, rather than with the benefit of hindsight. A somewhat different approach was taken by the High Court in Stewart v Atco Controls Pty Ltd (No 2) (2014) 252 CLR 331, where the court said at [4]:
“This court has a general discretion as to costs. The non-acceptance of a Calderbank offer is a factor, in some cases a strong factor, to be taken into account on an application for indemnity costs. The respondent submits that its rejection of the offer was not unreasonable. If that be the test, it would appear to require at the least that the respondent point to a reason for not accepting the offer beyond the usual prospects of being successful in litigation.”
- [8]In Stewart the respondent was unsuccessful in the High Court, and the appellants sought costs on the indemnity basis, relying on the non-acceptance of an offer made between the hearing at first instance, where the appellants were successful, and the hearing of the appeal to the Court of Appeal. That appeal was said to turn on whether the respondent could persuade that court to distinguish the principle of an earlier High Court decision, which in the event it did, though the High Court subsequently held that the Court of Appeal should not have done so. The court said at [6]:
“That is the decision which ought to have been made by the Court of Appeal. In these circumstances, it can hardly be said that the respondent’s non-acceptance of the offer was reasonable.”
- [9]That seems to be a different approach from that in J & D Rigging, where the Court of Appeal treated as significant the fact that the arguments which failed in the Court of Appeal had succeeded at first instance. On this basis, it was held by the High Court that the failure to accept the Calderbank offer justified an order on the indemnity basis for costs of the appeal to the Court of Appeal, though not of the appeal to the High Court, because there was no extant offer to be accepted between the Court of Appeal judgment and the High Court Appeal: [7]. The decision did not involve any discussion of earlier cases dealing with the significance of a failure to accept a Calderbank offer, but clearly treated the ultimate outcome as an important factor.
- [10]That decision was referred to by the Court of Appeal in Hadgelias Holdings Pty Ltd v Seirlis [2014] QCA 325. The Court of Appeal referred to the “recent case of Stewart” at [12], but reference was also made to the approach in Hazeldene’s Chicken Farm Pty Ltd (supra), said to have been approved in two other decisions of the Court of Appeal.[4]The court summarised its approach at [11] as:
“…to award costs on the standard basis, unless the conduct of the party against whom indemnity costs were sought was ‘plainly unreasonable.’”[5]
- [11]The court held that there were questions raised by the appeal as to the application of s 87CD of the Trade Practices Act which were unclear on the authorities, and because of that, and because what was offered was no significant compromise, the appellants had not acted unreasonably by rejecting it: “It offered very little more than the status quo… given there were reasonable arguments to be made as to the effect of the apportionment legislation.”[6]This decision still placed greater emphasis on a prospective assessment of the position at the time of the offer, than on the outcome.
- [12]More recently, the Court of Appeal considered the approach to a Calderbank offer in Comgroup Supplies Pty Ltd v Products for Industry Pty Ltd [2016] QCA 130 and in Bulsey v State of Queensland [2016] QCA 158, but in the context of such an offer in relation to an appeal, rather than in relation to a trial.[7]The court did not say that the test in the context of an appeal was the same as the test in the context of a trial, but did cite Stewart (supra), and in each case concluded that, because of an offer made before the hearing of the appeal, the successful party should obtain the costs of the appeal on the indemnity basis. The court did say in Comgroup that the appeal was bound to fail despite the appellant’s confidence, and in Bulsey that a very significant compromise was offered, which served to distinguish the decision in Seirlis (supra).
- [13]The High Court’s approach in Stewart made the ultimate outcome of the proceeding a relevant factor, if not a more relevant factor than the prospects of the offeree assessed at the date of the offer. Initially, the Court of Appeal did not seem to have treated Stewart as producing any significant change in the approach to this issue. More recently however there has been less reference to Hazeldene. Most recently, in Kitchen v Vision Eye Institute Ltd [2017] QCA 32, the court dealt with an application for indemnity costs of an unsuccessful appeal where the respondents had made an offer prior to the hearing of the appeal which was significantly more generous than the trial outcome. Frazer JA, with whom the other members of the court agreed, discussed only Stewart, noting that it had been applied in Comgroup and Seirlis, and listed the circumstances he said were significant without mentioning the appellant’s prospects assessed at the date of the offer. The difficulty from my point of view is that, in these circumstances, it is not clear whether the Court of Appeal still regards the offeree’s prospects assessed as at the date of the offer as still relevant.
Hazeldene factors
- [14]In terms of the factors listed in Hazeldene, the offer was received at a time when the trial date had been fixed, and shortly after an amendment was made to the counter-claim to raise the claim for loss of profits under cl 14 of the standard form contract. The counter-claim had previously included claims for monies outstanding on the services transferred away, and for payment of early termination fees. In response, the plaintiff applied to strike out that new claim, which came before another judge on 13 September 2016. On that occasion, further amendments were foreshadowed, essentially to refine the new amendment, which was done by a further pleading filed on 20 September 2016. That prompted a further application to strike out this version, which was dismissed by that judge on 14 October 2016: [2016] QDC 261. Nevertheless, her Honour expressed the view that this claim faced some hurdles to success, possibly fairly significant hurdles: [23]. Although as it happens I did not look at that judgment while preparing my judgment, her Honour correctly anticipated some of the conclusions at which I arrived. Nevertheless, she held the new alternative claim to be arguable as a matter of law: [24].
- [15]It was in the light of this that, first, on 17 October 2016 an open offer was made, not to seek the costs of the new claim if it were abandoned. Subsequently, on 24 October 2016, a detailed offer to settle was made, without prejudice and under the UCPR, which involved the plaintiff paying the amount claimed for pre-transfer services and the costs of that claim, and the defendant abandoning the other two claims in the counter-claim, and paying the plaintiff’s costs of those claims. In the context of the proceeding as a whole, the offer was made at a relatively late stage and shortly before trial, but it was made at a fairly early point after this new claim by the defendant had been included in the proceeding. Each offer was open for acceptance for 15 days.
- [16]The extent of the compromise offered was essentially insignificant. The plaintiff was, in effect, offering to pay an amount to which, as I mentioned in my previous reasons, apart from a quibble as to a few fees, there clearly was no defence, but nothing in relation to the other claims. The only real compromise offered was in the first offer, not to seek costs already incurred in relation to the new claim. The terms of that offer show that few costs had already been incurred in relation to that claim, except costs of the applications before the other judge, which had been dealt with by her Honour, except for the costs relating to them as applications for further disclosure, which were reserved by that judge. That offered very little in return for giving up this claim.
- [17]With regard to the defendant’s prospects of success, in relation to the claim for past services it had excellent prospects of success. In relation to the claims for early termination fees, and for loss of bargain damages under cl 14, these really depended upon the defendant’s establishing a particular interpretation of the contract, about the interrelationship of cl 7 and cl 12. There were some difficulties with that, arising from the fact that there is no express statement in the document as to how these clauses work together. There are difficulties with almost any interpretation, and from the point of view of the defendant the interpretation that I have adopted could well be seen as an uncommercial interpretation.
- [18]To characterise the claim, as the plaintiff’s solicitors did in the offer of 24 October 2016, as one doomed to fail was certainly an overstatement of the position of the other judge, who did not take that view, otherwise she would have struck out that part of the counter-claim. It could be seen as an attempt to achieve by negotiation what had not been achieved by the application. Assessed at the date of the offer, I think the defendant had a reasonable argument for some relief in relation to the basis upon which the commercial relationship between the parties had come to an end, though it did face difficulties because of the terms of the contract imposed by the wholesaler.
- [19]There was no want of clarity in either the offer on 17 October or the offer of 24 October 2016. Neither offer foreshadowed an application for indemnity costs if it were not accepted.[8]
Analysis
- [20]Overall, I am not persuaded that this is a case where the failure to accept the offers of settlement justifies an order for indemnity costs against the defendant. The extent of compromise offered was small, virtually insignificant, and recent decisions of the Court of Appeal have placed considerable weight on the extent of the compromise offered. The defendant’s prospects at the date of the offer, if relevant, were better than the plaintiff suggested; the offers did not contain a commercially reasonable response to a realistic assessment of those prospects. It is only with hindsight that it can be said that the defendant would have been better off accepting one of these offers.
- [21]There is also the consideration that there was some concession to the plaintiff in the defendant’s acceptance that separate orders for costs should be made in relation to the three parts of the defendant’s claim. This was uncontentious before me, but in circumstances where the defendant did obtain success on the counter-claim overall, there was in principle room for argument about whether the defendant was entitled to the costs of the counter-claim generally, in the absence of a relevant offer under the rules. Rule 681 speaks of costs following the event, unless the court orders otherwise, but there has been some controversy over the years as to the approach where there is more than one cause of action litigated. The traditional view is that “event” is to be determined by reference to separate events or issues if more than one arise in the proceeding.[9]That was applied in McDermott v Robinson Helicopter Co (No 2) [2014] QSC 213 by P Lyons J, where the relevant authorities were helpfully collected.[10]
- [22]There have however been a number of decisions from the Court of Appeal which have endorsed an approach to costs that, at least as a starting point, a party successful in the proceeding as a whole is not deprived of the costs of particular issues because of a lack of success on those issues. In Alborn & Ors v Stephens [2010] QCA 58 Muir JA said at [8]: “A party which has not been entirely successful is not inevitably or even, perhaps, normally deprived of some of its costs.” In BHP Coal Pty Ltd v O & K Orenstein & Koppel AG (No 2) [2009] QSC 64 McMurdo J (as his Honour then was) went further, and said at [7] that an order for less than full costs would be made in favour of a party who had succeeded in the result but not on all issues only in exceptional circumstances, but such an order could be made if an issue was definable and severable and had occupied a significant part of the trial: [8]. His Honour cited a comment quoted in Todrell Pty Ltd v Finch & Ors [2007] QSC 386 by Chesterman J[11]that the making of an order to deprive a successful party of some costs is a course taken in unusual cases and with a degree of hesitancy: [21].
- [23]In Tabtill Pty Ltd v Creswick [2012] QCA 78, the parties that were successful overall obtained the full costs of the trial and the appeal, although there were some issues abandoned late, or on which they failed. The court at [9] said “it is inappropriate for this court to keep a register of the wins and losses…a global view should be taken by the court in respect of costs.” In Attorney-General (Qld) v Barnes [2014] QCA 152, on appeal an order for costs, made when a coroner’s findings were set aside on judicial review, was varied, the court holding at [54] that the order for costs:
“…should reflect the fact that, importantly, the second respondent was successful in having the Coroner’s decision to commit him set aside, but also to take account of the fact that he was successful on only one of the grounds on which he sought to do so. This is not a mathematical exercise. A fair apportionment would suggest that the State should pay 70% of the respondent’s costs of the judicial review application.”
- [24]The comment by Muir JA in Alborn was cited with apparent approval by Morrison JA in Murdoch v Lake [2014] QCA 269 at [20], his Honour commenting at [21] that that proposition had been quoted since by the Court of Appeal.[12]That, I think, reflects the approach in this area adopted more recently by the Court of Appeal.
- [25]None of that is to suggest that I should depart from the basis upon which the matter was argued before me, that the defendant pay the plaintiff’s costs of those parts of the counter-claim on which it was unsuccessful; the only issue before me was whether that be on the standard or the indemnity basis. Nevertheless, my point is simply that this involves some concession to the plaintiff. The issue is whether I should take a further step, and order that those costs be assessed on the indemnity basis. In all the circumstances of this matter, I am not persuaded to take that further step. I am not persuaded that the defendant’s failure to accept either of the offers made last October was in the circumstances unreasonable, let alone so unreasonable as to justify an order for costs on the indemnity basis.
Conclusion
- [26]In relation to the costs of the claim, there was really no justification identified on behalf of the defendant for a conclusion that the plaintiff’s behaviour should be characterised as so improper or unreasonable as to justify taking the unusual step of ordering costs on an indemnity basis. Overall therefore the defendant is entitled to the costs of the claim, which will be assessed on the standard basis, and the costs of the counter-claim, that is, the general costs of the counter-claim, except for the costs relating to the claim for loss of profits under cl 14 of the agreement between the parties, or the claim for early termination fees. The defendant is to pay the plaintiff’s costs related to those issues, to be assessed on the standard basis.
- [27]I should add that I was invited by counsel for the plaintiff to provide some guidance to the costs assessor in relation to the assessment of these costs. I suspect that there is unlikely to be any need for such guidance, since the rules in relation to the allocation of costs, or the apportionment of costs, in these circumstances are generally well-known by costs assessors. I should however deal with three matters specifically.
- [28]The first is that the costs in relation to the counter-claim are to be assessed on the District Court scale, notwithstanding the amount recovered, because the counter-claim was necessarily in the District Court, as the claim was in the District Court up to the date of trial; until then the defendant had to litigate in the District Court, and it would have been quite unreasonable to expect a change of court on the morning of trial. Given the terms of r 181, however, it may be necessary for me to order otherwise under r 697(2), and I so order.
- [29]The second matter which I should mention specifically, for the avoidance of doubt, is that no costs should be allowed in respect of the evidence of Mr McDonald, given what I concluded about the admissibility, and indeed the value, of his evidence in my principle judgment.
- [30]Finally, I should deal with the reserved costs of the applications for further disclosure. The applications themselves did not identify what further disclosure was sought, but the outline of argument for the hearing of the second application relied on an affidavit of the plaintiff’s solicitor which exhibited a report from a colleague of Mr McDonald, setting out a list of documents said to be “required in order to properly examine and analyse the defendant’s counter-claim for loss of profits.”[13]Essentially for the reasons given in my analysis of the evidence of Mr McDonald, none of this material was directly relevant to the matters in issue in the proceeding, and so not subject to disclosure, and the applications in this respect should not have been brought. The plaintiff should therefore pay these costs.
Footnotes
[1] The reference was Colgate-Palmolive Company v Cussons Pty Limited (1993) 46 FCR 225.
[2] At [9].
[3] Cited from Overseas-Chinese Banking Corporation v Richfield Investments Pty Ltd [2004] VSC 351 at [60].
[4]Velvet Glove Holdings Pty Ltd v Mount Isa Mines Ltd [2011] QCA 312 at [105]; Roberts v Prendergast [2013] QCA 89 at [12].
[5] Citing Tector v FAI General Insurance Co Ltd [2001] 2 Qd R 463.
[6] At [14].
[7] On the view taken by the Court of Appeal in Bulsey, an offer under the rules gave a prima facie right to indemnity costs in respect of the trial. In Comgroup the court noted a concern that too generous an approach might stultify the development of the law, and limited indemnity costs to those incurred after the date of the offer.
[8] I note that in Bulsey (supra), McMeekin J, with whom the other members of the court agreed, expressed the view that such an omission was not a major factor.
[9]Colburt v Beard [1992] 2 Qd R 67 at [70]; Interchase Corp Ltd v Grosvenor Hill (Queensland) Pty Ltd (No 3) [2003] 1 Qd R 26 at [61]; Alborn v Stephens [2010] QCA 58 at [8] per Muir JA; Murdoch v Lake [2014] QCA 269 at [20] per Morrison JA.
[10] His Honour’s views on costs are probably independent of the fact that his Honour’s conclusion in relation to the substantive issue in the trial was reversed by the Court of Appeal but reinstated by the High Court.
[11] Who did make such an order in that case, which he described as “exceptional”: [24].
[12] In Allianz Australia Insurance Ltd v Swainson [2011] QCA 179 at [4]; Queensland Building Services Authority v JM Kelly (Project Builders) Pty Ltd [2013] QCA 336 at [3]; Hamcor Pty Ltd & Anor v Marsh Pty Ltd & Anor [2013] QCA 395 at [13].
[13] Affidavit of Burns filed 6 October 2016 para 7.