Trenfield v HAG Import Corporation (Australia) Pty Ltd (No 2)
[2018] QDC 129
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- Unreported Judgment
- Trenfield v HAG Import Corporation (Australia) Pty Ltd (No 2)[2018] QDC 129
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Trenfield v HAG Import Corporation (Australia) Pty Ltd (No 2)[2018] QDC 129
Trenfield v HAG Import Corporation (Australia) Pty Ltd (No 2)[2018] QDC 129
DISTRICT COURT OF QUEENSLAND
CITATION: | Trenfield & Ors v HAG Import Corporation (Australia) Pty Ltd (No.2) [2018] QDC 129 |
PARTIES: | KELLY-ANNE TRENFIELD, JOHN PARK AND QUENTIN OLDE AS JOINT AND SEVERAL LIQUIDATORS OF LINEVILLE PTY LTD (IN LIQUIDATION) (first plaintiffs) and LINEVILLE PTY LTD (IN LIQUIDATION) (second plaintiff) and HAG IMPORT CORPORATION (AUSTRALIA) PTY LTD (defendant) |
FILE NO/S: | D4633/2015 |
DIVISION: |
|
PROCEEDING: | Civil trial – costs |
ORIGINATING COURT: | District Court Brisbane |
DELIVERED ON: | 6 July 2018 |
DELIVERED AT: | Brisbane |
HEARING DATE: | (submissions in writing) |
JUDGE: | McGill SC DCJ |
ORDER: | Order the defendant pay the plaintiffs’ costs of the proceeding assessed on the indemnity basis. Vary the judgment given on 15 June 2018 to judgment that the defendant pay the first plaintiffs $551,897.85, including $78,606.85 interest under the Civil Proceedings Act 2011 s 58 |
CATCHWORDS: | COSTS – Indemnity costs – offer to settle not accepted – whether sufficient reason to order otherwise – changes to pleadings and evidence after offer not significant. UCPR r 360. Beardmore v Franklins Management Services Pty Ltd [2003] 1 Qd R 1 – cited. Castro v Hillery [2003] 1 Qd R 651 – applied. Keeley v Horton [2016] QCA 253 – applied. McChesney v Singh [2004] QCA 217 – cited. Morrison v Hudson [2006] 2 Qd R 465 – cited. Ross v Suncorp Metway Insurance Ltd [2002] QCA 93 – cited. |
COUNSEL: | K E Downes QC and M J May for the plaintiffs S S Cooper QC and A Messina for the defendant |
SOLICITORS: | Cooper Grace Ward Lawyers for the plaintiffs Lewis Holdway Lawyers for the defendant |
- [1]In this matter I gave judgment on 15 June 2018 that the defendant pay the first plaintiffs $473,291.00 together with the interest by statute. At the time of delivering judgment I foreshadowed the view that interest should run from a date which allowed the defendant a reasonable time after the first demand for repayment was made by the liquidators to investigate the position and form a correct conclusion as to the amount payable. The first letter of demand was sent to the defendant on 7 August 2014, and I put forward at that stage a preliminary position that interest should run from 12 months later, 7 August 2015. When I delivered judgment the plaintiffs adopted that position, but at that stage the defendant wanted the opportunity to consider the matter further. In written submissions the defendant also adopted that position, and in those circumstances I will allow interest by statute in accordance with the court calculator from 7 August 2015 until the date these reasons are delivered.
Costs
- [2]With regard to costs, by a written offer dated 28 March 2017 made under the UCPR the plaintiffs ordered to accept $450,000 plus interest from 27 November 2015 to 27 March 2017 and costs on the standard basis. It was open for acceptance for 14 days. It was not accepted. Neither party suggested that there was any other relevant offer.
- [3]The defendant conceded that this offer satisfied the requirements of r. 360, so that the court must order the defendant to pay the plaintiffs’ costs assessed on the indemnity basis unless the defendant showed that another order for costs was appropriate in the circumstances. The defendant sought to do this on the basis of three propositions, which were advanced cumulatively. First, that at the time the offer was made the plaintiff had provided only preliminary expert evidence as to insolvency, and that a comprehensive expert report as to insolvency was provided only shortly before trial. Second, that the particular issue on which the plaintiff succeeded was not put against the defendant in a pleading at the time the offer was made, and expired, and was only raised by amendment shortly before the trial. Third, that of the points litigated at the trial the plaintiff succeeded on only one.
Evidence of insolvency
- [4]As to the first point, the plaintiffs did provide additional evidence in relation to insolvency, and after it was provided the defendant conceded that the company was insolvent at the relevant times. It is true that this was more comprehensive than the report provided earlier, but the first report provided clear and compelling evidence that the company had had cash flow problems since at least the middle of 2011, and was insolvent at all times from at least November 2011. The company had six major suppliers, and four of them were not operating on usual credit terms during at least part of 2012. The company’s running balance account debt with the ATO increased from a little under $200,000 in December 2011 to almost $1.4 million by the end of November 2013, and a series of payment agreements were either not complied with by the company, or renegotiated. In my experience a failure to keep up to date with tax obligations is a common sign of insolvency. This report provided compelling evidence of insolvency.
- [5]Apart from any evidence from the liquidators, the notion that the company was insolvent would not have come as a surprise to the defendant, bearing in mind the way in which the company’s account had been conducted for some time before the relevant payments were made. An examination of the correspondence which was put in evidence in Exhibit 1 shows that on 4 September 2012 the defendant wrote what appears to be a standard form reminder letter to the company advising that $316,716.79 was now overdue, and that it was their policy to limit credit once an account became overdue: document 40. This was in addition to an amount of $176,080.78 due by 30 September 2012: document 44. On 17 October 2012 there was an email claiming that there was still $421,804 outstanding for August; this email was queried later the same day on behalf of the company: document 48.
- [6]On 10 January 2013 a reminder letter said that $282,951.89 was overdue: document 50. On 14 January 2013 there was advice that the account was “on hold at the moment”: document 51. On 4 February 2013 the standard reminder letter recorded an amount of $611,942.39 overdue: document 54. On 14 February 2013 the defendant asked when certain invoices would be “cleared” (I take it, paid) “as it’s not the first time I’ve asked”: document 62. On 5 March 2013 the standard reminder letter advised that $316,150.83 was now overdue: document 72. A statement for the end of March 2013 however showed only $17,157.43 as overdue, though there was a further $326,055.21 due by 31 March, and $482,494.05 shown as current: document 78. There was another standard form reminder letter on 5 April 2013, consistent with these figures: document 80.
- [7]On 12 April, a week after the previous reminder, the defendant advised that orders were now on hold until payment had been received in full, and demanded payment of the balance of the account within 7 days “to avoid further action being taken”: document 82. After the standard reminder letter on 3 May 2013 for $510,826.91 (document 89) the managing director of the company advised that “the best we are able to do in relation to our outstanding amount is $200,000 payable on 13 May with the balance of $279,014 payable in the week commencing 27 May after which we will return to paying in accordance with our normal terms”: document 90. As I said in my earlier reasons, after 2 May no goods were supplied by the defendant to the company: [9].
- [8]On 8 May 2013 the managing director of the company advised the defendant: “Since we spoke we have been working on the cash flow and reviewing the current market conditions and have come to the conclusion that our best course of action is to cancel all of our outstanding orders with you. You have always been upfront in your enforcement of your terms and conditions and so it would therefore be unwise for us to order more product today that we believe may not be paid within your 30 day EOM terms”: document 91, which went on to refer to poor sales and difficult market conditions. In a reply the same day the defendant’s sales manager advised an appreciation of this candour, and asked whether cancelling all orders included some “basic orders” received that day: document 92.[1]He added “I would have thought that by cancelling your basic orders you further restrict any ability to trade positively through this tough time”.
- [9]On the following day the defendant pressed for “confirmation of payment of your outstanding account”: document 94. The advice in reply on 10 May from the company’s managing director was that “we cannot give you an exact date that the payments will be made but will endeavour to make them as soon as the levels of your stock are reduced and cashflow allows”: document 95. On 10 May the standard reminder letter advised an amount overdue of $510,826.91: document 97. On 10 May 2013 the defendant’s sales manager emailed inter-alia:
“It is quite clear from the discussions you have had with Michael recently, that you have no intention of paying your account as per our trading terms, that is ‘as and when they fell due’ and this raises the issue of your trading position with regard to the Corporations Law. Under these circumstances we have no option but to take action to recover the amounts outstanding and it is my intention to take this action immediately”: document 98.
- [10]The next email from him to the company on 15 May 2013 was sent in a much larger font, which I suspect is the email equivalent of shouting: document 100. The managing director of the company on 17 May 2013 replied (in a standard font size) with the ancient plea for more time: document 101.[2]The reply on 20 May 2013 said inter alia:
“The overdue amount is now in excess of $500,000, it is quite clear that the reconciliation argument you put forward is simply a ploy. The fact is that Robins is unable to meet our overdue account ‘as and when it has fallen due’ and the inescapable consequence is the Robins is actually trading whilst insolvent”: document 102.[3]
- [11]I do not think I need to explore the content of the correspondence further. It is obvious that the insolvency of the company at the relevant times would have come as no surprise to the defendant, and the notion that it was reasonable to wait until the further report on insolvency from the liquidators had been made available before reaching a conclusion on this, or that it was reasonable to refrain from accepting the offer of settlement because that had not then been provided, is in my view entirely without substance.
- [12]It was also suggested that the defendant had insufficient time to consider the first expert report as to solvency before the offer expired. It was filed on 21 March 2017, a week before the offer was made, and it should have been apparent within 24 hours of seeing that document what the effect of it was. There is no substance to this argument either.
Pleading point
- [13]The next point advanced by the defendant was that the case on which the plaintiff succeeded was one which was only added by amendment in January 2018. Certainly the final version of the reply pleaded in paragraph 4(j) in some detail the amount of the total debt as at each of the relevant payment dates, and the amount of the stock value as at the various payment dates, and that the defendant’s debt was under s 588FA(2) of the Act unsecured to the extent of various amounts at the time of the different payments, whether assessed at the winding up date or assessed at each relevant payment date. This latter was the basis on which the plaintiffs succeeded.
- [14]At the time the offer to settle was made the current reply was the document filed on 24 August 2016. Paragraph 14 of that document, which responded to paragraph 21 of the then defence, pleaded in sub-paragraphs (b)(vii) in the further alternative that “even if the defendant had a perfected security interest… the value of its security interest for the purposes of s 588FA(2) of the Act as at the time of winding-up was only $11,800.” Subparagraph (b)(viii) then alleged that “by virtue of s 588FA(2) of the Act the debt owed by the company to the defendant was unsecured to the sum of $684,498… and to the extent that payments were made to satisfy the unsecured debt of $684,498 the payments were unfair preferences for the purposes of s 588FA(1) of the Act as pleaded in the statement of claim and this reply.”
- [15]This plea was based on on the proposition that the value of the security depended on the value of the stock to be assessed as at the time of winding-up. That depended on a question of law as to the interpretation of s 588FA, about when the security was to be valued for the purposes of the application of subsection (2), and made a particular assumption about the timing of that valuation. But importantly the plea raised the proposition that at the relevant time the value of any security was limited to the value of any stock supplied by the defendant and held by the plaintiff, and particularly relied on the operation of subsection (2) to allege that the amount of the debt paid which exceeded the value of the security was therefore recoverable as a preference. Apart from the fact that I determined that subsection (2) was to be applied by reference to the value of the security at the date of each payment, this was the basis on which the plaintiffs succeeded at the trial.
- [16]The issue about the date on which the security was to be valued was a question of law. By implication the plaintiffs could be said to be then pleading the proposition of law that the security was to be valued at the date of the winding-up. If, however, that proposition were wrong it did not mean that subsection (2) ceased to be applicable, or was of no consequence to the outcome of the case; it simply meant that the security would be valued at the correct date, the date of which each payment was made. The substantial issue on which the plaintiff succeeded was that at the dates of the payments, most of the payments were of unsecured debt because the amount of the debt exceeded, initially greatly exceeded, the value of the security. That proposition, in my view, was adequately raised on the pleadings as they existed at the time of the offer.
- [17]I consider that if the matter had gone to trial with a reply in those terms I would have been justified in giving the judgment I gave. Indeed, in a further submission the defendant specifically did not ask me to draw the inference that at the date of the offer it was unaware that a potential outcome of the proceeding was that the value of its security interest could be assessed by reference to the value as at the date of each of the payments it received. The defendant submitted that the changes made later to the plaintiffs’ case by amendment to the pleadings were of significance because the defendant was entitled to assess its response to the offer in the light of the pleaded case, rather than by reference to a foreseeable potential outcome of the trial. That is not the basis on which I understand the discretion conferred by r 360 is to be approached.
Authorities
- [18]In Ross v Suncorp Metway Insurance Ltd [2002] QCA 93 the Court of Appeal refused to interfere in a trial judge’s ordering otherwise under r 360 in circumstances where the relevant offer had been served at the same time as the claim and statement of claim, the medical evidence relied on in assessing damages did not even exist at that time, and the amount eventually awarded was close to the amount offered: [29]. It was noted that at the time the offer was made the only basis upon which the defendant could assess the claim was upon the allegations made in the plaint. The Court of Appeal simply said that the exercise of discretion was not so manifestly wrong as to justify intervention: [30].
- [19]In Beardmore v Franklins Management Services Pty Ltd [2003] 1 Qd R 1 the court did not on appeal interfere with a costs order made by a trial judge. Ambrose J at [100] regarded the facts relevant to the question of costs as exceptional, but did note that one of the objects of r 360 was to encourage and motivate parties to litigation to make bona fide and reasonable effort to settle the litigation and to avoid the expense and expenditure of time involved in pursuing a claim to judgment in court: [106].[4]McMurdo P also mentioned encouraging acceptance of offers to settle by costs orders at [24].[5]
- [20]In Castro v Hillery [2003] 1 Qd R 651 the Court of Appeal set aside an order for costs on the indemnity basis under r 360 and substituted an order for costs on the standard basis. The plaintiff had made an offer to settle at an early stage for $1.5 million, much less than the judgment of over three times that amount: [12]. McMurdo P said that the offer to settle was premature and may have been tactical rather than genuine; it was so low it would not have been sanctioned by the court[6]and the plaintiff was not at the time willing and able to carry out what was proposed in the offer: [15].
- [21]Williams JA, with whom Wilson J agreed, made reference to the fact that at the time of the offer to settle a statement of loss and damage had been filed which omitted a number of claims which would have been obviously appropriate given the injuries to the plaintiff, and after the time for acceptance of the offer expired another statement of loss and damage was served which substantially increased the amount of the claim: [61]. In that matter it appears that the argument for the appellants was based on the proposition that the offer to settle was unrealistically low and would never have been sanctioned by a court: [64]. Williams JA said at [72]:
“The basic principle in my view is that the recipient of the offer to settle must have an informed opportunity to assess the chances of either side doing better than the offer. Further, that issue must be decided on material disclosed in the proceedings; it is the claim as made in the proceedings which is under consideration.”
- [22]His Honour then referred to authority, including Rolls Royce Industrial Power (Pacific) Ltd v James Hardy & Co. Pty Ltd (2001) 53 NSWLR 626 and some English cases, before concluding that the authorities reinforce the proposition that:
“A procedure such as an offer to settle must be evaluated in the light of circumstances as they exist at the time the offer is made. If a plaintiff enlarges his case after an offer to settle is made and rejected, then there will be good reason for refusing the plaintiff indemnity costs notwithstanding that the judgment is better than the offer… a minor difference in the claim will not ordinarily have that consequence. But where the difference is significant, where the risk to the defendant is significantly altered, there would have to be careful analysis before a proper exercise of discretion could result in indemnity costs being ordered”: [75].[7]
- [23]Williams JA went on to say at [79]:
“The offer to settle must be evaluated in the light of circumstances disclosed in the proceedings. If the plaintiff’s case changes substantially after an offer to settle is made and declined, the defendant ought not be penalised for rejecting the offer. If the principle were otherwise the offer to settle procedure would be open to abuse.”
- [24]The decision in in Castro v Hillery has been applied by the Court of Appeal a number of times,[8]most recently in Keeley v Horton [2016] QCA 253, where the court increased the award in favour of plaintiff appellants so that it became more favourable than an offer of settlement made by them under the rules. Burns J, with whom the other members of the Court agreed, characterised Castro as authority for the proposition that another order may be appropriate where the substance of the claim substantially changed between the refusal of the offer and the trial: [19]. In that case the defendants argued that indemnity costs should not be ordered because of “the amendment of the statement of claim on two occasions subsequent to the service of the formal offer and the feature that the second appellant had not succeeded to the extent claimed. They also submitted that the appellants never pleaded that the second appellant had no goodwill and otherwise maintained that their argument ‘on the issue of the assessment of damages cannot be said to be so lacking in merit [as to be] unarguable’”: [20]. These were said not to amount to sufficient reason to make another order. This decision confirms that what matters is the substance of the case advanced rather than the precise pleading of the case.
- [25]I do not regard the change made by the amendments to the reply after the making of the offer to settle as a substantial change in the plaintiffs’ case for the purposes of the principle in Castro v Hillery. The important point had already been raised, and the later amendments merely served to refine its application to the circumstances of the case. The relevant evidence, the stock schedule on the basis of which I assessed the value of the stock and hence the defendant’s security at the relevant dates, was disclosed prior to the making of the offer. The later liquidators report on insolvency did not change the basic position, it just served to emphasise it. This is not a case where changes in the pleadings or evidence after the offer was made make another order appropriate.
Leave to read affidavit
- [26]In these circumstances it is unnecessary for me to consider whether evidence of a position paper provided by the plaintiffs for the purposes of a court ordered mediation is inadmissible in the absence of the agreement of the defendant, pursuant to the Civil Proceedings Act 2011 s 53(1). An “ADR process” is relevantly a process of mediation: s 39(1), which says it includes all the steps involved in an ADR process, such as any kind of session or another step prescribed by the rules. On the other hand, s 53(1) uses the expression “at an ADR process” rather than “in an ADR process”, which would have more clearly encompassed something like the delivery of a position paper prior to and for the purposes of a mediation. The word “at” is more readily applicable to the immediate mediation process, such as the “sessions” referred to in s 39(2), and the delivery of a position paper is not a step prescribed by the rules. Paragraphs 8 and 9 of the affidavit of Mr Russo provided in support of the submissions in reply on costs on behalf of the plaintiffs are clearly inadmissible because of s 53(1), but I need not decide if that applies also to paragraph 7. Since the defendant did not dispute that the stock sheet I relied on was provided on disclosure in October 2016, well before the offer to settle, I do not need to refer to paragraphs 3 – 5. I therefore refuse leave to read that affidavit.
Extent of success
- [27]Finally the defendant pointed to the fact that, on the substantial issues litigated, the plaintiffs succeeded only on one. That may be understating the extent of the plaintiffs’ success,[9]but the real point is that the defendant had to establish both that it had a valid security and that the value of the security was high enough to overcome the operation of subsection (2) in order successfully to resist the plaintiffs’ claim. No amount of success on the issues associated with the first point would help the defendant on the second point. It ought to have been apparent at the time of the offer that the defendant really had no answer to the subsection (2) point, in circumstances where the stock was being run down and there was no reason to think that the company had not been depositing the proceeds of sale of the relevant stock in an overdraft account as fast as they came in, and disbursing them in the ordinary course of business.
- [28]There is therefore no good reason to depart from the prima facie position under r 360. I order the defendant to pay the plaintiffs’ costs of the proceeding assessed on the indemnity basis. I vary the judgment given on 15 June, to judgment that the defendant pay the first plaintiffs $551,897.85, including $78,606.85 interest under the Civil Proceedings Act 2011 s 58.
Footnotes
[1] That was confirmed: document 93.
[2] Matthew Ch. 18 v 26.
[3] In view of this email it is extraordinary that the defendant pleaded that the payments which were subsequently made were received in good faith and without notice of insolvency. There would be good grounds for ordering the defendant to pay the costs of that issue on the indemnity basis anyway.
[4] See also McChesney v Singh [2004] QCA 217 at [13].
[5] The third member of the court, McPherson JA dissented on the substantive issue and did not address the question of costs.
[6] The plaintiff suffered brain damage so any settlement would have to be sanctioned.
[7] His Honour then referred to Hiscox v Woods [2002] QSC 64 where indemnity costs were ordered even though further particulars of the claim emerged after the offer was made, and Campbell v Jones [2003] 1 Qd R 630, where it was ordered that costs be only on the standard basis where at the time the offer to settle was made a statement of loss and damage did not disclose significant material which affected the ultimate assessment.
[8] Including in Morrison v Hudson [2006] 2 Qd R 465 at [2], [35].
[9] The defendant failed to show that its security had been perfected by registration under the PPSA.