Comgroup Supplies Pty Ltd v Products For Industry Pty Ltd & Anor (No 2) [2015] QDC 15

DISTRICT COURT OF QUEENSLAND CITATION: Comgroup Supplies Pty Ltd v Products For Industry Pty Ltd & Anor (No 2) [2015] QDC 15 PARTIES: COMGROUP SUPPLIES PTY LTD (Plaintiff) v PRODUCTS FOR INDUSTRY PTY LTD (First Defendant) and GAVIN DUNWOODIE (Second Defendant) FILE NO/S: D3538/12 DIVISION: PROCEEDING: Application for Costs ORIGINATING COURT: District Court at Brisbane DELIVERED ON: 29 January 2015 DELIVERED AT: Brisbane HEARING DATE: 29 January 2015 JUDGE: McGill SC DCJ ORDER: Order that the first defendant pay the plaintiff’s costs of the proceeding on the appropriate Magistrates Court scale up to the last day on which the offer could have been accepted, 17th September 2012, fixed at $1,115, and that the plaintiff pay the first defendant’s costs thereafter on the indemnity basis. Order that the plaintiff pay the second defendant’s costs of the proceeding, assessed after 17th September on the indemnity basis. CATCHWORDS: COSTS – Indemnity costs – Calderbank offer not accepted – whether unreasonable not to accept offer – indemnity costs ordered after last day to accept offer. Hadgelias Holdings and Waight v Seirlis [2014] QCA 325 – considered. Hazeldene’s Chicken Farm Proprietary Limited v Victorian WorkCover Authority (No. 2) (2005) 13 VR 435 – applied. J&D Rigging Proprietary Limited v Agripower Australia Limited [2014] QCA 23 – considered. Stewart v Atco Controls Proprietary Limited (No. 2) [2014] -- 1 of 5 -- 2 HCA 31 – applied. COUNSEL: G Coveney for the plaintiff J Castelan for the defendants SOLICITORS: HWL Ebsworth, lawyers for the plaintiff Tucker & Cowen for the defendants [1] In this matter, the plaintiff commenced proceedings in 2012 seeking an amount of approximately $277,000 plus interest and costs in respect of a range of claims. I gave judgment in December late last year: [2014] QDC 293. The plaintiff succeeded in recovering a part of the money which had been paid by the plaintiff to the defendant, as money paid under a mistake of fact, to the extent that the defendant retained that money. [2] The details of the claims and the basis for them, the background to them, are set out in my earlier reasons and I don’t want to say a great deal about them. Essentially, as I said then, the issue was whether the plaintiff or the first defendant was to suffer for the fraud of a third person, a person who was at the time an employee of the plaintiff. He was the one who ultimately ended up with most of the money in his pocket, though it isn’t there now, and attempts to recover it from him were not then successful. [3] The issue of costs arises because the plaintiff succeeded against the first defendant but to a limited extent and failed against the second defendant. On the face of it, the starting point is, the plaintiff will be entitled to costs on the appropriate scale in respect of its claim against the first defendant, and the second defendant would be entitled to costs on the District Court scale in respect of the plaintiff’s claim against him, although, no doubt, that would only mean costs to the extent to which costs of the proceedings have been increased by his involvement, which would probably not be very much. [4] The substantial argument for the first defendant is that there was an offer to settle made shortly after the proceeding commenced which with the benefit of hindsight ought to have been accepted, and that, indeed, in the circumstances, given the generousness of the offer, it was unreasonable for the plaintiff to fail to accept it, and that therefore the plaintiff should pay the first defendant’s costs on an indemnity basis thereafter. [5] I should say something about the history of offers because this was not the only offer that was made. After the fraud was discovered, the defendant cooperated with the plaintiff and Mr Dunwoodie went to Brisbane and brought a pile of the documents associated with the transactions between the parties, and went through them with his accountant and with people from the plaintiff and provided a list of invoices which he ultimately prepared which identified the invoices which were the subject of the fraud. Ultimately, there was no dispute at the trial about the identity of the fraudulent invoices, and so he cooperated with the identification of the fraud, although the evidence was that the plaintiff was in the process of identifying it itself from its own resources anyway, as one would expect. [6] In August 2012 there was a letter of demand, and in response, there was an offer made to pay the amount which the first defendant had retained out of the payments -- 2 of 5 -- 3 it received, which was in fact the amount that I found was repayable. Now, the figure is somewhat less than the amount of the judgment but that is just because of the difference in interest, essentially. That was an offer that, with the benefit of hindsight, the plaintiff should have accepted. However, it was made at quite an early stage in the proceedings and I think it is probably fair to say that at that stage it was only quite a small amount relevant to the amount of the claim, and I am not persuaded that it was unreasonable for the plaintiff to have failed to accept that offer. In fact, it was rejected a few days later. [7] There was then an oral offer which was much more generous made in September but just before proceedings were commenced or were served, and that offer was rejected when the claim and statement of claim were served. [8] Three days after that, there was a much more generous offer. The offer was to pay the full amount demanded in the letter of demand, which was effectively the full amount of the claim including interest, but over a period of 12 months with $100,000 to be paid within seven days of acceptance, and a further $100,000 to be paid six months from the date of acceptance, and the balance – just under $100,000 – to be paid 12 months from the date of acceptance. There was to be no further interest accruing, but apart from that, the offer was, in substance, for the full amount of the claim plus interest at that time. [9] It involved not so much a substantial compromise, it was virtually a surrender of the defendant’s position to the plaintiff’s demand. All that was sought was that there be payment over a period of 12 months with no further interest to accrue, that there be a deed of settlement and release, which would I think be commonplace in respect of any settlement, and that the plaintiff do all things reasonably necessary to support the first defendant in its attempts to recover the settlement sum plus costs from the former employee of the plaintiff, who was the person actually responsible for the fraud. The offer was said to rely on Calderbank and to be open for acceptance for seven days. The letter would be produced to court in support of an application for costs on the indemnity basis. [10] There are a couple of things which can be said about the offer. The first is that it may be that there was some vagueness about clause 3, about the requirement that the plaintiff do all things reasonably necessary to support the defendant in its attempts to recover the settlement sum. But I do not think that that was really a major obstacle to the acceptance of the offer. In the first place, to the extent that there was some uncertainty, it could have been clarified, but the defendant was never asked to clarify just what was required. And in the second place, as a general expression, it strikes me as quite a reasonable term to impose. It does not seem to me to impose any great and unreasonable burden on the plaintiff in the circumstances. [11] The second thing is that the period which was allowed for consideration of it was only seven days. That, I admit, is somewhat tight. It compares with a period of 14 days which would have been allowed if the offer had been made under the Rules. The offer could not have been made under the Rules of course because, in two respects, the offer was not one which could be incorporated into a judgment. There is no provision for a judgment to provide for the payment of money spread over a period of 12 months, and a judgment would not be given requiring the plaintiff to do all things reasonably necessary to support the defendant in attempts to recover the -- 3 of 5 -- 4 settlement money from the fraudulent employee. In those circumstances, there was a practical and reasonable explanation for the failure to take advantage of the mechanism provided by the Rules. That is not particularly a justification, but it does provide an explanation why that mechanism was not adopted. [12] It was said that the offer was sent before the defence had been filed, but in circumstances where the starting point of the offer was the full amount of the claim would be paid, it does not seem to me that the content of any future defence was of any great relevance. In effect, this was acceptance of agreement to pay the full amount of the claim. All that was sought was they have time to pay. It was said that no security was offered but the plaintiff did not get any security by pursuing the claim by the litigation, so I think that was a red herring. [13] On the face of it, it seems to me objectively speaking that it was a very attractive offer and that no good reason has been advanced as to why it was not accepted, or indeed why there was anything wrong with it at all. With the benefit of hindsight of course, it was a ridiculously generous offer which should have been grasped with both hands with alacrity. It wasn’t. It was allowed to expire. There was a meeting arranged shortly thereafter between people other than lawyers from each party, but that did not lead to a settlement. Some time later there was a further offer from the first defendant, effectively to walk away and each party bear its own costs; that was not accepted, and it can be said that the plaintiff has done better than that in the proceeding. [14] There was also an offer earlier in June 2014 from the plaintiff to accept the full amount of the plaintiff’s claim and for the first defendant to forego the benefit of a judgment it had obtained in the Magistrates Court in its favour in respect of some work that the first defendant had actually done for the plaintiff, in the amount of some $45,000 plus interest and costs. At first glance, that is an offer by the plaintiff to settle on the basis that it will accept far more than it could possibly hope to achieve in the proceeding. I am mentioning it only for the sake of completeness, and I suppose to illustrate that the plaintiff seems to have had a wholly unrealistic attitude to settlement of the proceeding throughout. [15] The issue of costs and the significance of a Calderbank offer was discussed by the Court of Appeal in J&D Rigging Proprietary Limited v Agripower Australia Limited [2014] QCA 23 at paragraphs [5] and [6]. In those paragraphs, reference was made to the decision of the Victorian Court of Appeal in Hazeldene’s Chicken Farm Proprietary Limited v Victorian WorkCover Authority (No. 2) (2005) 13 VR 435. I have dealt with most of the various matters referred to in that paragraph in the course of these reasons. The Court also said the potential litigant should not be discouraged from bringing their dispute to the Courts, and that it is such considerations which underlie the general rule that an order for special costs should only be made in special circumstances. That is consistent with a number of authorities of the Court of Appeal and is the general approach to the significance of Calderbank offers in Queensland up to that time. [16] There has, however, been a recent decision of the High Court dealing with a Calderbank offer: Stewart v Atco Controls Proprietary Limited (No. 2) [2014] HCA 31. Paragraphs 4, 5, 6 and 7 of the High Court’s decision are worthy of attention. I won’t read them out in detail, but it seems to me they are significant for three reasons. In the first place, it seems that the High Court does not regard the -- 4 of 5 -- 5 possibility of doing better in litigation as a justification for not accepting an offer, unlike the Courts of Appeal in Victoria and Queensland. In the second, it suggests the onus of showing that it was reasonable to reject a Calderbank offer which, with hindsight, ought to have been accepted, lies on the party who rejected it. And third, the High Court seems to have left open the question of whether this is the right test in any case for whether indemnity costs should be awarded in circumstances where there was a Calderbank offer. [17] That decision has, in turn, been considered by the Court of Appeal in Queensland in Hadgelias Holdings and Waight v Seirlis [2014] QCA 325. That case, and Stewart, were cases where Calderbank offers had been made in the context of appeals, and Stewart appears to have been distinguished essentially on the basis that in that case, the Calderbank offer involved quite a significant compromise from the position that the respondent to the appeal had as a result of the earlier decisions of Courts, whereas in Seirlis, what was offered in relation to the appeal was a very modest compromise indeed. The Court of Appeal, perhaps for that reason, did not analyse whether the approach of the High Court meant that a different approach was necessary now in a general way to Calderbank offers. [18] However, on that last point, I think it is significant that in this case, the settlement offer offered a very generous compromise in a sense that it offered the plaintiff virtually everything it could reasonably hope for from the proceedings and at a stage when it would have incurred very little in the way of legal costs. In those circumstances, it was really a very generous offer. With the benefit of hindsight, it was far more generous than the plaintiff was entitled to. [19] In those circumstances, it seems to me that the offer is one that clearly ought to have been accepted and no good reason has been shown by the plaintiff as to why it was reasonable not to accept it. Although the time for consideration of it was short, it was so generous that more than seven days ought not to have been required to recognise that this was something which should have been grabbed with both hands. There was no real disadvantage, it seems to me, in accepting the offer and no good reason has been pointed out for not doing so. In my opinion, it was unreasonable to fail to accept that offer and, therefore, the case comes within that category of cases where the failure to accept a Calderbank offer justifies a special order for costs. [20] In those circumstances, the appropriate order is that the first defendant pay the plaintiff’s costs of the proceeding on the appropriate Magistrates Court scale up to the last day on which the offer could have been accepted, which was the 17th of September 2012, and that the plaintiff pay the first defendant’s costs thereafter on the indemnity basis. The plaintiff should pay the second defendant’s costs in the proceeding, assessed after the 17th of September on the indemnity basis. [21] (Costs on the Magistrates Court scale up to 17 September 2012 fixed at $1,115.) -- 5 of 5 --