Actuarial Outlook Pty Ltd v Holmans Pty Ltd

Supreme Court of NSW|2017-11-13|Before: Adamson J

Solicitors: Ironside & Shillington (Plaintiff) Lander & Rogers (Defendant) File Number(s): 2015/145128

Introduction

The claim brought by Actuarial Outlook Pty Ltd as trustee for Dowsett Family Trust (the plaintiff) was resolved by its acceptance of the offer of compromise made by Holmans Pty Ltd (the defendant) in the sum of $375,000. The only outstanding issue is whether an order that the defendant pay the plaintiff's costs of the proceedings to 5 October 2017 ought be made. By notice of motion filed on 7 November 2017 the plaintiff sought orders for payment out of monies paid into court; judgment for $375,000; an order that the defendant pay the costs of the proceedings to 5 October 2017; and an order that the defendant pay the plaintiff's costs of the motion on an indemnity basis. The orders sought, apart from the costs orders, were made by consent at the conclusion of the hearing on 13 November 2017.
The plaintiff contended that it was entitled to its costs of the proceedings up to the date of the offer of compromise. The defendant contended that no order for costs ought be made.
The issue turns on the construction, operation and application of four rules in the Uniform Civil Procedure Rules 2005 (NSW) (UCPR), rr 20.26, 20.27, 42.13A and 42.34.

Relevant statutory provisions

The UCPR relevantly provides as follows: "20.26 Making of offer (1) In any proceedings, any party may, by notice in writing, make an offer to any other party to compromise any claim in the proceedings, either in whole or in part, on specified terms. (2) An offer under this rule: . . . (c) must not include an amount for costs and must not be expressed to be inclusive of costs, and . . . (3) An offer under this rule may propose: . . . (b) that the costs as agreed or assessed up to the time the offer was made will be paid by the offeror, or . . . 20.27 Acceptance of offer (1) A party may accept an offer by serving written notice of acceptance on the offeror at any time during the period of acceptance for the offer. . . . (3) If an offer is accepted in accordance with this rule, any party to the compromise may apply for judgment to be entered accordingly. . . . 42.13A Where offer accepted and no provision for costs (1) This rule applies if the offer: (a) is accepted by the offeree, and (b) does not make provision for costs in respect of the claim. (2) If the offer proposed a judgment in favour of the plaintiff in respect of the claim, the plaintiff is entitled to an order against the defendant for the plaintiff's costs in respect of the claim, assessed on the ordinary basis up to the time when the offer was made. . . . 42.34 Costs order not to be made in proceedings in Supreme Court unless Court satisfied proceedings in appropriate court (1) This rule applies if: (a) in proceedings in the Supreme Court, other than defamation proceedings, a plaintiff has obtained a judgment against the defendant or, if more than one defendant, against all the defendants, in an amount of less than $500,000, and (b) the plaintiff would, apart from this rule, be entitled to an order for costs against the defendant or defendants. (2) An order for costs may be made, but will not ordinarily be made, unless the Supreme Court is satisfied that: (a) for proceedings that could have been commenced in the District Court - the commencement and continuation of the proceedings in the Supreme Court, rather than the District Court, was warranted . . ."
Section 98 of the Civil Procedure Act 2005 (NSW) provides that costs are to be in the discretion of the court. Part 6 of the Civil Procedure Act provides guiding principles according to which orders ought be made. Section 56 provides that the overriding purpose of the Act and the rules of court in their application to civil proceedings is to facilitate the just, quick and cheap resolution of the real issues in the proceedings.

The plaintiff's claim

By statement of claim filed on 15 May 2015 the plaintiff claimed damages against the defendant for breach of contract and negligence arising from professional services performed for the plaintiff by the defendant, in the form of financial advice and due diligence. The services were performed for the plaintiff before it exchanged contracts for the purchase of a motel business in Orange for $2.12m on 24 September 2013. Settlement occurred on 16 October 2013. The plaintiff subsequently sold the business on 27 January 2015 for $800,000. It claimed the difference of $1.32m by way of damages against the defendant, alleging that the sale price of $800,000 represented the fair market value of the business at the time the plaintiff had purchased it for $2.12m.

The defences alleged

In its defence the defendant denied negligence and alleged that any loss in value had not been caused by any negligence on its part, but rather by a downturn in economic conditions which affected the bookings at the hotel. It also relied on the following matters by way of defence: 1. s 5O of the Civil Liability Act 2002 (NSW) to allege that it acted at all relevant times in a manner that was widely accepted in Australia by peer professional opinion as competent professional practice; 2. contributory negligence and that the plaintiff had failed to mitigate its loss; and 3. the contribution of two "concurrent wrongdoers" within the meaning of Part VIA of the Competition and Consumer Act 2010 (Cth): Odon Investment Pty Ltd (the vendor of the business to the plaintiff) and Manetti Quinlan & Associates Pty Ltd (the business broker which acted for Odon Investment Pty Ltd) both of which allegedly provided incorrect cash flow statements and other financial documents to both the plaintiff and the defendant.
The defendant also relied on its membership of the Institute of Chartered Accountants in Australia (NSW) Scheme to limit its liability to the plaintiff to $1m, inclusive of costs.
The plaintiff read, in support of its notice of motion, an affidavit of Michael Evans, its solicitor, which established that the defendant had made an offer of compromise on 5 October 2017 pursuant to UCPR r 20.26, offering judgment for the plaintiff in the sum of $375,000. There was no mention of costs in the offer. Before it was accepted, the plaintiff's solicitors wrote to the defendant's solicitors proposing a supplementary agreement on costs. They also said: "Furthermore, we note UCPR 42.34. Although we do not think that the intention of this rule is to alter the application of UCPR 42.13A, or to discourage commercial settlements, our client does not wish to enter into an argument on that issue. We assume that your client does not intend to rely upon UCPR 42.34, and would consent to an order as contemplated by UCPR 42.13A, if your client's offer of compromise is accepted. Can you please let us know the position in this regard by 4 pm today also. If we do not hear from you in relation to UCPR 42.34 by 4 pm today, then we will have to assume that your client reserves its position in relation to UCPR 42.34. That would be a material fact relevant to an 'otherwise order' if your client ultimately seeks to rely upon UCPR 42.15 or 42.15A."
The defendant's solicitors relevantly replied as follows: "Our client reserves its position in relation to UCPR 42.34."
On 2 November 2017 the plaintiff accepted the defendant's offer of compromise.
Apart from this affidavit, the pleadings summarised above constituted the only material before me on the notice of motion.

The plaintiff's submissions

Mr Toomey SC, who appeared with Mr Neggo on behalf of the plaintiff, argued that UCPR r 42.34 applied only after a contested hearing on the merits and did not apply to proceedings which were resolved by an acceptance of an offer of compromise. He argued that the plaintiff was entitled to an order for costs in its favour by reason of UCPR r 42.13A(2). He submitted that it would be at odds with the purposes of Part 6 of the Civil Procedure Act and UCPR r 20.27 to deprive a party which accepted an offer in an amount of less than $500,000 of its costs of the proceedings. He argued that such a result would effectively deter otherwise sensible commercial resolutions of proceedings. He submitted, in the alternative, that, if UCPR r 42.34 applied, this Court ought exercise its discretion to order costs in the plaintiff's favour as the pleadings indicated that the proceedings were properly commenced and continued in this Court.
Mr Bova, who appeared with Ms Ng on behalf of the defendant, submitted that UCPR rr 20.27, 42.13A and 42.34 ought be read together. He submitted that the plaintiff's entitlement to costs under UCPR r 42.13A(2) had the effect of bringing the plaintiff within UCPR r 42.34(1)(b) and did not determine whether an order for costs ought be made. He submitted that it was a matter for the court's discretion whether an order ought be made for costs in the plaintiff's favour. He submitted that the conclusion could not be drawn that commencement of the proceedings in this Court was warranted since the measure of damages was not the difference between what the plaintiff paid for the business and what it sold the business for 13 months later. He contended that even if the plaintiff had established, by reason of the amount claimed, that the commencement of the proceedings was warranted, it could not establish merely by relying on the pleadings, that their continuation in this Court was warranted.
Mr Bova referred me to cases, such as Norris v Routley [2016] NSWSC 147, where this Court has declined to make an order for costs in favour of a plaintiff who has, after a contested hearing in this Court, obtained judgment in a sum substantially less than $500,000. I do not regard these decisions of any particular assistance in the present case where the quantum of the judgment was not determined by the Court but was the consequence of the plaintiff's acceptance of an offer of compromise made by the defendant in an amount less than $500,000.

The question of construction

The construction for which the plaintiff contended would require a gloss to be read into the words of UCPR r 42.34 so that it read, relevantly: "if in proceedings in the Supreme Court, a plaintiff has obtained a judgment against the defendant following a contested hearing on the merits in an amount of less than $500,000 . . ." While it would have been open to the draftsperson to achieve the result for which the plaintiff contended, express words would have been required.
I do not consider that the principles of construction operate to confine UCPR r 42.34 to judgments obtained after contested hearings. A plaintiff which has obtained judgment following acceptance of an offer of compromise is no less "entitled" to costs, apart from UCPR r 42.34(1)(b), than one which has obtained judgment following a contested hearing. UCPR rr 20.26, 20.27, 42.13A and 42.34 can be comfortably read together in accordance with their plain meaning, consistently with their respective purposes. The combined effect of these provisions is that, if a plaintiff obtains judgment following the acceptance of an offer of compromise in a sum less than $500,000 which makes no provision for costs, the plaintiff will obtain an order for costs only if this Court exercises its discretion favourably to the plaintiff under UCPR r 42.34.
Accordingly, the plaintiff will only be entitled to its costs if any order is made under UCPR r 42.34, having regard to the general discretion in s 98 of the Civil Procedure Act.

Whether an order under UCPR 42.34 ought be made

UCPR r 42.34 plainly applies as the plaintiff has obtained judgment in an amount less than $500,000 ($375,000) and it would, apart from the rule, be entitled to an order for costs against the defendant pursuant to UCPR r 42.13A(2): UCPR 42.34(1). UCPR r 42.34(2) appears to have a superfluous second comma but it provides, in effect, the plaintiff must satisfy this Court that, for proceedings that could have been commenced in the District Court, the commencement and continuation in this Court was warranted, before an order for costs in its favour will be made.
The proceedings could have been commenced in the District Court since the plaintiff claims a money sum by way of damages. However, the sum claimed exceeded the jurisdictional limit of $750,000 in the District Court: s 4 of the District Court Act 1973 (NSW). Thus, although the plaintiff "could" have commenced the proceedings in the District Court under s 44 of the District Court Act, it would have been required, had the matter proceeded to judgment, to abandon any amount in excess of the jurisdictional limit of the District Court, unless it had obtained the defendant's consent to unlimited jurisdiction under s 51 of the District Court Act or if the defendant had not objected (in which case the jurisdictional limit is an amount equivalent to 150% of the jurisdictional limit of the District Court at the time the action commenced). Parties are entitled to have this Court determine proceedings where the amount claimed falls outside the jurisdictional limit of the District Court. There is no obligation on a defendant either to consent to unlimited jurisdiction or to refrain from objecting.
The amount claimed, $1.32m, exceeds the jurisdictional limit of the District Court. There are some difficulties with the calculation of the amount claimed. It by no means follows that a party, which has purchased a business as a result of negligent advice for $x and sold it 13 months later for $x - $y, will be entitled to $y in damages from the tortfeasor/ contractual wrongdoer. The measure of damages in that scenario is, prima facie, the difference between the purchase price of the business and its value at the time of purchase. Any amount which the purchaser can recoup by a subsequent sale is deducted from the difference to mitigate its loss, with account to be taken of the profits or losses of the business in the meantime. The measure of damages in tort and contract are relevantly the same when the alleged breach of contract is the giving of negligent advice since the contractual promise is to provide advice non-negligently: see generally: Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1 at 13 (Mason, Wilson, Dawson JJ); [1986] HCA 3. The adviser in the position of the present defendant does not warrant that the price is equivalent to its value.
Nonetheless, the plaintiff in the present case has alleged in its statement of claim that the price for which the plaintiff sold the business was equivalent to its value at the time of purchase. If this allegation were made out, the damages would, subject to the matters raised in the defence, be greater than the District Court's jurisdiction. The plaintiff's solicitor certified that the claim for damages had reasonable prospects of success pursuant to s 347 of the Legal Profession Act 2004 (NSW). In these circumstances I am satisfied that the commencement of the proceedings in this Court was warranted. Whether the continuation of the proceedings in this Court was warranted is a more difficult question since the only material before me to decide the question comprises the pleadings and the fact that the plaintiff was prepared to accept an amount of $375,000 to resolve them.
I would not infer from the amount of the settlement that the continuation of the proceedings in this Court was not warranted. There are many factors which operate to make a settlement at a compromised sum attractive. Such factors may in any given case include: the certainty and finality of the result; the concern about the possible downside if the plaintiff's claim is not made out in whole or in part; the strength of the defendant's defences and their likely effect on the quantum of damages, if any, awarded; the capacity of the defendant to pay any judgment sum; and a desire to avoid the stress and time of litigation. In the present case, as set out above, the defendant has raised several matters by way of defence, each of which I take to be reasonably arguable, having regard to the certification by the defendant's solicitor pursuant to cl 4 of Sch 2 to the Legal Profession Uniform Law Application Act 2014 (NSW).
There is nothing before me to indicate that the evidence to be relied on by the plaintiff would have substantiated its claim for $1.32m. However, to require a plaintiff to substantiate its claim before this Court could be satisfied that the continuation of the proceeding in this Court was warranted when the claim has been resolved, would appear to me to be inconsistent with the just, quick and cheap resolution of the real issues in the proceedings, which is a guiding principle in s 56 of the Civil Procedure Act. For this Court to take too demanding an approach to the evidence required to satisfy it that continuation of proceedings (which involved a claim in excess of the jurisdictional limit of the District Court) in this Court was warranted, would tend to undermine the provisions which are designed to encourage sensible resolution of proceedings through acceptance of offers of compromise: see generally Morgan v Johnson Green (1998) 44 NSWLR 578 at 581-582 (Mason P, Sheller JA agreeing). To require the plaintiff to adduce evidence such as would be required had the matter gone to trial would remove some of the benefit of the resolution of the proceedings. As there is nothing before the Court to indicate a substantial change in the plaintiff's claim, or its prospects of success, since it commenced the proceedings, I am satisfied that, having regard to the amount claimed, the continuation of the proceedings in this Court was warranted. As I have said, I do not think it is appropriate to reason back from the acceptance of the offer that the sum of $375,000 was all the plaintiff's claim was thought to be worth at any stage prior to its acceptance.

Conclusion

Generally speaking the party who has "succeeded" is entitled to an order for costs. The plaintiff is such a party. Had the plaintiff commenced the proceedings in the District Court, then, all other things being equal, it would have been entitled to an order for costs in its favour under UCPR r 42.13A(2). In the particular circumstances of the present case, it would not be in the interests of justice to deprive it of its costs (or to confer a windfall benefit for the amount of the plaintiff's costs on the defendant) merely because it agreed to settle for an amount less than $500,000. I am satisfied that it is appropriate to order that the defendant pay the plaintiff's costs up to and including 5 October 2017.

Costs

The plaintiff sought an order in its notice of motion that the defendant pay its costs of the notice of motion on an indemnity basis. The plaintiff has been unsuccessful on the construction point but it has succeeded in persuading me to exercise my discretion under UCPR r 42.34 in its favour. Ordinarily, where an applicant has succeeded on a notice of motion, it ought have its costs paid on the ordinary basis. As I have not heard submissions on costs, I propose to make provision for an application to be made, but otherwise to order that the defendant pay the costs of the motion, in case the application for indemnity costs is no longer pressed.

Orders

For the reasons set out above, I make the following orders: 1. Order the defendant to pay the plaintiff's costs of the proceedings up to 5 October 2017. 2. Unless either party makes a different application in writing, with evidence relied on in support, to my Associate within 7 days, order the defendant to pay the plaintiff's costs of the notice of motion filed on 7 November 2017. 3. If an application is made pursuant to (2) above, the respondent is to provide a response to my Associate within a further 7 days in order that the matter can be determined on the papers.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 17 April 2018

(Cth), Part VIA District Court Act 1973(NSW)

Legal Profession Act 2004(NSW)

Uniform Civil Procedure Rules 2005(NSW)rr 20.26, 20.27, 42.13A

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