Belflora Pty Ltd v Vinflora Pty Ltd and Anor

Supreme Court of NSW|2020-10-06|Before: Sackar J

Solicitors: Russo & Partners Pty Ltd (plaintiff) Frank Law (first and second defendants) File Number(s): 2019/383473

Judgment

I gave judgment in this matter on 11 September ([2020] NSWSC 1229). Numerous issues arose in the proceedings. First whether there was a binding contract between the parties and if so whether there had been a repudiation of such a contract.
A further issue arose as to whether the contract amounted to a restraint of trade and if so what the appropriate relief should be.
I determined there was a binding contract and that there had not been a repudiation of it. However I also determined that the contract was in restraint of trade and not enforceable, hence the plaintiff was not entitled to the injunctive relief claimed.
What is outstanding is the question of costs.
The plaintiff submits the appropriate order is that it pay 50% of the defendants' costs on an ordinary basis.
The defendants seek an order that the plaintiff pay their costs on an indemnity basis, because the plaintiff never had any prospect of success based on the evidence concerning the alleged business interests which the restraint protected and the costs of the proceedings were increased because of the conduct of the plaintiff and/or its solicitor in breaching the confidentiality order.

Background Facts

These proceedings were commenced on 5 December 2019 and I granted expedition on 13 December 2020.
By email of 28 May 2020 the defendants' solicitor indicated their clients were prepared to settle the proceedings on the basis that the defendants would pay the plaintiff the sum of $5000 within 14 days in full and final settlement, each party would pay their own costs and enter a Deed of Settlement and Release, and that the proceedings be dismissed upon the parties entering the Deed. The plaintiff had 28 days to consider that offer. The offer was made "Without Prejudice save as to Costs".
At the time of the offer a defence had been filed, the plaintiff had served its evidence in chief and the defendants had served the substance of their evidence.
That offer was not accepted.
On 3 July again by email (and again marked "Without Prejudice save as to Costs") the defendants offered to compromise the whole of the plaintiff's claim on the basis of judgment for the defendants and the defendants to pay the plaintiff's costs fixed in the sum of $70,000. The offer remained open until 13 July 2020.
Again the offer was not accepted.

Legal Principles

Costs are entirely within the discretion of the Court (Civil Procedure Act 2005 (NSW) s 98(1)(a)). The Court can award costs on an ordinary or indemnity basis (s 98(1)(c)).
The discretion to award costs must be exercised judicially. The award of indemnity costs requires the identification of some aspect of the conduct of the party against whom the order is sought which may properly be characterised as being unreasonable or involving some "relevant delinquency" (Sydney City Council v Geftlick and Ors [2006] NSWCA 280 at [90] (Tobias JA, Mason P and Hodgson JA agreeing); Dunstan v Rickwood (No 2) [2007] NSWCA 266 at [44] (McColl JA, Beazley and Ipp JA agreeing); Leichhardt Municipal Council v Green [2004] NSWCA 341 at [57] (Santow JA); Oshlack v Richmond River Council (1998) 193 CLR 72 at 89 (Gaudron and Gummow JJ)).
Unreasonableness can involve persisting with a hopeless or unmeritorious case and/or refusing to accept a reasonable offer to settle the proceedings (see, e.g., Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Ltd (1988) 81 ALR 397 at 401 (Woodward J); Ziegler atf Doris Gayst Testamentary Trust v Cenric Group Pty Ltd [2020] NSWCA 85 at [69] (Gleeson JA, Meagher and McCallum JJA agreeing) ('Ziegler'), citing Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 at [8] ('Miwa')).
The principles on which indemnity costs will be ordered as a consequence of non-acceptance of a Calderbank offer are "well-known" (Ziegler at [69]) and were identified by Basten JA (McColl and Campbell JJA agreeing) in Miwa at [8] as involving two questions, namely, whether there was a genuine offer of compromise and whether it was unreasonable for the offeree not to accept it. On the other hand offers made in accordance with UCPR 20.26 carry "a presumptive entitlement to indemnity costs" (Miwa at [6]) where the offer is made by a defendant, but not accepted by the plaintiff, and the defendant obtains a judgment no less favourable than the offer (UCPR 42.15A). Although the Court may order otherwise. The offeree does not it seems need to establish "exceptional circumstances" before the Court exercises its discretion to otherwise order. In Leach v The Nominal Defendant (QBE Insurance (Australia) Ltd) (No 2) [2014] NSWCA 391, McColl JA (Gleeson JA and Sackville AJA agreeing) said (at [46]-[48]): There is a conflict in decisions of this court as to whether exceptional circumstances are required before the court may exercise the discretion to "order otherwise" in relation to an unaccepted offer of compromise or whether that discretion has to be exercised having regard to all the circumstances of the case: Commissioner of Taxation v Moodie [2014] NSWCA 59; (2014) 282 FLR 453 (at [64]) per McColl JA. An "exceptional circumstances" test could be seen as a gloss on the language of the relevant rules their text does not admit. That suggestion was discounted by Hely J in relation to the like power to "otherwise order[s]" in O 23, r 11(4) of the Federal Court Rules 1979 (Cth) (as then in force): Port Kembla Coal Terminal Ltd v Braverus Maritime Inc (No 2) [2004] FCA 1437; (2004) 212 ALR 281 (at [17]). Rather, his Honour was of the view that such language merely "convey[s] that the prima facie position should only be departed from for proper reasons which, in general, only arise in an exceptional case". In my view his Honour's observation sufficiently encapsulates the approach to be adopted in the present case. It is impossible exhaustively to state the circumstances in which the court's discretion to "order otherwise" might be exercised: New South Wales Insurance Ministerial Corporation v Reeve (at 102). The mere fact that it was reasonable for the litigant to take the view that he or she did in rejecting the offer is not enough to displace the rule: Morgan v Johnson (at 582). However that does not mean that reasonableness of the rejection is an irrelevant consideration: see Seven Network Ltd v News Ltd (at [64] - [67]); Uniting Church in Australia Property Trust (NSW) t/as Northaven Retirement Village v Takacs (No 2) [2008] NSWCA 172 (at [15]) per Hodgson JA (McColl JA agreeing); cf Basten JA (at [32] - [33]).
(See also Barakat v Bazdarova [2012] NSWCA 140 at [42]-[49] (Tobias AJA (Bathurst CJ and Whealy JA agreeing), most recently cited by Stevenson J in Zhou v Xie [2020] NSWSC 1367 at [24]).

The Submissions of the Parties

The plaintiff submits that of the issues that arose it succeeded on two that were litigated, namely that there was a contract and that it had not been rescinded by an act of repudiation, and that the defendants should not be awarded indemnity costs on issues they failed on.
The plaintiff points to the inconsistent way in which the defendants conducted the case. The defendants denied the existence of a contract but in the alternative claimed it had been repudiated.
The plaintiff submits it was not unreasonable for it to bring the proceedings. That it failed in the outcome it is submitted cannot characterise the bringing of the proceedings as amounting to some form of misconduct.
The plaintiff submits that it could not be said that the case was not arguable, and that the result could not have been predicted with absolute certainty. That would be tantamount to asserting that the plaintiff ought to have known the case was not maintainable from the outset or was brought for an ulterior motive.
The plaintiff submits that the real motivation for indemnity costs is because it breached an order as to confidentiality prior to the hearing.
Further the plaintiff submits the first offer of 28 May 2020 was not a Calderbank offer because there was no explanation in the offer as to why it should be accepted. It is said that authority for that proposition can be found in the decision of McDougall J in LGS v Barbagallo [2013] NSWSC 68 at [43]-[45].
It is further submitted that a party wanting to rely upon a Calderbank offer has to put its cards on the table so as to inform and persuade the other party as to the reasonableness of the offer. In the end the party must persuade the court why rejection of the offer was unreasonable.
The first offer of $5000 it is submitted was de minimis and provided no reason to capitulate.
The second offer was it is submitted ambiguous and not certain in its terms. There was also a typographical error contained in the offer which made it confusing.
The defendants accept on the other hand that for a Calderbank offer to be taken into account it must be a genuine offer of compromise and not merely a demand in effect to capitulate (Favotto Family Restaurants Pty Ltd v Chief Commissioner of State Revenue (No 2) [2020] NSWSC 519 at [30] (Ward CJ in Eq)).
The defendants submit the offer was a genuine offer of compromise and that the rejection was unreasonable. The defendants accept the offer was modest but submit that the plaintiff never had any prospect of succeeding and was doomed to fail, and they allowed sufficient time for its acceptance.
As to the second offer it is submitted that it qualifies either as a Calderbank offer or an offer of compromise pursuant to the UCPR. It offered a judgment in favour of the defendants but that the defendants were prepared to pay the plaintiff's costs fixed in the sum of $70,000.
The defendants submit it was offered to compromise the whole of the proceedings, identifies with precision the outcome offered and provided for reasonable time for acceptance. It was made following a mediation when the parties it might be expected would have had a clear perception of their cases' strengths and weaknesses and the reality of significant costs accruing.

Consideration

In my view both offers were short on reasons why the plaintiff should have at the relevant times desisted. Indeed I regard the first offer as an opaque demand to capitulate. The offer of $5000 is not just "modest", without so much as an explanation, it was bordering on the peremptory. I do not regard the plaintiff's rejection of the first offer as unreasonable. The simplistic assertion by one side that it cannot possibly be beaten in the litigation with what was I consider an offer of a derisory sum in all the circumstances can hardly be thought to induce compromise. It should never be forgotten that there is no claim or for that matter defence that cannot fail.
It is said that both offers should be viewed in their particular context but like beauty context may be in the eye of the beholder. If context is to be relied upon the context or particular aspect of context should be pointed to, if the object of the exercise is to persuade the other party or the Court that it was unreasonable for the other party to reject the proposal.
As to the second offer, I do not consider it as ambiguous, notwithstanding the obvious typographical error, but again it lacks any specificity as to why the plaintiff should have compromised at that time and for that amount, bearing in mind the case was not just about money. It must be recognised that the defendants never once limited their case to restraint of trade and never once conceded the contract formation and repudiation points. There were as I have mentioned ultimately three issues in this case involving in my view complex questions of law. Although $70,000 for costs is not a small amount, and cannot like the first offer be considered derisory, the landscape of the proceedings was complex and it would not have been easy to make a clear and decisive determination, and certainly not one about which reasonable minds might differ. On one view, the defendants' case on no contract and repudiation was weak notwithstanding the chaotic nature of the plaintiff's evidence. The restraint case was based on much more complex notions.
It is not necessary to determine exceptional circumstances before the Court "orders otherwise" and the reasonableness of the offeree's conduct is a relevant, though not a sufficient, consideration (Leach v The Nominal Defendant (QBE Insurance (Australia) Ltd) (No 2) [2014] NSWCA 391 at [46]-[48]). The case is in my view finely balanced but if UCPR 42.15A and the presumption for indemnity costs applies, I would find that presumption rebutted because in my view the plaintiff did not engage in any relevant delinquency in rejecting the offer and in all the circumstances, including the time spent at the trial on the no contract and repudiation points, an order for indemnity costs is not warranted.
In passing I should note that reliance was placed on the conduct of the plaintiff in breaching confidentiality orders. In my view that activity did not affect the conduct of the litigation and I do not think it is a relevant consideration to take into account in relation to the question of indemnity costs. Other proceedings, for example in the nature of contempt, if thought necessary and desirable, could be brought. I am also not of the view that the plaintiff's whole case was as hopeless as the defendants described.
In my view this case is not one for the award of indemnity costs against the plaintiff.
As I saw the case the plaintiff was correct to assert a contract and deny any conduct amounting to repudiation. The defendant however in reality in both legal and practical terms won the contract case and successfully opposed an injunction. The success of the plaintiff on the contractual issues although not unimportant had no effect on the ultimate outcome. Those points were in effect a distraction from the real issue in the case as I saw it. However, most of the evidentiary issues related to the contract formation and repudiation issues, where the plaintiff succeeded, and the defendant succeeded in the restraint case on the nature of the contract and its purpose. On that basis in my view the plaintiff should pay 80% of the defendants' costs on an ordinary basis.
I would invite the parties to bring in short minutes to reflect these reasons.

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: 09 October 2020

Court (Civil Procedure Act 2005(NSW)s 98(1)(a)).

Federal Court Rules 1979(Cth)

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