City Pacific Ltd (in liq) v CBRE

Relevant Findings in City Pacific No 1 and Background

1. In addressing these issues, it is convenient to extract parts of the judgment in City Pacific No 1.
2. As to an overview, the Court identified the following (at [2]-[14]): [2] The plaintiffs' claim arose out of valuation reports, prepared by the defendants of Lot S17 (also known as stage S6 and 2H, being initially 239 and subsequently 233 marina berths) ("the Marina"), which formed part of the Martha Cove Development on the Mornington Peninsula in Victoria. (The Marina was also interchangeably referred to in documentation and by the parties as "the Martha Cove Property", "Lot S17" and "the Marina lot"). The reports also contained valuations of the following properties: Lots S22, S23 and S24 on Plan of Subdivision 435310J, which were part of the Martha Cove Development (collectively, "the Other Properties"). However, the valuations of the Marina are what were in issue in the present proceedings. [3] Three valuation reports were prepared with respect to the Marina and the Other Properties, namely: (1) the "Valuation Report prepared for City Pacific Limited of Martha Cove Marina & Commercial Centre", dated 18 May 2006, and provided by CBRE to City Pacific on 30 June 2006 ("the June Valuation"); (2) the "Valuation Report prepared for MCD (Aust) Pty Ltd ("MCD") on behalf of Indigo (Martha Cove Harbour Precinct Land Owner) Pty Ltd of Martha Cove Marina & Commercial Centre", dated 30 January 2007, and provided by the Indigo Group to City Pacific on or about 16 March 2007 ("the Indigo Valuation"); and (3) the "Valuation Report prepared for MCD (Aust) Pty Ltd ("MCD") on behalf of Indigo (Martha Cove Harbour Precinct Land Owner) Pty Ltd of Martha Cove Marina & Commercial Centre", dated 30 January 2007, and provided by the Indigo Group to City Pacific on 26 June 2007 ("the Amended Indigo Valuation"). [4] The relevant valuations for the purposes of the plaintiffs' claim were the June Valuation and the Amended Indigo Valuation (which shall hereinafter be referred to as, collectively, "the valuations"). I shall return to the contents of those valuations, and the entities mentioned therein, below. [5[ The Marina has never been transferred to Martha Cove and the vendor has failed to repay any of the Martha Cove Property Monies. Consequently, Martha Cove has been unable to repay the debt it owed to City Pacific. [6] The plaintiffs contended that the valuations: (1) failed to adopt an appropriate valuation methodology for a freehold marina lot and grossly overvalued the Marina. The valuations were prepared on a gross realisation of individual leasehold berths basis which did not provide advice of market value of the Marina; (2) were prepared and published in breach of the duties owed to the plaintiffs and constituted misleading or deceptive conduct; and (3) were not the product of due care and skill, did not have a reasonable basis and consequently conveyed misleading or deceptive representations. [7] The plaintiffs also contended that, in reliance on the valuations and associated representations: (1) City Pacific entered into and exercised its rights under a Put and Call Option Deed dated 29 June 2007 ("the Put and Call Option") containing a nomination right to buy (in the event Martha Cove, its wholly owned subsidiary and nominee, exercised the call option) the Marina for a price well in excess of the true value of the Marina; (2) Martha Cove entered into a Contract of Sale with ILO dated 8 October 2007 ("the Contract of Sale"), to purchase the Marina, and paid a total of $11.1 million ("the Martha Cove Property Monies") to or at the direction of the vendor in part consideration for the Marina; and (3) City Pacific provided Martha Cove the money for payments towards the purchase of the Marina and to pay the Martha Cove Property Monies. [8] In an agreed glossary of terms provided by the parties, the Martha Cove Property Monies were said to have comprised of the following separate payments: (1) $2.1 million paid on 29 June 2007 ("the Call Option Fee"); (2) $2 million paid on 10 October 2007 ("the Further Deposit"); and (3) $7 million paid on 28 November 2007. (The three separate payments that comprised the Martha Cove Property Monies were referred to throughout the proceedings as the First, Second and Third Payment, respectively. I will variously use the above shorthand expressions to describe the Martha Cove Property Monies throughout this judgment). [9] I will return to the circumstances of those payments in the context of the factual background. [10] The plaintiffs submitted that, but for the conduct of the defendants, they would not have entered into those abovementioned agreements and paid the Martha Cove Property Monies. [11] If they had known the true value of the Marina, City Pacific would not have paid to the benefit of Martha Cove those monies, and Martha Cove would not have paid those moneys to the vendor. [12] Broadly, the plaintiffs' claim had then two elements: (1) a claim in misleading and deceptive conduct; and (2) a claim in negligence. Adopting the terms of the parties, hereinafter, I will refer to those claims as the "Representation Case" and "Duty Case", respectively. [13] In summary, the defendants' position was that the plaintiffs' Duty Case and Representation Case failed at every stage of the relevant inquiries to be made by the Court. That is: (1) the defendants did not owe any duty to the plaintiffs when preparing the Amended Indigo Valuation; (2) the duty owed by the defendants to City Pacific with respect to the preparation of the June Valuation was not breached. If a duty of care was owed in preparing the Amended Indigo Valuation, that duty was not breached; (3) none of the representations pleaded were misleading or deceptive; (4) there was no reliance by the plaintiffs on the June Valuation or Amended Indigo Valuation in their decision to pay the Martha Cove Property Monies; (5) the plaintiffs did not demonstrate that any breach of duty or misleading and deceptive conduct caused any of the pleaded loss; (6) the plaintiffs have failed to mitigate their loss and damage; (7) the plaintiffs' pleaded claims are statute barred; and (8) the claims were not maintainable pursuant to s 601FS of the Corporations Act 2001 (Cth). [14] The defendants further contended that, if the plaintiffs were to overcome each of those hurdles, the damages should be reduced by 100%, or close to that figure, on account of contributory negligence or the concurrent wrongdoing of the directors, Philip Sullivan, Director of City Pacific and Martha Cove, and James Finucan, Director of Martha Cove.
3. As to a timeline of events, the Court outlined (at [275]-[279]): Events after 28 November 2007 [275] In early 2008, CBA appointed PPB Pty Ltd ("PPB") as an investigating accountant to City Pacific. Following the appointment of PPB, City Pacific and ILO joined together to pursue the sale of the Marina to Anne Street Partners Ltd ("ASP"). To the extent the defendants have contended that the events after 28 November 2007 are not relevant, I reject that submission and find the events are relevant as factual background. [276] On about 6 May 2008, City Pacific entered into a term sheet for the sale of a number of assets, including the Marina, to ASP. On about 30 September 2008, the Marina Mortgage was transferred from PTQ to City Pacific. [277] On 25 June 2009, Trilogy Funds Management Ltd replaced City Pacific as the responsible entity of the CPMT. [278] On 28 August 2009, liquidators were appointed to City Pacific, and on 23 October 2009, liquidators were appointed to Martha Cove. The Contract of Sale was not terminated. At that stage the money payable by Martha Cove to City Pacific remained outstanding, and Martha Cove's ability to repay uncertain because of the uncertainty surrounding either purchase of the Marina, or sale to a third party. [279] On 20 May 2015, ILO transferred the Marina to Denarke Pty Ltd for a purchase price of $12,946,693. The Martha Cove Property Monies were never repaid, and have been lost. ILO is now deregistered. It is admitted that ILO and Martha Cove are incapable of repaying those monies.
4. As to the time of loss, the Court found as follows (at [552]-[560]): [552] In order to further attend to that consideration, it is necessary to again consider some issues of principle. Whilst it is true that loss arising from a loan will generally arise not earlier than default and typically only on sale of a security for a loss and an effective exhaustion of the covenant to repay, those circumstances do not arise because the transaction is a loan. Rather the circumstances arise because the loan is contingent until the security is sold and the covenant to repay exhausted. I accept the submissions of the plaintiffs, based as they are on the judgment of the High Court in Wardley, that where the loss is that a plaintiff pays money it is entitled to recover, the contingency is non-recovery regardless of the character of the right to recoup. It is the contingency of non-recoupment and when that contingency occurs to which attention should be directed. Thus, to refer to the decision of Davies J in Ross at [31], the relevant question is when recoupment is rendered impossible as it is then that time starts running in a relevant sense. In circumstances in which there is an effective contingency to the obligation, the categorisation as purchaser does not assist in a relevant sense. [553] When the substance of the obligations and transactions are looked at in the present matter as required in Winnote at [64], I consider that the plaintiffs should be treated, as observed above, as separate legal entities with different rights and liabilities as separate corporations. The proposition advanced by the defendants that City Pacific sues in the capacity as a purchaser (rather than a lender) is erroneous as the contractual documentation relating to the purchase of the Marina shows Martha Cove as the purchaser and not City Pacific. This follows from the fact that City Pacific nominated Martha Cove to purchase the Marina and Martha Cove exercised the Call Option and entered into the Contract of Sale as earlier found in this judgment. [554] The position of Martha Cove is different; it did contract to buy the Marina. The analysis of the loss of time question should, therefore, be treated differently as between it and City Pacific. It was submitted that the contract was entered into in circumstances where the parties "dealt ex-contractually" and ultimately there was never completion but that does not relevantly alter the character of Martha Cove's involvement or loss. [555] That brings to consideration the time of loss. Turning firstly to City Pacific in the light of that aforementioned analysis, I do not consider that City Pacific's claim is time-barred for the following reasons: (1) Martha Cove's payment of its obligation to City Pacific was dependent on contingencies. Loss was only suffered when the contingency occurred that meant that the debt would not be repaid or the obligation discharged. Repayment was only unavailable once the Marina was sold to a third party and ILO was unable to repay the Martha Cove Property Monies to Martha Cove (meaning Martha Cove could not repay City Pacific), or at least when the contract was terminated (which is the same time, as the contract was not apparently terminated before sale to the third party). It was only then that time started to run in 2015. (2) I note that the plaintiffs advanced an alternative submission that, at the earliest, the contingency only occurred when Martha Cove was placed in liquidation on 23 October 2009, which was less than 6 years prior to the commencement of the proceedings. It is strictly not necessary for me to rule on that submission in the light of conclusion I have otherwise reached. However, I would accept the submission in the alternative. (3) Further, I do not accept the defendants' alternative submission as the case based on the Amended Indigo Valuation only taking effect in December 2017, principally because I reject the defendants' characterisation of the cause of action based upon the Amended Indigo Valuation as set out in the extract from the defendants' written submissions as para 133 (extracted earlier in this judgment). This judgment is replete with findings to the contrary. Further, s 65(2)(c) of the Civil Procedure Act 2005 (NSW) (the lex fori applies to procedural rules) has operation. Looked at in the broad, as is required by the authorities identified by the defendants, the claim arises out of the same or substantially the same facts. The transaction that formed the basis of the claim always included the purchase of the Marina by Martha Cove, and payment by City Pacific. The case was consistently that the defendants had negligently and misleadingly valued the Marina. The June Valuation was always pleaded as the basis for the same causes of action now relied on. Reliance on that valuation in purchasing the Marina and paying funds for the purchase was pleaded. The loss claimed has never been materially amended. The later Amended Indigo Valuation was necessarily in issue, at least in an evidentiary sense. The addition of the Indigo Valuation in the 2017 amendments did not change the character of the factual matrix. A fortiori the express addition of the Amended Indigo Valuation, an amendment that, because of s 65(3) of the Civil Procedure Act, had effect from the date the proceedings were commenced. [556] The analysis is different and considerably more difficult in the case of Martha Cove. Where a claimant is misled into buying a property for more than its true value at the time of the contract, the claimant usually suffers loss on exchange of contract: Astonland at [15] and [28] (per Gleeson CJ, McHugh, Gummow, Kirby and Heydon JJ). However, there is authority for the proposition that in such a situation, the claimant does not suffer loss until the purchase is settled and the claimant has parted with its money: Pine River Pty Ltd v Scorda [2001] WASC 105 ("Pine River") at [115]-[118] (per Steytler J). [557] The plaintiffs sought to distinguish Astonland from the present case. It was submitted that it is implicit in the High Court's statement of principle that completion of the relevant contract had, in fact, taken place. The present case it was submitted was different. In the present case, unlike Astonland, the Contract of Sale did not complete. It was submitted not only did the Contract remain executory, but neither party sought to issue a notice to complete or to terminate the Contract at any time. In fact, ILO did not seek to terminate the Contract until it did so in effect by selling the Marina in 2015. [558] The plaintiffs also made the following contentions: 285. In the present case, Martha Cove and ILO dealt with each other on a basis beyond the terms of the Contract of Sale. These dealings took the form of mutually agreeing to extend the time for completion of the Contract of Sale in late 2007; joining together in an attempt to sell the Marina to ASP in 2008; and refraining from taking any steps to issue a notice to complete or to terminate the Contract of Sale, including following the request for repayment of the Martha Cove Property Monies in June 2009. 286. Again, unlike Astonland, the effect of that conventional dealing was to import into the Contract of Sale and the payment of the Martha Cove Property Monies a contingency. That contingency was the refinance of the Indigo Loan Facility or effecting the sale of the Marina to a third party. This contingency did not occur until ILO sold the Marina in 2015. [559] Whilst the plaintiffs refer to authority for the proposition that the claimant does not suffer loss until the purchase is settled and the claimant has parted with its money: Pine River at [115]-[118] (per Steytler J), in my view, the defendants contentions so far as they concern Martha Cove, as a purchaser, amply demonstrate why the distinctions sought to be drawn, in this respect, cannot be sustained. Further, in my view, the case of Martha Cove is not relevantly distinguishable from Astonland. I do not consider the statements of principle therein necessarily revolve around the completion of a contract having taken place or that the absence of the termination of the contract in this matter is a particularly relevant distinction. [560] I do not consider that the cause of action by City Pacific was time-barred by any limitation period with respect to Martha Cove. However, the cause of action by the second plaintiff, Martha Cove, is time barred, under the statutory provisions specifying limitation periods which are referred to at the outset of the discussion of this issue.
5. In relation to damages, the Court found as follows (at [613]-[620]): DAMAGES Issue 19 - What, if any, damages should be awarded to the plaintiffs? [613] In the FASOC, the plaintiff relevantly claimed the following relief: (1) damages under s 82 of the TPA; and/or s 236 of the Australian Consumer Law; alternatively, (2) damages pursuant to s 12GF of the ASIC Act; (3) damages pursuant to s 1041I of the Corporations Act; (4) general damages; (5) interest pursuant to s 100 of the Civil Procedure Act; (6) costs; and (7) interest on costs pursuant to s 101(4) of the Civil Procedure Act. [614] Having established the causes of action in damages for tort and under s 52 of the TPA and its analogues, damages may be awarded to put the plaintiff in the position they would have been in if the relevant wrongs had not occurred. [615] With respect to misleading and deceptive conduct, the appropriate approach to damages in this case is to identify what the plaintiffs have suffered by way of prejudicial disadvantage in consequence of altering their position by reason of the breach of the relevant statutory provisions as I have found: Henville v Walker (2001) 206 CLR 459; [2001] HCA 52 at [132] (per McHugh J). In any event, the measure of the plaintiffs' loss at law and under statute are in this case relevantly identical. [616] The case for damages in this respect focused upon: (1) the First Payment to ILO as required by the Key Terms Agreement; (2) the Second Payment to ILO on 2 November 2007 as required by the Contract of Sale; and (3) the Third Payment to ILO in part payment of the purchase price for the Marina on 28 November 2007 by City Pacific on behalf of Martha Cove. [617] The position of the plaintiffs with respect to damages was stated thus. Recognising that the plaintiffs cannot recover twice, the Court should award City Pacific or Martha Cove damages in the total amount of $11.1 million (being the total of the First, Second and Third Payments), or alternatively in the amount of one or more of those payments (that is $2.1 million paid on 29 June 2007; $2 million paid on 10 October 2007; and $7 million paid on 28 November 2007). In each case, the plaintiffs also claim interest, costs and interest on costs. [618] The basis upon which the claims were made in that respect were correctly and succinctly expressed. The Martha Cove Property Monies had been lost and ILO was deregistered. Martha Cove is incapable of paying the Martha Cove Property Monies to City Pacific. It was claimed, therefore, that damages should primarily represent the sum of the First Payment, Second Payment and Third Payment, as earlier mentioned, in the total amount of $11.1 million. [619] The plaintiffs also claimed interest on each of the separate amounts comprising the Martha Cove Property Monies calculated from the date of payment or, alternatively, the date of accrual of the cause of action to the date of judgment. The plaintiffs also claim costs and interest on costs. [620] Having regard to my conclusion as to reliance and causation, the damages in the matter should be calculated on the loss occasioned for the Martha Cove Property Monies as adjusted in accordance with my findings as to contributory negligence.
6. As to contributory negligence, the Court found as follows (at [584]-[589]): [584] In my view, the acts of the defendants in causing damage in the present matter are, for the reasons given earlier in this judgment, significant. That consideration needs to be borne steadily in mind in drawing a comparison between that lack of care (or misrepresentation) and, as I have considered to be the case, a lack of care of by the plaintiffs who, in my view, share part of the responsibility for the damage occasioned with respect to the Third Payment. [585] Thus, central to the consideration of contributory negligence is the Third Payment made by the plaintiffs. By the time of the making of the Third Payment, the plaintiffs acting carefully must have been possessed of real doubts regarding the advice received through the June Valuation and the Amended Indigo Valuation and were otherwise possessed of information which, at least, required greater care before making the Third Payment. [586] Significantly, the plaintiffs pleaded that the Third Payment was made to ILO "in consideration for the acquisition of the Martha Cove Property". In written submissions, it was contended the payments were made to preserve the purchase having regard to the worth established by the Amended Indigo Valuation. However, that payment was not required under the Put and Call Option or the Contract for Sale. I agree with the submission of the defendants that this part of the consideration was paid before completion where City Pacific had no contractual obligation to make the payment and when the surrounding circumstances would have called for greater care. There was no documentation explaining the basis for the taking of this step. [587] Further, the Due Diligence Observations Report emphatically identified the risk associated with the transactions of this kind. It is clear that further finances were being sourced in the period leading to the Third Payment, with a precursor to such funds being provided by the CBA to City Pacific being subject to receipt of a "new" valuation. The surrounding circumstances, in particular, the steps taken by City Pacific in making the Third Payment, notwithstanding concerns raised in internal correspondence about the valuation and the processes associated with the transaction, exhibit the conduct identified as both "commercially risky" and concerning on the part of City Pacific within the Due Diligence Observation Report. [588] I find no contributory negligence on the part of the plaintiffs with respect to the First and Second Payments of the Martha Cove Property Monies. Those payments do not attract, in my view, these issues. [589] Having regard to the above considerations, I find contributory negligence with respect to the loss occasioned through the Third Payment. Having regard to the significance of the defendants' duties and the representations made by them, I nonetheless consider that as to the loss occasioned with respect to the Third Payment the loss should be apportioned 60% to the plaintiffs and 40% to the defendants.

THE ISSUES

1. It was agreed that the following remaining issues requiring resolution in these proceedings are: 1. the date from which interest on the judgment sum should run (order 1(b) in the PSMO); 2. City Pacific's costs; 3. Martha Cove related costs; 4. interest on costs, 5. return of the security for costs provided by the plaintiffs.

The date from which pre-judgment interest ought to run

The Plaintiff's Submissions

1. In summary, the plaintiffs made the following submissions in relation to the date which pre-judgment interest should run: 1. The plaintiffs contended that the rate of interest on the judgment sum should be calculated in accordance with the prescribed rate in Practice Note SC Gen 16 and should run from the time its cause of action to recover those monies arose being 23 October 2009, until the date of judgment pursuant to s 100(1) of the Civil Procedure Act 2005 (NSW). Reliance was placed on what they described as the Court's observations in the City Pacific No 1 (at [555(2)]). 2. The plaintiffs further submitted: We submit the cause of action accrued in the manner your Honour dealt with in paragraph 555(2) namely the date on which the obligor for the unsecured obligation to pay put us into liquidation. Our learned friends, picking up a submission that we made at trial and which your Honour accepted, although as we say accepting the alternate submission as well, so it accrued at a later date. In our submission it is the earlier date on which the cause of action accrued for the reasons your Honour identified in paragraph 555 of the judgment and interest should run from the 23rd of October 2009. 1. In the alternative, the plaintiffs contended that the precise date in 2015 on which its loss arose, and from which interest should run, is 17 April 2015, being the date that Indigo (Martha Cove Marina Land Owner) Pty Ltd ("ILO") entered into the contract to sell the Marina and the time that Martha Cove became unable to repay the debt it owed to City Pacific, and City Pacific's loss arose. Those submissions are extracted below: … then it is by reference to your Honour's finding in 555(1) the date analogous to the circumstances of a lender on security, that is the sale of the secured property. We have identified that the evidence at trial was that the sale of the secured property, that is the contract for sale which is the relevant date is 17 April 2015. Might I say that is, as we understand it, almost the universe of the debate. I think our learned friends put the date slightly later as the 20th of May 2015 being the date of completion, but in our submission, on any view, can now be seen to be unprincipled by reference to the authority to which we have drawn attention. 1. The plaintiffs did not accept the defendants' contention that City Pacific's loss arose on settlement of sale on 20 May 2015, since termination occurred on exchange of the contract on 17 April 2015, not on settlement. Further, City Pacific suffered loss on exchange of the contract because that event effected a termination of the Contract of Sale and a transfer of rights where ILO did not secure for the benefit of Martha Cove repayment of any of the Martha Cove Property Monies.

The Defendant's Submissions

1. As to the same, the defendants submitted: 1. That the interest on the judgment sum should run from 20 May 2015, when the cause of action accrued (City Pacific No 1 at [555]), as it was only on that date that repayment of the Martha Cove Monies to City Pacific was unavailable. Interest should not run from 23 October 2009 as sought by the plaintiffs for the following two reasons: 1. the finding of the cause of action arose in 2015. There is no finding that the cause of action accrued on any other date; and 2. the plaintiff's cause of action did not accrue in October 2009, when Martha Cove was placed in liquidation. Rather, at that date, the Court found that Martha Cove's ability to repay was merely "uncertain".
2. There is no evidence that one would expect of any loss or the circumstances or payment by City Pacific on behalf of Martha Cove to justify any finding that there would be warrant for interest to run between 2009 and 2015. Even on the alternative finding that your Honour made in City Pacific No 1 at [555] subparagraph (2) (extracted earlier in this judgment), the evidence did not address it. Therefore, it was submitted that interest should not run from 2009 but should run from 2015.

Consideration Pre- Judgment interest

1. In the primary proceedings (City Pacific No 1), the parties submissions relevant to this issue were focussed on the question of the time of loss. In that respect, the plaintiff made the following submission: Time of loss - City Pacific 280. Martha Cove's payment of its obligation to City Pacific was dependent on contingencies. As demonstrated in Wardley, loss was only suffered when the contingency occurred that meant that the debt would not be repaid or the obligation discharged. Repayment was only unavailable once the Marina was sold to a third party and ILO was unable to repay the Martha Cove Property Monies to Martha Cove… Thus, time only started to run in 2015. Alternatively, at the earliest the contingency only occurred when Martha Cove was placed into liquidation on 23 October 2009. This was less than 6 years prior to commencement of the proceedings. 281. It follows that City Pacific's claim is not time barred.
2. As to the same, in City Pacific No 1 the defendant made the following submissions: The plaintiffs' causes of action are still time barred, even if the plaintiffs are permitted to run a case characterising the payments by City Pacific as loan monies. That is so because on any view of the plaintiffs' case, City Pacific was aware from 23 October 2009 that Martha Cove was placed into liquidation and that it would not be able to complete the sale (or "repay the debt") if the plaintiffs' argument is permitted to be run
3. The observation at 555 of City Pacific No 1 Ltd, did not make a determination as to the alternative submission advanced by the plaintiffs on the question of time of loss. Nor was there a review the evidence on the question, even though the judgment is expressed in more emphatic language. The discussion of the evidence bearing upon the question in this further hearing was attenuated although the defendants submitted there was an absence of evidence supporting a finding in favour of the alternative submission advanced by the plaintiffs.
4. The Court found at 555 that Martha Cove's payment of its obligation to City Pacific was dependent on contingencies and that loss was only suffered when the contingency occurred which resulted in the debt would not be repaid or the obligation discharged. Repayment was only unavailable once the Marina was sold to a third party and ILO was unable to repay the Martha Cove Property Monies to Martha Cove or at best when the contract was terminated. That determination should then be the foundation for a determination as to pre-judgment interest.
5. The Court did not determine the precise date for that purpose in City Pacific No 1 (time was found to run from 2015), as it was determining whether the respective claims were time barred. Turning to the immediate question, I accept the plaintiff's submission that the precise date in 2015 on which loss arose was 17 April 2015, being the date that ILO entered into the contract to sell the Marina and the time that Martha Cove became unable to repay the debt it owed to City Pacific (and accordingly City Pacific's loss arose). In short, I consider loss arose on the exchange of contract and not on settlement as advanced by the defendants. That is the date from which pre-judgment interest should run.
6. The plaintiffs are entitled to pre-judgment interest calculated, in accordance with the prescribed rate in Practice Note SC Gen 16, from 17 April 2015 until the date of judgment pursuant to s 100(1) of the Civil Procedure Act.

The Plaintiffs' submissions

1. In summary, the plaintiff made the following submissions were made by the plaintiffs in relation to City Pacific's costs: 1. The plaintiffs sought an order that the defendants pay its costs on the ordinary basis until 9 July 2019, and thereafter on the indemnity basis: Bassett v Cameron (No 2) [2021] NSWSC 419 ("Bassett"). 2. It was accepted that the cost orders already made in the proceedings in favour of the defendants should be excluded. All other costs are to be paid and dealt with in the same way as the general costs of the proceedings as set out in r 42.7 of the Uniform Civil Procedure Rules 2005 (NSW) ("UCPR"). 3. The usual order should apply. Reliance in this respect was placed on the history of proceedings, namely, City Pacific was wholly successful against both defendants in both the Representation Case and the Duty Case, except for the issue of contributory negligence in relation to the Third Payment. While City Pacific was not awarded the full amount of damages it sought, it achieved substantial financial success against the defendants. 4. As to the issue of contributory negligence, it was submitted that City Pacific's (partial) failure on this issue should not disturb the usual order. This submission was advanced based on the following: 1. City Pacific was successful. It has obtained judgment of $6.9 million plus interest (from whichever date is appropriate); 2. the defendants were only partly successful on this issue, the Court finding that there was no contributory negligence in relation to the First or Second Payments (City Pacific No 1 at [588]), and that contributory negligence with respect to the Third Payment was not at the level (100%) which the defendants' contended; 3. the general issue of contributory negligence was not a dominant or significant issue in the trial (see City Pacific No 1 at [281]-[282]); and 4. an offer made by the Calderbank letter. 1. In addition, City Pacific also sought an order that the defendants pay its costs on the indemnity basis from 9 July 2019. City Pacific relied on its offer to settle proceedings set out in the letter from its solicitors to the defendants' solicitors and contended that based on the Calderbank letter they are entitled to an order for indemnity costs, for the following reasons: 1. The result of the litigation was that the plaintiff is entitled to an award of damages and interest no less favourable than the amount offered in the Calderbank letter. The parties agreed that City Pacific is entitled to an award of damages of $6.9 million, and once pre-judgment interest is added it is clear that City Pacific will be entitled to judgment in an amount greater than $7 million, even if that interest is calculated from the latest point on 8 December 2017 to the date of the offer (approximately 19 months at the prescribed rates in Practice Note SC Gen the date of the offer is $601,576 which takes the judgment comfortably above $7 million). 2. The offer contained in the Calderbank letter constituted a genuine offer of compromise. This followed from the fact that the letter offered to settle the plaintiffs' claims in return for $7 million, being less than two-thirds of the maximum damages of $11.1 million, and it was expressed to be inclusive of interest and costs which could have been expected to be significant given the history of the proceedings. 3. The defendant's rejection of the Calderbank letter was, in all the circumstances, unreasonable, based on the following factors: 1. the letter was clear and capable of acceptance by the defendants; 2. at the time the Calderbank letter was received in July 2019, the defendants were aware, or should have been aware, of the evidence and arguments to be put by City Pacific; 3. the Calderbank letter identified several problems with the defendants' case, of which they ought to have been aware at the time they received the Calderbank letter, and which were ultimately accepted by the Court; 4. the Calderbank letter constituted a significant compromise on the total amount of damages sought, even leaving aside the issue of interest and costs; 5. the offer was open for 7 days, which was sufficient time in light of the fact that the parties needed to devote significant resources to prepare for the trial which was due to commence about 8 weeks later; and 6. finally, the Calderbank letter stated that it was provided pursuant to the principles in Calderbank v Calderbank [1975] Fam LR 93 and foreshadowed that it would be relied on by City Pacific for the purposes of costs, including indemnity costs.
2. In relation to Martha Cove's claim on costs the plaintiffs' sought: 1. That the claim be dismissed with no order as to costs. This submission was advanced based on the principles in Currabubula v State Bank of NSW [2000] NSWSC 232 ("Currabubula"). Applying Currabubula, while Martha Cove was unsuccessful, it should only be ordered to pay the defendants' costs if and to the extent that those costs were increased by Martha Cove's case over and above the costs that would have been incurred by the defendants in defending City Pacific's case. 2. The addition of Martha Cove as a plaintiff did not increase (in any significant way) the costs incurred by the defendants. The costs incurred by the defendants were incurred in defending City Pacific's claim, and the defendants would have incurred those costs in any event, even if Martha Cove was not a plaintiff. It was submitted that this proposition can be tested by considering the counterfactual that only City Pacific advanced the case. In that scenario, the only additional costs possibly attributable to Martha Cove's case are that part of the submissions addressing Martha Cove's limitations argument. The transaction and Martha Cove's involvement were still required to be pleaded and proved. 3. In the alternative, any costs should be limited to those which can be shown to relate only to Martha Cove's claim. Further, any such order should be limited to the period up to 9 July 2019, and thereafter Martha Cove should be awarded its costs on the indemnity basis for the same reasons given in relation to City Pacific.
3. The plaintiff's position in relation to adopting a "broad brush" approach in determining liability for the costs, was that it should not be adopted based on the following: 1. A broad brush approach would add additional time, costs and delays to the resolution of the proceedings. It was contended that this issue would be more efficiently dealt with by way of a lump sum costs order in an assessment, or perhaps by way of the appointment of a Registrar to mediate costs. 2. The plaintiffs are in liquidation and require separate costs orders for the purposes of the administration of their respective liquidation. The broad brush approach proposed involves treating the plaintiffs jointly, and would complicate the liquidation of each plaintiff.

The Defendant's Submissions

1. The defendant's submissions in relation to the plaintiff's costs are summarised below: 1. There should be no order as to costs in the proceedings, and all prior costs orders should be vacated. This was submitted based on the following: 1. That the plaintiffs' conduct in pursuing claims until 5 September 2019, that were then abandoned on that date, had the effect of causing considerable unnecessary litigation and expense (see Beoco Limited v Alfa Laval Co Limited [1995] QB 137). 2. The plaintiffs did not introduce any claim relying on the Amended Indigo Valuation (on which City Pacific succeeded) until 5 September 2019 when the FASOC was filed. 3. Ultimately, by the FASOC during the hearing, two of three claims were abandoned. 4. The defendants faced unnecessary and unjustified costs in preparing, from December 2017 until 5 September 2019, to deal with four issues which were abandoned in the FASOC. A costs assessor would need to determine what proportion of the defendants' costs during this period related to defending the claims which were abandoned. It was submitted that the defendants would be entitled to those costs, and the plaintiffs would not be entitled to any of their costs for that work. 5. The orders of 5 September 2019 gave the defendants the costs of the amendment application, the defendants would be entitled to their costs of the hearing on 2, 3 and 4 September 2019 which was occupied by the application and time after Court dealing with further versions of the pleading that were served. The plaintiffs would not be entitled to their costs incurred on those dates. 6. Any assessment would have to allow for the costs incurred in defending the Martha Cove claim. 7. City Pacific's entitlement to costs as a successful plaintiff should be reduced proportionately in accordance with the Court's finding that City Pacific was guilty of contributory negligence in making the third payment and that damages should be reduced by 60% (see City Pacific No 1 at [589]). 1. In the alternative, the defendants contended that the Court should adopt a "broad brush" approach in determining liability for the costs and in doing so the Court should make orders which reflect the history of the proceedings, namely, the success of City Pacific, the failure of Martha Cove, and the prior costs orders. It may also be necessary for the Court to give some directions to any costs assessor. The defendants suggested that an appropriate form of orders and notations is: a. Subject to the orders below order the defendants to pay 50% of the plaintiffs' costs; b. Order that there be no order as to costs up to 8 December 2017 and the costs orders made on 8 December 2017 be otherwise vacated; c. Order that from 8 December 2017 to 2 September 2019, the defendants pay 50% of the costs in order (a); d. Order that the costs in order 2 made on 5 September 2019 be calculated on the indemnity basis; e. Note that the costs of the amendment application the subject of order 2 made on 5 September 2019 includes the costs of hearing on 2, 3 and 4 September 2019; f. Order that from 5 September 2019, the defendants pay 60% of the plaintiff's costs in order (a). 1. In relation to the Calderbank offer, it was submitted: 1. The mere making of an offer by a "Calderbank letter" and its non-acceptance, followed by a result more favourable to the offeror (less favourable to the offeree) than that represented by the offer, will not automatically lead to the making of an order for payment of costs on an indemnity basis: MGICA (1992) Pty Ltd v Kenny & Good Pty Ltd (1996) 70 FCR 236 at [239]. 2. Whether the offeree's failure to accept the offer, in all the circumstances, warrants departure from the ordinary rule as to costs, and that the offeree ends up worse off than if the offer had been accepted does not of itself warrant departure: SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 at [37]; Jones v Bradley (No 2) [2003] NSWCA 258. 3. The Calderbank letter does not justify an award of indemnity costs because in the circumstances, the letter was not a fair and reasonable attempt to resolve the claims on which City Pacific had success. This submission was advanced based on the following five factors: 1. the offer was only open for seven days; 2. the offer was made in respect of the claims of the plaintiffs, that is the offer included claims made by Martha Cove which were entirely unsuccessful; 3. the offer did not include any sum in respect of the knowing assistance claims (which were abandoned); 4. it was made before the amendments made to the pleadings at the commencement of the trial; and 5. the offer was inclusive of costs and did not permit any proper comparison of the success of City Pacific at the trial. 1. Alternatively, if it could be said that the rejection of the offer gave rise to a reason for there to be an award of indemnity costs, the pleading amendment made on day three of the trial and the shifting of the plaintiff's case is a compelling reason why the Court, in the exercise of its discretion, should not be inclined to make such an order.

Consideration: Costs

1. City Pacific relied upon its offer to settle proceedings as set out in a letter from its solicitors to the defendants in the nature of a Calderbank letter, as the basis for the seeking of an order for indemnity costs.
2. In substance, it was contended that the result of the litigation was that City Pacific became entitled to an award of damages plus interest no less favourable than the amount offered in the Calderbank letter. Having regard to pre-judgment interest and the award of damages to City Pacific that foundational proposition may be readily accepted.
3. However, the mere making of an offer by a Calderbank letter and its non-acceptance, followed by a result more favourable to the party making an offer, than that represented by the offer, will not necessarily result in an order for payment of costs on an indemnity basis, such that it would be appropriate for the Court to depart from the ordinary rule as to costs.
4. In this matter, I consider there are substantial reasons why the Calderbank letter does not justify an award of indemnity costs from the date of issue of the letter, notwithstanding the judgment in favour of City Pacific will be greater than $7 million and the offer was less than two thirds of the maximum damages of $11.1 million.
5. My reasons for that conclusion are as follows: 1. The offer was made with respect to the claims of the plaintiffs, such that the offer included claims made by Martha Cove which were entirely unsuccessful. 2. The offer was made before the amendments to the pleadings at the commencement of the trial. 3. There was a pleading amendment on the third day of the trial and a shift in that respect, in the plaintiff's case which was not insignificant. 4. The offer was inclusive of costs and did not permit any proper comparison of the success of City Pacific at the trial. 5. The offer was open for a relevantly short period of time, namely, 7 days.
6. Returning to the balance of the issues as to costs the following considerations are applicable to the exercise of the Courts discretion: 1. I accept the submission advanced on behalf of the defendants that the plaintiffs conduct in pursuing claims until 5 December 2019, that were then abandoned on that date, had the effect of causing considerable unnecessary litigation and expense. In my view, the defendants' faced unnecessary and unjustified costs in preparing the matter for trial from December 2017 until 5 December 2019, to deal with four issues which were abandoned in the FASOC. Further, orders made by the Court on 5 December 2019, gave the defendants the costs of the amendment application such that the defendants would be entitled to their costs of the hearing on 2, 3 and 4 of September 2019. 2. City Pacific was wholly successful against the defendants in both the Representation case and the Duty case. However, the plaintiffs did not introduce any claim relying on the amended Indigo Valuation on which City Pacific succeeded until 5 September 2019, when the FASOC was filed. Further, claims were abandoned by the plaintiff during the course of the hearing. 3. A further consideration with respect to the City Pacific's entitlement to costs as the successful plaintiff, it was the Court's determination that City Pacific was guilty of contributory negligence in making the third payment and that damages should be reduced accordingly. I accept that the defendants were only partially successful in relation to this issue, the Court finding that there was no contributory negligence with respect to the First or Second Payments and the contributory negligence with respect to the Third Payment was not at the level of a 100%, for which the defendant contended, but this consideration necessarily affects the entitlement by City Pacific to costs arising from its success in the proceeding. I have also had regard, in this respect, to the contributory negligence not being a predominant issue in the proceedings but nonetheless a matter that occupied time and was of some significance in the ultimate disposition. 4. Martha Cove was unsuccessful. I do not accept that that claim should be dismissed with no order as to costs, as proposed by the plaintiffs. That is because I consider the defendants costs were increased by Martha Cove case over and above costs that would have been incurred by the defendants in defending City Pacific's case. The additional costs incurred by the plaintiffs were not however substantial and primarily related to the limitation argument as well as some aspects of the factual controversy.
7. A combination of those considerations, in my view, points in favour of what the defendants described as a broad brush approach in determining liability for costs. I also consider, in that light, the form of orders and notations proposed by the defendants as earlier set out in the summary of the defendant's submissions in this judgment is appropriate for the disposition of issue as to costs. I would propose to make orders in those terms unless the parties proffered consent lump sum orders.

The Plaintiffs' Submissions

1. In relation to interest on costs, the plaintiff submitted that interest on its costs should be awarded pursuant to s 101(4) of the Civil Procedure Act, calculated at the rate prescribed by Practice Note SC Gen 16 from the date the costs were paid.

The Defendant's Submissions

1. As to the same, the defendants submitted: 1. That if the Court accepted its submission in relation to costs, namely, that there is no order as to costs, this issue would fall away. 2. If the Court makes a costs order in favour of City Pacific, the defendants submitted that there should be no order for interest on costs for the following reasons: 1. any costs paid by the litigation funder were for both plaintiffs. An order for interests on those costs would provide compensation for costs of Martha Cove, who has been entirely unsuccessful; 2. any costs paid by the litigation funder in these proceedings would include other costs to which the defendants are entitled; 3. the plaintiff's evidence about the payment of costs refers also to proceedings taken by City Pacific against its former directors.

Consideration: Interest on Costs

1. I do not consider that any order for interest on costs should be made because any costs paid by the litigation funder was for both plaintiffs and an order for interest on those costs would provide compensation for costs of Martha Cove, which was unsuccessful as well as other cost to which the defendants were entitled to.

The Plaintiffs' Submissions

1. The plaintiffs sought an order that the funds held by the Court on account of security for the defendant's costs of the proceedings be released to the solicitors for the plaintiffs. It was submitted that the funds should be released as City Pacific has been successful, and the plaintiffs are entitled to their proposed costs orders.

The Defendant Submissions

1. The defendant accepted that if the Court makes no order as to costs, the security for costs paid into Court by the plaintiffs should be returned to them. If the Court makes the alternative form of orders, the security should be retained until the cost's assessment has concluded.

Consideration: Return of Security Costs

1. As the Court has made an alternative form of orders as to costs, I consider the security should be retained until the costs are finally resolved.

Costs of these further Proceedings

1. As the issues raised by the further proceedings resulting in this judgment were resolved substantially in favour of the defendants, I make an order for costs in favour of the defendants with respect to the further proceedings on pre-interest judgment, costs of the proceedings, and related considerations.

ORDERS

1. The plaintiff shall bring in short minutes of order reflecting this judgment, on or before 1pm on Monday 21 March 2022.

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: 18 March 2022