First Plaintiff v Defendant

2 The issues in the proceeding, and my findings in relation to those issues are set out in full in the December reasons.

3 Upon delivering the December reasons, I requested that the parties confer as to the appropriate form of orders to give effect to those reasons. Following conferral by the parties, the following issues remain for resolution:

(a) the appropriate form of orders for the payment of the judgment sum and interest; and

(b) the basis upon which costs should be awarded.

4 In their written outline of submissions filed on 21 December 2020, the plaintiffs sought the following orders:

1. The defendant pay the plaintiffs the sum of $505,000.00.

1. The defendant pay interest to the plaintiffs pursuant to section 58(1) of the Supreme Court Act 1986 (Vic), in the sum of $152,748.99.
2. The defendant pay the plaintiffs' costs of an incidental to the proceeding, including any reserved costs, to be taxed in default of agreement:

(a) on the standard basis up to and including 11:00am on 10 October 2019;

(b) on an indemnity basis thereafter.

5 The plaintiffs submitted that the primary finding in the December reasons was made pursuant to s 32 of the Sale of Land Act and, therefore, interest is properly calculated pursuant to s 58 of the Supreme Court Act 1958 (Vic) ('Supreme Court Act'), such interest being calculated from the date the plaintiffs were entitled to have the deposits returned to them. This was not disputed by the defendant, and the parties have agreed upon the amount of interest payable on the judgment sum.

6 In regard to costs, the plaintiffs noted that they made an offer of compromise pursuant to Order 26 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) ('Rules') on 8 October 2019. The offer of compromise provides as follows:

TAKE NOTICE that the Plaintiffs offer to compromise this proceeding on the following basis:

1. That the Defendant pays the plaintiffs the sum on $625,000 (inclusive of costs).

THIS OFFER is served in accordance with Part 2 of Order 26 of the Supreme Court Rules and remains open to be accepted until the expiration of 14 days after service of this notice.

7 Counsel for the plaintiffs submitted that, pursuant to r 26.08(2)(b) of the Rules, the plaintiffs are entitled to orders for standard costs until 11:00 am on 10 October 2019, being 11:00 am on the second business day following service of the offer of compromise, and costs on an indemnity basis thereafter.

8 In regard to the principles governing the payment of costs payable pursuant to an offer of compromise, the plaintiffs referred to the decision of the Court of Appeal in PCCEF Pty Ltd v Geelong Football Club Ltd (No 3),[2] as follows (citations omitted):

The party seeking to displace the prima facie rule in r 26.08 bears the onus. The onus is not readily discharged. In Gamboni, Tate JA and Kyrou AJA stated:

In Simonovski, Ashley J stated that while the Court retains a discretion under r 26.08(2)(b) of the ... Rules, an 'order otherwise' should not be lightly made, and that the prima facie position established by the rule 'is a strong one, not easily displaced'.

In Saric, McMillan J referred to the language used in the authorities to describe the kinds of case where the prima facie rule has been displaced:

The Court must exercise caution in departing from the prima face rule and only do so in cases that warrant such a departure, invariably expressed in terms such as 'compelling and exceptional circumstances', 'for proper reasons which, in general, only arise in an exceptional case' and 'special circumstances'.

Whether the Court will 'otherwise order' depends on whether doing so advances the purpose of O 26. That purpose, broadly speaking, is to encourage the compromise of litigation and the saving of the private and public costs associated with it. The reasonableness of the rejection or non-acceptance of an offer is one matter that may be taken into account, but is not of itself determinative.[3]

9 The plaintiffs submitted that, at the time of making the offer of compromise on 8 October 2019, the plaintiffs had incurred legal costs of $196,056.03, excluding GST. Pursuant to r 26.08(5)(b) of the Rules, only the interest which had accrued prior to the date the offer was served is to be included for the basis of assessing the values of the offer of compromise, being $92,006.85. The plaintiffs submitted that, as a result, at the time the offer of compromise was made, the amount that the plaintiffs would have recovered, if successful at trial, was $505,000.00 in damages, $92,006.85 in interest and $196,056.03 in legal costs excluding GST, totalling $793,062.88 ('recovery sum').

10 The plaintiffs went on to submit that, by making an offer of $625,000 inclusive of costs, the plaintiffs offered to compromise by foregoing $168,062.88, which represented a significant compromise on their part, such that the offer was genuine offer to compromise within the meaning of r 26.08(8) of the Rules.

11 The plaintiffs submitted that the inquiry as to whether an offer is genuine for the purposes of r 26.08 is largely a factual analysis. The plaintiffs referred to the following statement of the Court of Appeal in Gamboni v Bendigo and Adelaide Bank Ltd,[4] as follows (citations omitted):

The question of whether an offer is 'of a genuine compromise' does not depend simply on the magnitude of the discount embodied in the offer. While that is clearly a relevant consideration - in the sense that a trivial, contemptuous or derisory discount would not involve a genuine compromise - other factors are also relevant. They include the apparent strength of the defendant's case at the time the offer was made, whether the case is an 'all or nothing' case which makes it difficult to select a discount based on an assessment of particular aspects of the case, and the stage at which the offer was made.[5]

12 The plaintiffs also referred to the decision of the Court of Appeal in Stevens v Spotless Management Services Pty Ltd (No 2)__[6], as follows (citations omitted):

In determining the proper application of r 26.08, the first question is whether, in terms of r 26.08(8), the appellant's offer was' of a genuine compromise'. The onus lies on the plaintiff in that regard. If that onus is discharged, the second question, which is not in issue in this matter, is whether the judgment obtained is no less favourable than the offer. The third issue is whether, notwithstanding an affirmative answer to the second question, the Court should order 'otherwise' than in the terms set out in r 26.08. In that regard, the onus lies on the defendant.[7]

13 The plaintiffs submitted their offer reflected a compromise of approximately one third of the recovery sum, which could not reasonably be described as a trivial offer or an invitation to the defendant to surrender. The plaintiffs submitted that there was no uncertainty about the quantum of the plaintiffs' claim, and the defendant was in a position to understand the basis for the offer and the degree of compromise involved.

14 The plaintiffs submitted further that the defendant has not provided any reason capable of constituting special circumstances which would persuade the Court to "otherwise order" pursuant to r 26.08(2), and that there is otherwise no reason to justify a departure from the prima facie rule in this case. Accordingly, the plaintiffs went on to submit that they should therefore be entitled to orders for standard costs until 11:00am on 10 October 2019, and to indemnity costs from that time onwards.

15 In its submissions filed on 15 January 2021, the defendant submitted that an Escrow Deed entered into by the parties and their solicitors on 28 May 2020 ('Escrow Deed') made express provision for the payment of deposit monies, interests and legal costs that might be ordered by this Court upon resolution of the plaintiffs' claim, and that this Court should enforce the terms of the Escrow Deed.

16 The Escrow Deed contains provisions agreed by the parties establishing a bank account to hold an escrow amount of $900,000.00 ('Escrow Amount') and setting out the circumstances in which the Escrow Amount is to be paid to the successful party.

17 Clause 5.3 of the Escrow Deed provides as follows:

Save as otherwise ordered by the Court:

(a) If judgment in the Proceedings is awarded in favour of Chatham and / or Crestevia, the Escrow Agents must within 10 Business Days of receipt of the Outcome Notice release the amount awarded by the Court to Chatham and / or Crestevia as ordered by the Court save for any amount in respect of costs which is to be dealt with in accordance with clause (c) below.

...

(c) In respect of costs, the Escrow Parties agree that within 10 Business Days after receipt of a Costs Notice, the Escrow Agents must:

(i) Release the amount of costs to be paid by Coral Park to Chatham and / or Crestevia whether:

(A) fixed by the Court;

(B) agreed by the parties to the Proceeding; or

(C) determined by taxation. (whichever the case may be).

(ii) If the amount to be paid to Chatham and / or Crestevia is less than the remainder of the Escrow Amount, then the Escrow Agents must release the balance of the Escrow Amount to Coral Park.

(a) an Outcome Notice means a notice that the Outcome Date as occurred, which, relevantly, is the date judgment was delivered in the proceeding, being 9 December 2020;[8] and;

(b) a Costs Notice means a notice that the Costs Date has occurred, which, relevantly, is the date the Court fixes an amount to be paid in respect of costs, being the date of these reasons.

19 Notwithstanding clause 5.4 of the Escrow Deed, which makes express provision for the payment of interest on the Escrow Amount, the defendant does not dispute that an order should be made that the defendant pay the plaintiffs the interest claimed under s 58 of the Supreme Court Act 1986 (Vic). Counsel for the defendant otherwise submitted that this Court should give effect to the parties' agreement in the Escrow Deed, with the effect that the judgment debt will be in abeyance until the provision of the Outcome Notice.

20 In relation to the quantum of costs, the defendant opposes the plaintiffs' claim for indemnity costs on the basis that the offer of compromise was not a genuine compromise within the meaning of r 26.08 of the Rules. The defendant submitted that the offer of compromise was inclusive of costs, with the result that it cannot be determined with certainty whether the offer was more or less favourable than the judgment sum determined by the December reasons.

21 The defendant submitted further that the plaintiffs' measure of the legal costs incurred by them is inappropriate, as:

(a) the plaintiffs' solicitor-client costs as at the date of the offer of compromise were $196,056.03;

(b) the plaintiffs added those putative costs to the judgment sum, plus interest owing at the date of the offer of compromise to reach a figure of $793,062.88 and then invited the Court to find that the offer of compromise was a genuine compromise because the plaintiffs would forego $168,062.88 (being a discount of 21.2% of the recovery sum);

(c) however, there were no circumstances apparent at the time of the offer of compromise that would entitle the plaintiffs to their solicitor-client costs, and, at best, the plaintiffs ought to value the offer of compromise by reference to their standard costs at the date of the offer; and

(d) if the plaintiffs' standard costs are assumed to be sixty per cent of their solicitor-client costs, then the value of the recovery sum could not be higher than $714,640.47, and the offer of compromise therefore provided, at best, for a compromise of only 12.5 per cent of the recovery sum.

22 The defendant went on to submit that the value of the plaintiffs' compromise is, therefore, marginal at the very highest.

23 Accordingly, the defendant submitted further that, aside from the quantum of the compromise, other factors are relevant, including that this proceeding concerned an "all or nothing" case, and that the plaintiffs' case on liability was not obvious, whether considered at the time of the offer of compromise or the time of the substantive hearing of the plaintiffs' claims. The defendant submitted that the plaintiffs failed to succeed in their contractual claims and claims for misleading and deceptive conduct, and, therefore, there were serious questions to be tried with respect to the defendant's liability to the plaintiffs.

24 The defendant submitted that, as a result, the offer of compromise did not represent a genuine compromise, either by reference to the quantum of the compromise when assessed in terms of the plaintiffs' recoverable costs at the time of the offer, or by reference to the strengths and weaknesses of the plaintiffs' claims.

25 In their submissions in reply filed on 22 January 2021, the plaintiffs submitted that the judgment debt should not be recorded in "Other Matters" of the orders as being in abeyance until an Outcome Notice is issued pursuant to the Escrow Deed, as:

(a) the contractual interpretation of the Escrow Deed is not in issue before the Court in this proceeding;

(b) the defendant has not proffered any basis upon which it is entitled to seek the Court's determination of the proper construction of the relevant provisions of the Escrow Deed in a manner which would bind the plaintiffs;

(c) as the Escrow Deed continues to govern the conduct of the parties, the defendant may avail itself of contractual rights and remedies under the terms of the Escrow Deed; and

(d) the Escrow Deed contains no restrictions on the plaintiffs' remedies at law in respect of a judgment in their favour, contains no agreement by the parties as to a form of proposed final orders, and does not, and cannot, bind this Court.

26 X As for the genuineness of the offer of compromise, the plaintiffs submitted that the complexity of the proceeding is not a determinative factor as to whether the offer was genuine. The plaintiffs submitted that the offer should properly be considered as genuine and, absent any special circumstances identified by the defendant to justify a departure from the usual cost consequences of an offer of compromise, the plaintiffs are entitled to indemnity costs from 11:00am on 10 October 2019 pursuant to r 26.08(2).

27 The plaintiffs relied on the affidavit of Mr David Hope, the managing director of the plaintiffs' solicitors, dated 21 December 2020. In his affidavit, Mr Hope deposed, in summary, as follows:

(a) the plaintiffs served the offer of compromise on 8 October 2019;

(b) as at the date of the offer of compromise, interest on the judgment sum totalled $92,006.85 and as at 21 December 2020 interest on the judgment sum totalled $152,748.99;

(c) the plaintiffs' solicitor-client costs as at the date of the offer of compromise were $196,056.03, and the plaintiffs' total solicitor-client costs up to the date of judgment on 9 December 2020 were $394,603.18; and

(d) Mr Hope calculated the plaintiffs' solicitor-client costs by totalling all invoiced amounts up to an including 30 September 2019, and unbilled work in progress.

28 Rule 26.08 of the Rules provides, relevantly, as follows:

Costs consequences of failure to accept

(1) This Rule applies to an offer of compromise which has not been accepted at the time of verdict or judgment.

(2) Where an offer of compromise is made by a plaintiff and not accepted by the defendant, and the plaintiff obtains a judgment on the claim to which the offer relates no less favourable to the plaintiff than the terms of the offer, then, unless the Court otherwise orders, the plaintiff shall be entitled -

(a) if the claim of the plaintiff is for damages for or arising out of death or bodily injury, to an order against the defendant for the plaintiff's costs in respect of the claim taxed on an indemnity basis;

(b) in the case of any other claim of the plaintiff, to an order against the defendant for the plaintiff's costs in respect of the claim before 11.00 a.m. on the second business day after the offer was served, taxed on the ordinarily applicable basis and for the plaintiff's costs thereafter taxed on an indemnity basis.

...

(5) Where a plaintiff obtains judgment for the recovery of a debt or damages and -

(a) the amount for which the Court pronounces judgment includes an amount for interest or damages in the nature of interest; or

(b) by or under any Act the Court awards the plaintiff interest or damages in the nature of interest in respect of the judgment amount -

for the purpose of determining the consequences as to costs referred to in paragraphs (2) and (3) the Court shall disregard so much of the amount recovered by or awarded to the plaintiff for interest or damages in the nature of interest as relates to the period after the day the offer of compromise was served.

...

(8) Where the plaintiff obtains judgment for the recovery of a debt or damages, and the amount of the debt or the damages was not in dispute, but only the question of liability, paragraph (2) shall not apply unless the Court is satisfied that the plaintiff's offer was of a genuine compromise.

29 The principles regarding whether a special costs order should be made by reason of an offer of compromise having been made are not in dispute between the parties. Further, there appears to be no dispute that the result obtained by the plaintiff at trial was more favourable to the plaintiffs than the amount of the offer of compromise. Further, given that the only issue in dispute at trial was the liability of the defendant to return the deposit, not the quantum of damages payable by the defendant, r 26.08(8) is engaged. The key issues in the current application are as follows:

(a) whether the calculation of the recovery amount ought to include legal costs calculated on an indemnity basis, or on a standard basis, and, if the latter, the basis for estimating standard costs;

(b) whether the terms of the offer of compromise represent a genuine compromise on the recovery sum; and

(c) whether there are any other matters or circumstances which would engage the Court's discretion to "otherwise order".

30 I agree with the defendant's submissions that, when determining whether the offer of compromise is genuine, this Court must consider the costs recoverable at the time the offer was made. I accept that, at the time of the offer, there were no circumstances which would indicate that the plaintiffs were entitled to recover their costs on solicitor‑client, or indemnity basis, and, therefore, the value of the compromise should be assessed by reference to the plaintiffs' standard costs at time the offer was made. However, it is my opinion[9] that a rate of seventy five per cent of the plaintiffs' solicitor-client costs represents a more reasonable assessment of the plaintiffs' standard costs as at the time of the offer than the sixty per cent rate contended for by the defendant, resulting in a costs figure of $147,042.02. When added to the judgment sum plus interest owing at the time of the offer, this results in a recovery sum of $744,048.87, such that $625,000 represents a compromise of approximately sixteen per cent of the recovery sum.

31 Given that the assessment of whether an offer of compromise is genuine is fact specific, other decisions offer only limited guidance. In Enerka Apex Belting Pty Ltd v Vickers Systems Pty Ltd (No 2),[10] a compromise of six per cent was not considered to be a genuine compromise. However, in the decisions of the Court of Appeal in Gamboni,[11] a compromise of twenty three per cent was insufficient to be considered genuine and Stevens,[12] compromises seventeen or twenty seven per cent were considered to amount to genuine compromises.

32 The question of whether an offer of compromise represents a genuine compromise only arises, of course, if the case is an all-or-nothing case, such as in the current proceeding. It is not easy for a trial judge, having found in favour of the plaintiffs, to make an assessment of what would amount to a genuine compromise, having regard to the inherent risks of litigation and the strengths and weaknesses of the plaintiffs' actual claims in the proceeding, but, that said, the trial judge is probably in the best position to do so.

33 The onus of establishing that an offer of compromise amounted to a genuine offer rests with the plaintiffs.[13] Looking at the position from the standpoint of the plaintiffs at the time the offer of compromise was made, noting that the outlines of evidence had already been filed and served, one might have expected the plaintiffs, properly advised, would have considered the following matters:

(a) the evidence likely to be given by Ms Sayers, the real estate agent involved in the transaction, to the effect that two of the four representations alleged to have been made were in fact made. It was reasonable to assume that Ms Sayers' evidence would be accepted by the Court, as it was;

(b) it appeared that Mr Warren, the principal of the vendor, was not going to give evidence, no outline having been filed. It was reasonable to expect that I would draw an adverse inference from the Mr Warren's failure to give evidence, as I did;

(c) the question of whether the purchasers had relied upon the representations in entering into the contract of sale, while contestable, would not be a particularly difficult hurdle for the plaintiff to overcome, provided the Court largely accepted the evidence of the plaintiffs' critical witnesses;

(d) the contention that the defendant, by failing to disclose the essential terms of the lease between the defendant and JWRS, had breached the disclosure requirements imposed upon vendors under the Sale of Land Act, while not necessarily bound to succeed, given the absence of authority directly on that point, was at least strongly arguable; and

(e) while the question of the construction of the relevant provisions of the contract of sale was not without difficulties, such that there was at least an appreciable risk that the Court would uphold the defendant's preferred construction of the contract of sale, that was an assessment which could be carried out without the need to evaluate the evidence which might be given at trial.

34 However, while based upon the above matters, the plaintiffs and their lawyers could reasonably reach a conclusion that the plaintiffs' prospects of success were quite good, there was at the time that the offer of compromise was made, a real problem facing the plaintiffs at trial, being the question of whether the plaintiffs were ready, willing and able to settle upon the purchase of the property upon the scheduled settlement date. That issue was known to the plaintiffs, given the defendant had expressly raised that issue in its defence, and the plaintiffs would have been aware that the defendant had issued subpoenas directed at the plaintiffs' prospective lenders. That issue was ultimately fatal to the plaintiffs' contractual and misleading and deceptive conduct claims, given that the evidence adduced by the plaintiffs on that issue was vague, incomplete and ultimately unpersuasive.

35 Accordingly, the risks to the plaintiffs' case as a result of what can be described as the causation issue were significant, and must have been apparent to the plaintiffs at the time they made the offer of compromise.

36 The plaintiffs were ultimately successful on their statutory claims, being the allegation that they were entitled to rescind the contract of sale by reason of material non‑disclosure on the part of the defendant, and given that, if all else failed, I would have exercised my discretion under s 49(2) of the Property Law Act 1958 (Vic) to order that the defendant return the deposit. While the claim for non-disclosure under s 32 of the Sale of Land Act was ultimately successful, it was not a foregone conclusion, given that there was a reference to the existence of a lease to JWRS in the contract of sale, if not its terms. Finally, while I would have exercised my discretion under s 49(s) of the Property Law Act, the relative lack of success of such applications in this jurisdiction in the past means that the plaintiffs could not be overly confident that the Court would exercise its discretion in their favour in the current case.

37 Further, viewed from the perspective of the defendant, the offer of compromise may well have been considered to be an invitation to surrender, given that it exceeded the actual deposits paid by the purchasers by some $120,000, and the defendant's defences were certainly not hopeless. While of course the plaintiffs would be entitled to interest and costs should they be successful, and the amount of interest payable was calculable at the time, there was no evidence as to whether the defendant and its solicitors were aware of the costs which had been incurred by the plaintiffs to that date.

38 Accordingly, having regard to the above matters, in my view, an offer of compromise on the part of the plaintiffs which represented a discount of less than twenty per cent on the recovery sum, while not trivial or cursory, must have been based upon an unduly rosy expectation of their prospects of success at trial. While it is not necessary for me to identify what would have been an appropriate discount to ensure that the value of the offer of compromise represented a genuine compromise on the recovery sum, I suggest that a discount in the range of twenty-five to thirty-five per cent would have been more realistic, such as to amount to a genuine compromise of their claims in the proceeding.

39 Accordingly, I will order that the defendant pay the plaintiffs' costs of the proceeding on a standard basis. For the avoidance of doubt, I confirm that there are no other matters which would otherwise disentitle the plaintiffs from receiving a special costs order.

40 Finally, turning to the question of whether specific reference needs to be made in the final orders to the terms of the Escrow Deed, I do not consider that is necessary or appropriate, given that there appears to be no extant dispute regarding the proper construction of the Escrow Deed, or the parties' compliance or noncompliance with the terms of the Escrow Deed which requires or warrants adjudication.

[1] [2020] VSC 814 ('December reasons'). References to the parties and defined terms in these reasons mirror those used in the December reasons.

[2] [2019] VSCA 191.

[4] [2013] VSCA 282 ('Gamboni').

[6] [2016] VSCA 311 ('Stevens').

[8] Arguably, the Outcome Date could be the date upon which final orders are made disposing of the proceeding, being the date of these reasons.

[9] My opinion is based upon my experience in fixing costs during applications. Further, legal practitioners routinely give evidence that, in calculating what might be recoverable as standard costs as a proportion of actual costs incurred by a party, a range of seventy to eighty per cent is a reasonable estimate. I have adopted the mid-point of that range, noting that by the time the offer of compromise was served on 8 October 2019, the interlocutory steps in the proceeding were largely complete, the trial having initially been scheduled to commence on 22 October 2019.

[10] [2002] VSC 409.

[11] [2013] VSCA 282.

[12] [2016] VSCA 311.