Globaltech Pty Ltd v Pareek [2006] WASC 30

Globaltech Pty Ltd v Pareek [2006] WASC 30 - WASC 2006 case summary — Zoe

[37]

28 Pareek was questioned about the final entry under the heading "Weightage of investment type" which was "Salary (1x: ?)". Pareek's explanation was that if you left before the contract was over then you did not get double benefits. Pareek further explained that, if a person contributed cash and left in December 1999 before the time had expired, then it was for the directors to decide what provision would be made in relation to that contribution. However, the position was different in relation to salary. Only the profit sharing was to be at the discretion of the directors, not the salary. He did not know what would happen about cash and equipment because he was not concerned about cash and equipment. It would seem from that statement that the Minutes are not complete. But if the Minutes are not complete it is because Pareek chose not to include matters which were not of interest to him. Pareek did agree that the hand written notes were not complete, and therefore the typed Minute must be incomplete. However, he attributed responsibility for any omissions in the Minute to Klass because, according to Pareek, he was to prepare full notes of the meeting, presumably from notes which were taken by him, about which there was no evidence, or from memory. Pareek maintained that nothing was talked about at the meeting concerning what would happen to the contribution of cash and equipment if the contributor left. But he still maintained something was said about the salary. What was said, was that, because he was a contractor, he had a different arrangement from the original investors who made contributions of cash or equipment and who were therefore taking the full risk. According to Pareek, as they were taking the full risk they wanted maximum benefits, but as a contractor he would get a full salary. However, if he did not take a full salary then he was actually helping the company and that is why they introduced an arrangement whereby he could double his benefits. If he left earlier than December then he would only get the sacrificed salary. If he stayed longer he would receive double. Pareek did not explain how delaying taking a large component of your salary and then receiving double that amount later provided any help to a fledgling company where the doubled amount would have to be paid a mere six months into the company's operation.

[154]

130 Hejleh was cross-examined on the contents of GlobalTech's application for a government research and development grant. The applicant was required to include applicant details which included reference to 24 employees. Hejleh explained that that was the number of employees which would be required if they received the grant. The document also indicated that the person filling certain nominated positions was yet to be appointed while the document also included reference to certain named persons who, at the date of the document, did not actually work for GlobalTech. Some were known to Hejleh and others were not. In relation to one of the people who was named, but unknown to Hejleh he explained that it was someone that they would hire if they received the grant. The application included reference to Pareek and a salary of $66,000 under a heading "current full-time annual salary". Hejleh explained that the government wanted to know how they proposed to spend the money and that was the salary that Pareek would have been paid to perform the position set out in the application. Hejleh indicated that he could not see any other way to present the information of how they intended to spend the grant including who they were going to hire and how much they would be paid. Counsel for Pareek sought to explain the reference to the $66,000 as a statement by GlobalTech of what Pareek was being paid from May 1999 to the present because of the description of "current full time salary". Hejleh maintained that they presented information on the basis of how the grant monies would be spent, notwithstanding the headings in the application. He conceded that perhaps that was not the correct approach but that was what they did. Hejleh also said that there were about four or five people involved in preparing the application hence his lack of knowledge in relation to all the information contained in the application. Anwar, who compiled the information in the grant application, confirmed Hejleh's evidence that the $66,000 was a future salary to be paid if the application was successful. Anwar maintained that the format was in accordance with requirements of the government department overseeing the process. He explained that the forms came as a template for the company to complete and he might have missed the fact that the heading said "current full-time salary" and he probably should have changed it to indicate that it was the salary to be paid when the project began.

[199]

175 Pareek's conduct in obtaining a line of credit, is also relied upon by the defendants. During the period when Pareek was allegedly sacrificing the majority of his salary, he obtained a line of credit which would have been sufficient to cover an extended period the sacrifice which was being made. His explanation was that he obtained the line of credit in order to purchase a block of land to build a house so that his family would be closer to the daughter's school. Counsel for the plaintiff identifies four reasons for rejecting Pareek's explanation. The first is that Pareek was initially evasive as to the extra cost of the line of credit, referring to the reasons why he preferred the line of credit rather than responding to the question whether he knew a line of credit was more expensive. Further, the explanation that he preferred the line of credit because it was more flexible is an attribute which is of no significance when using the money to buy a block of land. Pareek then went on to question whether a line of credit was more expensive before eventually accepting that the interest rate was higher than applying for a mortgage on a block of land. It is also said by the defendants that the amount of the loan affects the question of what one might have been proposing to use the money for. It indicates the extent of the period for which it was intended. I have, to some extent, addressed this issue in the course of the evidence. There are peripheral aspects relating to obtaining the line of credit that I consider to be inconsequential. However, Pareek's evidence on this issue was evasive and defensive which affects his credibility and, taken together with other concerns I have with respect to his evidence, lead me to conclude that the real reason for obtaining a line of credit would not support Pareek's claim. In my view, Pareek's conduct in relation to the bank loan and the Centrelink support a conclusion that Pareek was taking steps to provide financially for his family because he had no entitlement to a salary and would only be receiving a small hardship payment while the business was being developed.

[253]

15 Where the offer, as in this case, is to consent to judgment in favour of the plaintiff/defendant in the counterclaim, in both the primary action and the counterclaim, with parties bearing their own costs, it is necessary to consider whether that is indeed an offer to compromise. In Jones & Anor v Millward & Anor [2005] QCA 76 it was held that a demand which demands nothing less than the final relief sought in the claim plus costs is not a true offer of compromise: ((at [13]) per Holmes J with whom McMurdo P and Jerrard JA agreed). In Hobartville Stud Pty Ltd v Union Insurance Co Ltd (1991) 25 NSWLR 358 Giles J observed that compromise "connotes that a party gives something away": (at 368). In Fyna Foods Australia Pty Ltd v Cobannah Holdings Pty Ltd (No 2) [2004] FCA 1212 Kenny J referred to a number of authorities in support of the proposition that an offer to a plaintiff to discontinue with no order as to costs was not an offer to compromise and did not carry with it the consequences of a Calderbank letter: see Vasram v AMP Life Ltd [2002] FCA 1286 per Stone J (at [12]); Australian Competition and Consumer Commission v Universal Music Australia Pty Ltd (No 2) [2002] FCA 192 per Hill J (at [59] - [60]); McKerlie v State of New South Wales (No 2) [2000] NSWSC 1159. Although Kenny did not form a concluded opinion on the issue, he expressed doubt that an offer of that type amounted to a genuine offer of compromise: (at [10]). However, in Leichhardt Municipal Council v Green (at [37], [39]) the NSW Court of Appeal held that an offer will not be a demand for capitulation merely because the offer is made on the basis that judgment be entered against the offeree and that each party bear its own costs. In my view, an offer for judgment to be entered for the offeree and each party bear its own costs can properly be described as an offer to compromise, because the offeror is giving something away, the costs to which it would otherwise be entitled. However, whether it is an offer which would justify an order for indemnity costs is an entirely different matter.

[256]

17 The plaintiffs' written submissions refer to a number of cases which have identified circumstances justifying an award of indemnity costs. One example is where the applicant, properly advised, "should have known that he had no chance of success": Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd & Ors [1988] FCA 202; (1988) 81 ALR 397 (at 410) per Woodward J. Another circumstance was an "imprudent refusal of an offer of compromise": Colgate-Palmolive Company & Anor v Cussons Pty Limited [1993] FCA 536; (1993) 46 FCR 225 per Sheppard J (at 233). In Dobb v Hacket (at 540 - 541) Murray J relied on the fact that the plaintiff "behaved unreasonably" in ordering that the plaintiff pay the defendant's costs even where the plaintiff succeeded at trial, in circumstances where the usual order would have been that costs be paid from the estate. In Quirk v Bawden (1992) 112 ACTR 1 (at 5), the Court considered that where a defendant "unreasonably rejected" an offer made by the plaintiff, it may be appropriate for a court to order that the defendant pay the plaintiff's costs on an indemnity basis. With respect to this issue, the defendant relies on the decision in Flotilla Nominees Pty Ltd v Western Australian Land Authority & Anor [2003] WASC 122 (at [8]) where the Court considered that there must be some special or unusual feature in the element of improper, or at least unreasonable, conduct on the part of the parties or their legal advisor to justify an award of indemnity costs. Pullin J's analysis of the relevant authorities resulted in a conclusion that "some element of improper or at least unreasonable conduct" must be established. However, in that case, the Court was determining an application for costs on an indemnity basis, unrelated to the issue of offers to compromise. Based on these authorities, it would appear that "unreasonableness" in refusing the offer is the salient consideration. Of course, what is reasonable will very much depend on the circumstances of each case.

[274]

28 There is another factor that causes me some concern. The offer did not precisely state that the plaintiff intended to seek an order for indemnity costs with respect to both actions. The statement that the plaintiffs would "pursue their rights to recover all permissible costs" is not a substitute for a statement that indemnity costs will be sought. Permissible costs are generally the party/party costs to be awarded to any successful litigant. I accept that if the statement was meant to convey that the plaintiffs, if successful, intended to recover their costs of both actions, it would be stating the obvious. However, the discretion conferred on the Court as to costs may well operate other than in the usual course of costs following the event. For example, O 66 r 1(2) provides that if the Court is of the opinion that the conduct of a party has resulted in costs being unnecessarily or unreasonably incurred it may deprive that party of costs wholly or in part, and may further order him to pay the costs of an unsuccessful party either wholly or in part. In those circumstances, I consider it important that a party who makes an offer of compromise with a view to seeking indemnity costs, if appropriate, should explicitly say so. The absence of that statement will not necessarily be fatal to the application if other circumstances are such as to constitute a strong claim to indemnity costs. However, in this case, because of my views with respect to the matters raised by the plaintiffs in support of an application for indemnity costs expressed above, I consider the absence of a clear statement of the intention to apply for indemnity costs to be one of the factors which has led me to conclude that the application should be refused. The other significant factors are the failure to outline the strength of the plaintiffs' case and the marginal benefit to the defendant provided by the terms of the offer. Not being required to pay the other party's costs is a somewhat meagre offer on a claim of significant quantum which, at such an early stage, could not be said to be so hopeless it would fail. That is particularly so in circumstances where the offeree has not provided any information which would suggest to the defendant that his case was either weak or hopeless.

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (276 paragraphs)

Globaltech Pty Ltd v Pareek [2006] WASC 30 (23 February 2006)

Evidence on behalf of the plaintiff on the counterclaim

Evidence of the defendants on the counterclaim

Parties

Legislation Cited (2)

Cases Cited (6)