Griffiths & Beerens Pty Ltd & Ors v Duggan & Ors

2 The fundamental question that remains for me to determine is what order I should make about the costs of the proceedings which I decided in June. The orders I made in favour of the first and second plaintiffs was for a sum substantially less than offers which had been made on behalf of the defendants. On 12 November 2007 (not long after discovery by the plaintiffs of sales records and of their review by Mr Bonner and Mr Powell) the defendants made a "Calderbank offer" by letter offering to pay the plaintiffs $300,000 (inclusive of costs), plus forgiving a debt of $110,000, on the plaintiffs' claim and to discontinue the counterclaim. The offer was expressed to require acceptance within 14 days and, as events turned out, was some $265,000 better than the award of damages I made in favour of the plaintiffs. It would (had it been accepted) also have provided an additional advantage to the plaintiffs because the offer included an admission of liability of behalf of Jak Max Pty Ltd ("Jak Max") which is not otherwise subject to orders made by me.

3 The Calderbank offer expired on 26 November 2007 and, on that date, the defendants filed a formal offer of compromise under Order 26 of the Supreme Court (General Civil Procedure) Rules 2005 ("the first formal offer"). That offer was for the defendants to pay $300,000 plus costs and it too was expressed to be open for acceptance for 14 days. It too would have given to the plaintiffs a substantially better outcome than by the orders I made in June. On 18 December 2007 a second offer of compromise ("the second formal offer") was made under the Rules in similar terms to that made in November except that the amount offered was increased by $200,000 to $500,000. Thus, as at 18 December 2007, the defendants had offered to pay the plaintiffs $500,000 plus costs, to discontinue their counterclaim, and for Paul Duggan to deliver up the information contained on his Dell laptop computer, and subsequently to delete that information. The plaintiffs did not accept any of the three offers.

4 Rule 26.08(3) deals with the situation that has arisen between these parties. In this case the unsuccessful defendants made offers to the plaintiffs to compromise the action on terms which were more favourable than the plaintiffs obtained on my judgment. In such circumstances, Rule 26.08 provides that "unless the court otherwise orders", the plaintiffs shall be entitled to an order against the defendants for the plaintiffs' costs in respect of the claim up to and including the day the offer was served, taxed on a party and party basis, and that the defendants shall be entitled to an order against the plaintiffs for the defendants' cost in respect of the claim thereafter, taxed on a party and party basis. The plaintiffs contended that I should not order costs on the terms contemplated by Rule 26.08. The defendants contended that they are entitled to the benefit of the operation of Rule 26.08 and that I should not make orders for costs otherwise than as the Rule operates, except that I should order that costs be paid in their favour on an indemnity basis rather than on a party and party basis.

5 The primary question for me is whether I should make an order departing from the costs order that would apply by operation of Rule 26.08(3). In considering that question I bear in mind that the Rule expresses an important policy designed to regulate the conduct of litigants. In MT Associates Pty Ltd v Aqua-Max Pty Ltd[1] Gillard J said about offers generally:

Courts should encourage litigants and that means litigants on both sides of the record to make offers to compromise the litigation. The communication should be made without prejudice save as to the question of costs so that the communications can be placed before the court at the end of the trial. It is in the interests of the administration of justice that litigation should be compromised as soon as is reasonably possible. It is in the public interest to do so.

In this day and age litigation in this court is expensive. The advent of the dictating machine, the photostat machine and the costing on a six minute unit of time results in litigation being very expensive. Lawyers have an interest in the length of litigation and as professional people they should guard against the temptation of lengthy and expensive litigation. They should be encouraged to reduce costs.

In my opinion any form of offer assuming it can be adduced into evidence should be considered by the court on the question of costs and overly technical reasons given by the other party for not seriously considering an offer should be rejected.

The fact is that in litigation experienced counsel and litigation solicitors have a very good idea during the course of a trial as to what their client should receive or be expected to pay. It is not difficult in most cases to make an assessment of the risks involved and what is a fair compromise to the client. A court will always give reasonable time to the parties to consider settlement. If a proposal is put forward the litigant and his adviser receiving the proposal ignores that proposal at his peril. Some proposals will involve discussions and negotiations between the parties. But any litigant and his adviser who takes the view that the proposal or offer can be ignored on some technical ground does so at their own risk.

In days of old, points were taken justifying the refusal of an offer because of some point, but in this day and age where costs in heavy litigation are high litigants and their lawyers must consider all offers of settlement, bona fide and reasonably. By offers I include proposals, and exploratory discussions as well as offers. If the evidence is admissible on the question of costs any unreasonable conduct may result in a special order for costs.

The object of making an offer is to bring the litigation to an end and to put on notice the other side that if it refuses the offer and subsequently the offerer recovers more in the proceeding, then justice and fairness requires that a special order for costs be made.[2]

Rule 26.08 is an important expression of the policy designed to encourage the resolution of disputes and to discourage the continuation of expenditure on disputes which fail to secure better outcomes than those offered. The policy operates through the Rule by requiring the parties, with the assistance of their legal advisers, to evaluate the likelihood of achieving an outcome which is more favourable than that offered. The Rule encourages the defendant to make an offer that will be attractive to a plaintiff seeking to secure compensation on the claim. The Rule also requires the plaintiff to make a careful evaluation of the outcome which continued litigation may achieve and to compare that with the offer.

6 In my view the plaintiffs ought to have accepted the first formal offer made under Rule 26.08. An important factor in that conclusion is the view that I formed about the damages case made, and maintained, by the plaintiffs to the very end of the proceedings. The case occupied 33 hearing days and the plaintiffs' damages claim was, in my view, at all times weak. A plaintiff must obviously establish liability to succeed on a claim, but success on liability will be pointless if a plaintiff cannot establish the necessary quantum of damages. This case was conducted by the plaintiffs with an emphasis upon liability without, in my view, sufficient regard to the quantum necessary to make the proceeding defensible once the first formal offer was made.

7 The "Calderbank offer" was, in effect, an "all in" offer of $410,000 inclusive of costs at a time when the plaintiffs' costs were known to be $680,000. I reject the plaintiffs' submission that the quantum of the costs which had been incurred as at that date justified rejecting the offer; on the contrary, with the benefit of hindsight, the costs then already incurred ought to have made the plaintiffs, and their legal advisers, particularly cautious about whether the mounting costs might ever be recovered on the basis of the damages claimed as then formulated. However, the expert evidence then available to the plaintiffs about their damages claim made the offer reasonably unattractive at a time when the plaintiffs were still pressing for discovery from the defendants and was received in the context of the plaintiffs resisting an application for security for costs. The Calderbank offer was sent two days before the hearing of the defendants' application for security for costs which was initially refused by Hargrave J on 15 November 2007 and withdrawn on 4 December 2007. I accept, therefore, that it was not unreasonable in all the circumstances[3] for the plaintiffs to reject an all in sum of $410,000 offered on 12 November 2007.

8 The situation changed with the first formal offer under Order 26 on 26 November 2007. At that point it was incumbent upon the plaintiffs, and their advisers (especially their legal advisers), to review critically and carefully the plaintiffs' case on quantum. If they had done so, they would, in my view, have concluded that what was then being offered was likely to exceed what they might recover upon a "global damages" case as formulated. The plaintiffs' receipt of the first formal offer required that they, and their legal advisers, turn their attention to their case and critically evaluate whether their evidence was likely to secure an outcome greater than the offer. The plaintiffs do not point to any such evaluation. At most they rely upon their continuing efforts to secure discovery of the defendants' financial records which the defendants failed (as the plaintiffs allege) to provide. The plaintiffs, however, had propounded claims, and their expert had given advice about the quantum claimed, without the benefit of the further discovery sought. What they do not point to, and what they seem not to have done, is any evaluation about whether the probative material they had or expected to have, and upon which they could rely or could expect to rely, could reasonably justify maintaining the claims in the proceeding in light of the first formal offer when made. In none of the material filed by the plaintiffs on costs, or elsewhere, can I see any active and diligent contemporaneous consideration of whether either of the formal offers made under Order 26 should have been accepted when made.

9 Various matters have been urged upon me on behalf of the plaintiffs as exceptional circumstances justifying a departure from the operation of Rule 26.08. I have, thus, been asked to take into account such matters as the defective discovery made by the defendants, their false assertions, their defective financial and electronic discovery, the false testimony of some witnesses for the defendants, the defendants' failure to call relevant Chinese based witnesses, and the like. I have, perhaps generously, allowed the plaintiffs to file evidence about these matters and to make submissions that I should take them into account in finding that there have been "exceptional circumstances" to depart from the ordinary operation of Rule 26.08. None of these matters, however, persuade me in favour of the plaintiffs. A costs order should not be made to punish an unsuccessful litigant.[4] Costs orders should, rather, help mould the proper conduct of the parties to litigation, and of their advisers, in securing outcomes efficiently, expeditiously and without avoidable costs. Each of the matters relied upon by the plaintiffs may, perhaps, give comfort that the findings on liability were well founded but do not assist in filling what appeared to me to be the gap in the plaintiffs' case on damages. However liable, or culpable, the defendants may have been, the plaintiffs failed to establish that the culpability sounded in a judgment greater than any of the offers that had been made before trial. In my view that are no exceptional circumstances to depart from the operation of Rule 26.08 according to its terms. The first formal offer made under Rule 26.08 put the plaintiffs at risk on costs and from that date they should prudently have evaluated their damages claim and should have considered whether they were likely to better the offer. The plaintiffs cannot avoid the risk transferred to them by an offer under Rule 26.08(3) by pointing to their success on liability: an offer under Rule 26.08(3) presupposes a finding of liability and seeks to encourage an end to litigation by focussing the parties' attention on the outcomes.

10 The plaintiffs submitted that to allow the operation of Rule 26.08 in this case would be to reward the defendants' bad and culpable conduct. The parties disputed before me at the costs hearing whether or not I had made particular findings or reached certain conclusions. I will refrain from expressing any view about the appropriateness of a trial judge, in the context of argument about costs, being asked to review his or her own earlier findings.[5] However, even assuming that my findings and conclusions on the defendants' culpability were as contended for by the plaintiffs, the plaintiffs failed to make good the quantum of their claim. To award the plaintiffs costs, on the facts of this case, might reward litigants more determined to secure a public airing of the defendants' culpability than to recover compensation for the damages they were able to establish. To order that Rule 26.08(3) should not apply would, in any event, reward the plaintiffs' failure to act in accordance with its terms and policy.

11 The plaintiffs urged me to award costs by reference to the issues in the dispute in view of the amount of time spent in establishing liability and, in effect, award to the plaintiffs their costs on liability and to the defendants their costs on quantum. In my view this is not a case to order costs on that basis. Awarding costs by reference to issues may be appropriate where distinct causes of action are relied upon for the damages claimed. It is logically less appropriate where the liability established fails to result in damages which exceeds an offer under Order 26. Indeed, it might be thought to be logically inconsistent with the policy evident in the Order to award the plaintiffs their costs on the very liability claims on which they failed to establish damages in excess of the offer. In addition, the plaintiffs had sought to split the hearing of the proceeding to have liability and quantum tried separately. That application was rejected by Hargrave J.

12 The defendants, for their part, urged that I order costs in their favour on an indemnity basis, at least as against Jak Max, because the entire case against it was ultimately abandoned. In my view the facts of this case do not justify such an order in favour of the defendants. However defective the plaintiffs' case on damages may have been, the fact is that the defendants did not admit liability and strenuously contested liability. That, therefore, remained an indispensable part of the plaintiffs' claim which had to be proved and they were entitled to do so as fully as possible.

13 The position of Jak Max was indistinguishable from that of the defendants against whom I have awarded damages in favour of the plaintiffs. No factual basis was put which identified any costs of Jak Max that would not necessarily have been the costs of the other defendants. The defendants have all had the ability to file material which might have identified costs of Jak Max capable sensibly of segregation and separation from those of the other defendants but have not done so. In those circumstances an award for costs in favour of Jak Max would fundamentally distort the burden of costs orders falling upon the effective parties in the proceeding; namely, the first and second plaintiffs and the first and third defendants.

14 In my reasons for judgment given on 11 June 2008, I asked that the parties include in their submissions on costs any submissions about the potential application of Rule 63.23 (which deals with costs liabilities of a lawyer personally). Neither party has submitted that any costs should be borne by any of the lawyers personally, and, indeed, the plaintiffs' submissions expressly proceeded upon the basis that the reference in my reasons was meant to be to a different provision in the Rules. My reference to Rule 63.23 was an invitation to hear submissions about whether any part of the costs should be made to fall upon the practitioners by reason of any costs having been "incurred improperly or without reasonable cause" or to have been wasted by failure to act with reasonable competence and expedition. The presence of Rule 63.23, and its purpose, should not go unnoticed in cases such as this where, perhaps, the involvement and conduct of the practitioners may affect judgment and advice. In the event, no party has sought to make any submission that would justify an order under Rule 63.23 and, in those circumstances, I shall decline to do so without further speculation.

15 Finally, I should deal with whether the costs order should, as the defendants urged, be set off against the judgment awarded against them. That matter may assume some importance as against other creditors claiming against the first named plaintiff as it may as against any third party who is a stranger to this proceeding and who may have claims against the plaintiffs. The risk that others may be adversely affected by an order by me to set off the amounts is sufficient to decline to make an order in such terms: whether there is a set off in law is a matter for determination elsewhere.

(a) The first and third defendants pay the plaintiffs' costs on a party and party basis up to and including 26 November 2007; and

(b) The first and second plaintiffs pay the defendants' costs on a party and party basis as and from 26 November 2007.

[1] [2000] VSC 163.

[3] Luxmore Pty Ltd v Hydedale Pty Ltd [2008] VSCA 212, [8] (Maxwell P and Kellam JA).

[4] Latoudis v Casey [1990] HCA 59; (1990) 170 CLR 534, 543 (Mason CJ), 563 (Toohey J), 566-7 (McHugh J); GT Corporation Pty Ltd v Amare Safety Pty Ltd (No 3) [2008] VSC 296.

[5] See also Luxmore Pty Ltd v Hydedale Pty Ltd [2008] VSCA 212, [12] (Maxwell P and Kellam JA).