Masters Home Improvement Pty Ltd v North East Solution Pty Ltd

1 The Court has allowed an appeal in this matter. When the Court's reasons[1] were handed down, it made directions for written submissions (which have now been filed) in respect of the costs of the trial and the appeal. The appellants seek orders that their trial costs be paid on a standard basis up to 25 February 2015 and from that time on, on an indemnity basis and that their costs of the application for leave and the appeal be paid on an indemnity basis.

2 The appellants rely on two Calderbank[2] letters. Where a Calderbank offer has been made, the Court takes into account a number of matters. In Hazeldene's Chicken Farm v Victorian Workcover Authority (No 2),[3] this Court said:

The discretion with respect to costs must, like every other discretion, be exercised taking into account all relevant considerations and ignoring all irrelevant considerations. It is neither possible nor desirable to give an exhaustive list of relevant circumstances. At the same time, a Court considering a submission that the rejection of the Calderbank offer was unreasonable should ordinarily have regard at least to the following matters:

(a) the stage of the proceeding at which the offer was received;

(b) the time allowed to the offeree to consider the offer;

(c) the extent of the compromise offered;

(d) the offeree's prospects of success, assessed as at the date of the offer;

(e) the clarity with which the terms of the offer were expressed;

(f) whether the offer foreshadowed an application for indemnity costs in the event of the offeree's rejecting it.[4]

3 The proceeding below commenced in May 2012. The first Calderbank letter is dated 19 February 2015 ('the First Offer'). The appellants offered to settle the proceeding on the basis that they would pay $500,000 to the respondent in full and final settlement of the claim, costs and taxes. The offer was open for acceptance until 25 February 2015. The First Offer included reasons why the appellants considered the respondent would fail in its claim. Essentially, the appellants reasoned that the evidence at trial would not disclose a breach of the clause 2.2(b) obligation under the AFL by failing to act reasonably or in good faith when negotiating the LWC, Masters' contribution to it and the manner in which the contribution would be made. It detailed what the evidence would show in this regard. The First Offer went on to state that even were there a breach, the respondent would not be able to establish that it had suffered loss. The First Offer concluded with a statement that if it was not accepted, the letter would be relied upon by the appellants who would seek indemnity costs.

4 The second Calderbank letter is dated 9 April 2015 ('the Second Offer'). The appellants offered to settle the dispute for the sum of $250,000, inclusive of costs and taxes. The Second Offer remained open for acceptance until 16 April 2015. The Second Offer referred to the reasons set out in the First Offer as to why in the appellants' view the respondent's claim would fail. The Second Offer was made after lay witness outlines had been exchanged. These statements fortified the appellants' views that the respondent's claim was unmeritorious. In that context, the Second Offer was for a reduced amount. Once again, the appellants stated that the letter would be relied upon by them in seeking an indemnity costs order if the Second Offer was not accepted.

5 The appellants submit that it was unreasonable for the respondent to reject each offer. They note that the First Offer was made after the proceeding had been on foot for over two years at a time when the issues in dispute were well defined. They contend that the First Offer included analysis of the flaws in the respondent's case and that there is 'a high degree of overlap between the reasons provided in support of the first offer, and the Court of Appeal's reasons for judgment.' They submit that a reasonable time was given for acceptance and that the extent of the compromise was substantial. They make the same submissions in respect of the Second Offer, noting that with the delivery of witness outlines by the time of that offer, the respondent was in an even better position to assess the offer. The appellants contend that weighed against the merits of the respondent's case, $250,000 was a generous offer.

6 The respondent submits that the time given for acceptance of the First Offer (4 business days) was not reasonable given the complexity of the issues in dispute and was, in effect, an offer to capitulate. It characterised the First Offer as an offer to pay the 'nuisance value' of the claim. At the time of the First Offer, witness outlines had not been provided and, in the submission of NES, the contested issues were dependent on credit issues. As noted above, in the First Offer, the appellants set out why the respondent would not succeed in establishing that the appellants had breached the obligation to act reasonably and in good faith when negotiating the LWC, the tenant's contribution to it and the manner in which the contribution was to be made. The respondent does not refer to that section of the First Offer but instead directs attention to another section of the First Offer in which the appellants' solicitors had set out why the respondent would fail to establish that it had suffered loss and damage. The respondent contends that the appellants' attack on loss and damage was a matter in respect of which it was successful both at trial and on appeal. The respondent also submits that the balance of the reasoning in the First Offer did not descend to any detail in respect of other supposed 'serious flaws' in the respondent's calculation of loss. The respondent submits that in the circumstances, it was reasonable for it to reject the First Offer, particularly where the offer 'was for a trivial amount having regard to the costs that had been incurred at that date.'

7 The respondent made similar criticisms of the Second Offer which was for half the previous amount and which was made when considerable additional costs had been incurred. Whilst some (but not all) witness outlines had been served, those outlines were not comprehensive and the evidence was far from complete. NES contended that at trial some witnesses departed from what was included in their outlines of evidence. Moreover, in the submission of NES, its case was open on the evidence and the trial judge found in its favour after careful consideration of the evidence; the fact that this Court allowed the appeal did not render its rejection of the Second Offer unreasonable.

8 There is no Calderbank offer in respect of the appeal. Nevertheless, as noted above, the appellants seek their costs of the application for leave and the appeal on an indemnity basis. They submit that the refusal of the First and Second Offers was unreasonable and it ought to follow that the unreasonableness of the respondent continued throughout the appeal proceeding.

9 The application for indemnity costs of the appeal can be dealt with shortly. Whilst the appellants should have their costs paid by the respondent, there is no basis for those costs being paid other than on a standard basis. The appellants made no offer in respect of the appeal and the respondent's prospects in respect of the appeal were not hopeless. The respondent's conduct in opposing the appeal was not unreasonable in all the circumstances. Quite simply, there are no special circumstances that would warrant any order other than that the respondent pay the appellants' costs of the application for leave and the appeal on a standard basis.

10 Turning then to the trial costs, in our opinion the respondent's refusal of both the First Offer and the Second Offer was not unreasonable at the time that each offer was made. True it is that the offers were made when the interlocutory steps were close to completion such that the issues in dispute were more or less defined. But the time for acceptance was too short given the nature of the case, its complexity and the volume of documentary evidence involved. To analyse and evaluate each offer that was made properly, more than seven days was required for consideration of each offer. The trial was some way off. There is no identifiable reason why such a short time frame needed to be imposed. Whilst we have found that the appeal should be allowed, the respondent's case was not hopeless. Indeed, the trial judge found in its favour in what might be described as strong terms. Given the claim that was made, the monetary amounts offered (first, $500,000 and then, $250,000) in effect required the respondent to capitulate. They were each offers made in the context of the costs that had already been expended and the future anticipated costs. Neither offer contained any meaningful amount in respect of the substantive claim itself. Viewed objectively, the respondent did not act unreasonably in rejecting each offer. The respondent should pay the appellants' costs of the trial on a standard basis.

11 The appellants also seek an order that the Costs Court have authority to increase Counsel's fees in excess of the scale. They rely upon r 63.34(3) and (4) of the Supreme Court (General Civil Procedure) Rules 2015. Those rules provide:

(3) The Court may, on special grounds arising out of the nature and importance or the difficulty or urgency of the case, allow an increase not exceeding 30 per cent of the legal practitioner's charges allowed on the taxation of costs with respect to -

(a) the proceeding generally; or

(b) to any application, step or other matter in the proceeding.

(4) Where the Court so directs, the Costs Court shall have the same authority as the Court under paragraph (3) to allow an increase in the fees set forth in Appendix A.

12 At the conclusion of the trial, the respondent sought and was granted an order under r 63.34(3) certifying senior counsel's fees at a rate higher than the Appendix A rate.[5] The appellants opposed the making of that order on the basis that there were no special grounds which would justify the making of such an order and that, in any event, the matter was properly one for the Costs Court.[6] In our view, in this case the question is one that might be reserved for consideration by the Costs Court. Under r 63.34(4), we would direct that the Costs Court have the same authority as that bestowed on this Court under r 63.34(3). We are in no better position than the Costs Court to make the decision as to whether the appellants can establish that there are special grounds for the purposes of r 63.34(3). In our view, the Costs Court will indeed be better placed than we are to make that decision because in conducting the taxation the relevant judicial officer will become well acquainted with the detail of the work that has been performed, its nature and complexity.

13 The respondent seeks an indemnity certificate in respect of the appeal under s 4 of the Appeals Costs Act 1998 and that will be granted.[7]

[1] Masters Home Improvement Pty Ltd v North East Solution Pty Ltd [2017] VSCA 88 ('Substantive Reasons'). In these reasons, we use the same defined terms as we used in the Substantive Reasons.

[2] Calderbank v Calderbank [1975] 3 All ER 333 ('Calderbank').

[3] [2005] VSCA 298; (2005) 13 VR 435.

[5] North East Solution Pty Ltd v Masters Home Improvement Australia Pty Ltd (No 2) [2016] VSC 87.

[7] NES has informed the Court that its paid up capital is $12 and it is not a subsidiary of a corporation with paid up capital of over $200,000. Consequently, s 35A of the Appeals Costs Act 1998 does not apply.