McGuinness v Workplace Eye Protection Pty Ltd

Workplace's submissions 9 Workplace first submitted that the offer was a reasonable offer in that, had it been accepted, both parties would not have incurred the costs of the litigation that followed. As well as avoiding a liability for his own costs, Mr McGuinness would also have avoided the liability he now has to pay Workplace's costs. Workplace noted that the offer gave formal warning of an intention to claim indemnity costs if the offer was rejected. 10 Secondly, Workplace argued that the offer correctly identified key weaknesses in Mr McGuinness's case, including the fact that the claims in respect of the 2012 dividend and the January 2014 dividend were statute barred under s 1317K of the Corporations Act 2001 (Cth). 11 The offer also identified (and annexed supporting evidence to establish) that the January 2014 dividend was in fact paid to the former solicitors for Mr McGuinness, Ferrys Law Firm (Ferrys). The offer to compromise enclosed a copy of the letter dated 7 March 2014 from Workplace's solicitors to Ferrys enclosing the dividend cheque. Later, evidence was obtained that the cheque had been banked into Ferrys' trust account. The Court concluded that the evidence "strongly suggested" that the dividend was in fact appropriately distributed to Mr McGuinness. Mr McGuinness did not adduce any documentary evidence to the contrary. He did not adduce any documentary evidence to substantiate his allegation that the dividend referable to the shares was not paid to the estate but was instead paid to Mr Ayash. An invitation in the offer of compromise to withdraw the allegation of non-payment of the dividend went unanswered. 12 In these circumstances, Mr McGuinness's persistence in the allegation that Workplace did not pay the January 2014 dividend to Mr McGuinness but instead paid that dividend to Mr Ayash was itself unreasonable and affords a separate and independent basis for an award of indemnity costs. 13 Thirdly, Workplace argued that the offer pointed out that the proposed derivative claim did not seek any relief in respect of the alleged contraventions relating to the declaration of dividend in May 2014. Although this was not expressly commented on in the reasons for judgment, it was a further available basis for refusing Mr McGuinness's application in respect of the May 2014 dividend. 14 Workplace argued that Mr McGuinness' submission that it was not unreasonable for him to reject the offer of compromise because Workplace had not yet filed and served its evidence is without merit for the following reasons: (1) Rule 25.14 operates on an offer of compromise at all stages of a proceeding, "whatever the state of the evidence when it is served": Visscher v Teekay Shipping (Australia) Pty Ltd (No 2) [2014] FCAFC 19 at [7]. (2) Mr McGuinness' claim failed in large part because of his failure to discharge the onus on him of establishing that the proposed derivative claim raised a serious question to be tried and was in the best interests of the company. The Court held that Mr McGuinness had failed to adduce evidence of various matters important to his claim, including that Mr McGuinness did not verify that he believed the proposed claim for relief in relation to the 2012 dividend to be in the best interests of the company and it was not obvious he had considered that question; and there was no evidence of inquiries about the proposed defendants' capacity to pay any compensation that might be ordered. (3) In the offer, Workplace advised Mr McGuinness of the key weaknesses of his claims and provided supporting documentary evidence. Hence, Mr McGuinness was aware of Workplace's position on these issues, and of the key evidence supporting Workplace's contentions, notwithstanding that Workplace had not yet served its affidavits.

Consideration 15 Mr McGuinness's claim concerned three dividends declared, respectively, in 2012, January 2014 and May 2014. The claims regarding the May 2014 dividend added nothing of substance to Mr McGuinness' case and, accordingly, the case was principally concerned with the first two dividends. 16 The settlement offer letter raised some of the matters which were the reasons for the dismissal of the proceeding (for example, s 1317K), but not all of them (for example, the proposed statement of claim did not articulate a serious question to be tried). The settlement offer letter alleged, in relation to both the 7 June 2012 and 8 January 2014 dividends, that no loss or damage was suffered and therefore there was no basis for compensation. The settlement offer letter also raised matters that were ultimately not reasons for the dismissal of the proceeding (for example, that Ms Dunstan and Ms Hantzi were not directors of the company when the 2012 dividend was declared). 17 In NMFM Property Pty Ltd and Ors v Citibank Ltd (No 2) [2001] FCA 480; (2001) 109 FCR 77, Lindgren J explained the significance of conveying to the offeree the unreasonableness of not accepting the offer, at [87] and [88]: [87] No doubt where a party puts with sufficient particularity to the opposing party the reasons why the latter must fail, yet the latter does not recognise the inevitable, this will be a factor pointing to an award of indemnity costs ... [88] The requirements of "sufficient particularity" and "inevitability of failure" are important. In their absence, it would be open to parties to put their respective cases to the opposing party urging it to recognise the merit of what is put in the hope that if it ultimately finds favour with the Court, an award of indemnity costs will follow. If this were correct, one might ask rhetorically, "Why write a letter as distinct from simply relying on the pleadings?" ... 18 The settlement offer letter clearly conveyed the view of Workplace that Mr McGuinness's claim for relief would fail and the risk that he could be exposed to indemnity costs if that view turned out to be correct. However, I am not persuaded that Mr McGuinness should have concluded from the letter that he would inevitably fail in his application, particularly in relation to the 7 June 2012 dividend. In particular, the contention that the claims were statute-barred was simply asserted and the letter emphasised the argument that Ms Dunstan and Ms Hantzi were not directors, which was not part of the reasons for the failure of this aspect of Mr McGuinness's claim. 19 The claim based on the alleged 8 January 2014 contraventions was pursued despite Workplace's assertion that it should be withdrawn immediately on the basis of the identified evidence that the dividend had been paid to Mr McGuinness's former lawyer. Although the settlement offer letter did not say so in terms, its effect was that the alleged contraventions were devoid of merit and that Mr McGuinness should have appreciated that they had no prospects of success: cf. Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runoff Ltd (No 2) [2009] NSWCA 12 at [4]. 20 Mr McGuinness submitted that the true nature of payments made in March 2014, including the January 2014 dividend, only came to light when Workplace subpoenaed bank statements from Ferrys and asserted that he had no way of knowing the truth as to the payment until Ferrys' bank statements were produced and he had considered Ms Dunstan's evidence, which was not filed until 25 March 2020. 21 I do not accept that Mr McGuinness was dependent upon steps taken by Workplace to verify that the estate of which he is executor had received the payment. As executor of the estate, it was part of his role to inform himself about payments made to the estate including payments made to his former lawyers on behalf of the estate. If, for whatever reason, Mr McGuinness was unaware of the January 2014 dividend had been paid into Ferrys' trust account, by the settlement offer letter, he was put on notice that the estate may have received the dividend. As a result, he was in a position to make inquiries to verify that matter for himself. 22 I accept that the claims based on the 2014 dividend were devoid of merit and Mr McGuinness should have appreciated that, at least within a reasonable time of receiving the settlement offer letter. 23 Workplace filed its evidence on 25 March 2020. Mr McGuinness submitted that it was not unreasonable for him to wait for that evidence in order to consider his position in relation to the offer. I do not accept this submission. Having regard to the terms of r 25.14, Mr McGuinness ought to have considered the position on receipt of the settlement offer letter in order to avoid the possible consequences for the estate in the event of a finding that his refusal to accept the offer was unreasonable.

Conclusion 24 I am not persuaded that Mr McGuinness acted unreasonably by failing to accept the offer made pursuant to r 25.14(2) because it was an offer to settle the whole proceeding. Accordingly, I will not make proposed order (2). 25 However, I accept that Mr McGuinness's case on the January 2014 dividend and the May 2014 dividend lacked merit and this was drawn to his attention by the settlement offer letter. On that basis, in my view, it is in the interests of justice that Mr McGuinness pay a portion of Workplace's costs on any indemnity basis, following a reasonable period after the offer was made. 26 Accordingly, I will make the following orders: (1) The plaintiff pay 50% of the defendant's costs of the proceeding from 24 March 2020 on an indemnity basis. (2) Otherwise, the plaintiff pay the defendant's costs of the proceeding on a party/party basis. I certify that the preceding twenty-six (26) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gleeson.