Plaintiff v Defendant

Supreme Court of Victoria|2006-10-03|Before: WHELAN J

PROCEDURE - Supreme Court (General Civil Procedure) Rules r. 25.02(2)(b), 25.05 and 63.15 - Application for leave to file a Notice of Discontinuance - Whether Court should 'otherwise order' in relation to costs - Whether 'effective surrender'- Whether Plaintiff acted 'unreasonably' in commencing and prosecuting proceeding.

Blackjack Executive Car Services Pty Ltd v Koulax [2002] VSC 380

Patsios & Anor v Glavinic & Anor [2006] VSC 92

ASC v. Aust-Home Investments Ltd [1993] FCA 585; (1993) 44 FCR 194

Re The Minister for Immigration and Ethnic Affairs of the Commonwealth of Australia; Ex Parte Lai Qin [1997] HCA 6; (1997) 186 CLR 622

O'Neil v Mann [2000] FCA 1680

Bucknell v Robins [2004] QCA 474

One.Tel v. Deputy Commissioner of Taxation [2000] FCA 270

Ringwood Plus Pty Ltd v Commissioner of State Revenue [2004] VSC 494

1 This proceeding was instituted by the plaintiffs against the defendant on 25 August 2006. The defendant filed a defence and counter-claim on 15 September 2006. The plaintiffs now apply, pursuant to Rule 25.02(2)(b), for leave to discontinue. The defendant does not oppose that leave but raises two matters in response to it. First, it seeks an order on its counter-claim that a disputed sum of money be paid to it. That application is not resisted by the plaintiffs. Second, it opposes an application by the plaintiffs that the Court should "otherwise order" in relation to costs, as provided for in Rule 63.15.

2 Rules 25.05 and 63.15 provide that a party who discontinues shall pay the costs of the party to whom the discontinuance relates unless the Court "otherwise orders". Here the plaintiffs have sought that the Court should otherwise order. I commenced hearing argument on the matter on 29 September and heard the conclusion of argument today, the day upon which the matter was fixed for trial.

3 The circumstances in which this position has arisen are the following.

4 By a letter of offer dated 6 October 2004 the defendant ("Capital Finance") offered a loan facility or facilities to a borrower named Devine Logistics Pty Limited. The letter of offer referred to two facilities, a "Development Facility" and a "Term Facility". In relation to repayment, the letter of offer provided as follows:

(1) Development Facility: The Facility must be repaid in full 18 months from the date of the first advance under the Facility. If there is no default, the Development Facility will be converted to the Term Facility.

(2) Term Facility: The Facility must be repaid in full 60 months from the date of rollover. The rollover date is to be determined by CFAL [Capital Finance]."

5 The letter of offer contained a provision concerning early repayment in the following terms:

"The Borrower may repay early the whole or any part of the Facility upon payment of interest to the date of repayment plus 3 months additional interest at the Ordinary Rate on the amount repaid."

6 There was a variation to the loan facility in February 2005. In February 2006 a deed of novation was entered into whereby the plaintiffs assumed all the rights and obligations of the borrower, Devine Logistics Pty Limited, and Capital Finance agreed to accept the plaintiffs in place of Devine Logistics Pty Limited.

7 In July 2006 the plaintiffs informed Capital Finance that they intended to repay the development facility. Capital Finance's response was that an early repayment fee would be payable. By an email letter of 6 July 2006 the plaintiffs' then solicitors, Maddocks, referred to the requirement that an early repayment fee be made and advised as follows:

"We are instructed by the Borrower to object to CFAL's right to claim the Fee.

The basis for our objection to the Borrower being charged the Fee is as follows:

1. The Letter of Offer dated 6 October 2004 was divided into two separate facilities, namely:

1.1 Development Facility;

1.2 The Term Facility.

You will note that only the Development Facility has been drawn down and which is repayable on or before practicable [sic] completion of the development. The Development Facility at the Borrower's option could be rolled over to the Term Facility whereupon the Term Facility would be drawn down."

8 The letter went on to maintain that in the circumstances as only the development facility had ever been drawn down, there was in fact no early repayment at all.

9 The email letter of 6 July 2006 was directed to Mr John Byrne, State Manager, Property Finance VIC., of Capital Finance. He replied by a letter of 12 July 2006 advising that Capital Finance strenuously disagreed with the plaintiffs' analysis. The letter went on:

"CFAL has provided one loan facility to Devine Logistics Pty Ltd, now novated to Michael Noel Merritt, Ferny Sky Pty Ltd, Vinod Gansu and Marrgaret Developments Pty Ltd. The loan is characterised as a "development" facility during the development phase and as a "term" facility thereafter. The conversion from one status to the other is automatic and not optional for either party."

10 At that point the dispute between the respective parties was clear. Whereas the plaintiffs were maintaining there were two separate facilities, Capital Finance maintained there was one facility characterised by two different names. I will hereafter refer to this controversy as the "one or two facilities issue".

11 During July and August 2006 the parties' respective solicitors addressed the problem and came to an arrangement under which the alleged early repayment fee would be held in trust pending the determination of the dispute between the parties. On 18 August 2006, the plaintiffs repaid the facility in full, pursuant to the arrangement which had been reached.

12 As I indicated earlier, this proceeding was issued on 25 August 2006. As might already be apparent, the dispute between the parties on the one or two facilities issue had proceeded on a misconception. The misconception was that the development facility was repayable on or before practical completion of the development. Pursuant to the terms of the letter of offer, the development facility, if it was indeed to be characterised as a separate facility, was repayable 18 months from the date of the first advance.

13 The statement of claim which the plaintiffs indorsed upon the writ filed on 25 August 2006 did not persist in this misconception. It pleaded the terms of the letter of offer in paragraph 5, and then went on to allege in paragraph 11 that the plaintiffs had stated to Capital Finance that they would repay all moneys owing under the development facility "on the due date". The way the matter was pleaded rather concealed what was to become a critical issue, namely what was the due date.

14 On 15 September 2006, Capital Finance filed its defence and counterclaim. In answer to the allegations made as to the relevant terms, Capital Finance put forward its

positive case on the one or two facilities issue. In particular, in paragraph 5A, it alleged the following term of the loan facility agreement:

"Unless the facility was brought to an end pursuant to its terms, the term of the facility would be the total of:

(i) 18 months from the first advance; plus

(ii) 60 months from the date of rollover."

15 The defence and counterclaim alleged in paragraph 6 that the first advance under the facility was made on 30 May 2005.

16 In the counterclaim, Capital Finance firstly alleged that there was early repayment because the plaintiffs had repaid prior to 30 November 2011 (paragraph 18). This allegation can only be based upon the proposition that there was one facility for a total term of 18 months plus 60 months. In other words, this is Capital Finance's position on the one or two facilities issue. It was then pleaded in the alternative as follows:

"Further and alternatively, the due date for repayment of the facility for the period in which it was characterised as a development facility was 30 November, 2006."

17 The particulars of this allegation refer to the fact that the first advance was made on 30 May 2005 and to the fact that 18 months from that date is 30 November 2006.

18 On 20 September 2006, the plaintiffs filed a reply to the defendant's defence and a defence to the counterclaim. The plaintiffs did not admit that the first advance had been made on 30 May 2005.

19 The correspondence thereafter reveals in my view that the solicitors for the parties were then acutely aware of the fact that the one or two facilities issue was not going to be determinative of the proceeding, and that the critical matter was that, regardless of that issue, the development facility had been repaid early.

20 It seems to me that for a time the plaintiffs equivocated as to what to do in response to this position, indicating to the defendant that they would apply, or may apply, to vacate the trial date, which by that time had been fixed for 3 October 2006. Capital Finance, quite understandably, was dissatisfied with this position and accordingly brought the matter on for an urgent mention on Wednesday, 27 September 2006. On that occasion, the plaintiffs were still not prepared to either apply for an adjournment or for leave to discontinue, although they foreshadowed the likelihood of such a course.

21 The matter was referred to the directions hearing on Friday, 29 September. On that occasion, the plaintiffs did make it clear that they wished to discontinue.

22 I began hearing argument that day as to what should be done in relation to the costs of the matter and, as I indicated earlier, argument has concluded today, being the day originally fixed for the commencement of the trial.

23 Counsel who have appeared before me today have cited a number of authorities. In relation to the applicable principles, whilst they differ in matters of emphasis, it seems to me they do not differ greatly in matters of substance.

24 I am considering the position under Rules 25.05 and 63.15, but the authorities which apply more generally in relation to costs where a party wishes to discontinue are still applicable, save of course for the fact that under our rules it is clear that the onus is on the discontinuing party to establish that some course other than that expressly provided for by the rules should be taken.[1]

25 Having considered the authorities and having heard argument, it seems to me that the principles applicable to the case before me are these:

(1) Where neither party desires to proceed with litigation, the court should facilitate the conclusion of the proceeding by making a costs order.[2] In this context it is legitimate to take into account the desirability of encouraging reasonable conduct by parties to litigation which furthers the expeditious and cost-effective resolution of disputes.[3]

(2) In the absence of a trial on the merits it will usually not be appropriate for a court considering the issue of costs to determine the merits or to attempt to assess the likely outcome of a hypothetical trial.[4] But in some cases, a judge may feel confident that one party was almost certain to have succeeded if the matter had been fully tried and, in such circumstances, the judge is justified in determining costs on that basis.[5] In some cases, the discontinuance itself can be seen as an acknowledgement of likely or even certain defeat or as what has been described as a step amounting to "effective surrender."[6] Cases where external events overtake a proceeding or render it futile are in a different category. Such cases are not relevant here.

(3) It is appropriate to consider whether the plaintiff has acted reasonably in commencing or in continuing the proceeding and, in a particular case, the conduct of the defendant might also be relevant.[7]

(4) Under Rule 63.15 the Court may "otherwise order" in respect of some or all of the costs.[8]

26 On behalf of the plaintiffs, counsel submitted that the plaintiffs had acted reasonably in issuing the proceeding. Both parties saw the dispute at that time as being about the one or two facilities issue. That issue has remained unresolved. There is no basis for determining that the plaintiffs were incorrect in the position which they adopted on that issue. Turning to the position between issuing and the discontinuance, it was submitted that it cannot be assumed the plaintiffs would have failed in the proceeding. It was submitted that the plaintiffs' case may not have succeeded "as presently constituted" but reference was made to the possibility of alternative cases which might have been put if the proceeding was not discontinued and in that respect, reference was made to Verwayen[9] estoppel. It was submitted that the plaintiffs had acted reasonably in discontinuing the proceeding once the issue as to the due date under the development facility had been raised.

27 Counsel for the defendants submitted that a clear distinction needed to be drawn between cases where a proceeding was to be terminated because of extrinsic matters or because of a settlement or some other circumstance, prompting reasonable withdrawal; and cases where what was happening was an effective surrender because of an appreciation on the plaintiff's part of the weakness of its case. It was submitted that this was a case of effective surrender. Counsel conceded that there had been a misconception in the correspondence, but submitted that the position was effectively "wiped clean" once the pleader on behalf of the plaintiffs sat down to prepare a statement of claim. The submission was that the statement of claim perpetrated a new misconception, which was that the facility had been repaid at the expiration of the term of development facility, being 18 months after the first advance. All that had happened since, it was submitted, was that this new and different misconception had been exposed. Counsel for Capital Finance submitted that the relevant issue is not reasonableness. The relevant issue is that this is a case where it is clear that the plaintiffs were bound to fail. It was then submitted that even if the issue was reasonableness, the plaintiffs had been unreasonable in instituting the proceeding, labouring under what was by then a fresh misconception, and had been unreasonable in their prevarication once the misconception had been revealed by the defence and counterclaim.

28 The defendant also submitted that in the circumstances the order made ought to be an order for indemnity costs. It was submitted that this should follow from the fact that the statement of claim contained a fatal flaw which ought to have been obvious to anyone who read the letter of offer and properly considered the matter. It was submitted that the plaintiffs had, in effect, conceded as much in the letter which advised that they were intending to seek to discontinue.

29 It seems to me that this is not an appropriate case for indemnity costs. The relevant sorts of circumstances, set out in Ugly Tribe Co. Pty Ltd v Sikola & Ors [10], do not appear to me to exist here.

30 Turning then to the question of whether the Court should "otherwise order" under Rule 63.15, it seems to me that the relevant features of the matter are the following:

(1) There has been an effective surrender on one of the two issues raised in the pleadings, namely, what I might call the due date issue. The effective surrender on that issue has meant that the claim as presently constituted was perceived by the plaintiffs to be bound to fail and that is the reason why this application is being made.

(2) The misconception concerning the due date issue should have been identified at the point when the statement of claim was drawn.

(3) Notwithstanding these two matters, the one or two facilities issue was a genuine dispute between the parties, it was the sole matter in issue between them in the correspondence prior to the proceeding being issued, and it persists as an issue in the pleadings and, most relevantly, in the defence and counterclaim.

(4) I do not consider that I can or should take into account the possibility of claims by the plaintiffs which have never been made. In the circumstances I discount the suggestions which have been floated as to the possibility of the estoppel claims and the like. It does seem to me, however, that the plaintiffs have acted reasonably in the approach which they have taken once the misconception concerning the due date issue was revealed by the defence and counterclaim. It is true that they prevaricated somewhat at first, but it seems to me that in the circumstances that was not for an unduly long time. They then adopted a commercially sensible course which can fairly be said to have been in the interests of all parties, and in the interests of the efficient disposition of litigation in this Court.

31 Given these matters, it seems to me that the costs should be substantially paid by the plaintiffs, but that a portion of the costs should be the subject of an order as provided for in the Rules so as to reflect the fact that there was a significant dispute between the parties, which is still on foot in the pleadings, which has not been the subject of any effective surrender, and as to the outcome of which I cannot hypothesise; and so as to reflect the plaintiffs' reasonable and indeed commendable approach once the misconception on the due date issue had been revealed.

32 In all the circumstances I consider it is appropriate to "otherwise order" in relation to 25 per cent of the costs. The effect of my decision is that the plaintiffs should pay 75 per cent of the defendant's party/party costs.

33 In those circumstances, the orders are:

(1) The plaintiffs have leave to discontinue the proceeding.

(2) The balance presently held on trust by Deakins, the solicitors for the defendant, as the disputed early repayment fee, being the sum of $387, 831.66 plus interest thereon less applicable bank fees and charges is to be paid to the defendant.

(3) Pursuant to Rule 63.15, the plaintiffs are to pay 75 per cent of the defendant's party/party costs of the proceeding including the costs of the counterclaim and any reserved costs.

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[1] Blackjack Executive Car Services Pty Ltd v Koulax [2002] VSC 380 at [7]- [15] and Patsios & Anor v Glavinic & Anor [2006] VSC 92 ("Patsios") at [6]-[7].

[2] ASC v. Aust-Home Investments Ltd [1993] FCA 585; (1993) 44 FCR 194 ("Aust-Home") at 201.

[5] Re The Minister for Immigration and Ethnic Affairs of the Commonwealth of Australia; Ex Parte Lai Qin [1997] HCA 6; (1997) 186 CLR 622 ("Minister for Immigration") at 624 - 625.

[6] O'Neil v Mann [2000] FCA 1680 at [13], Bucknell v Robins [2004] QCA 474 at [19]- [20]; One.Tel v. Deputy Commissioner of Taxation [2000] FCA 270 at [6]; Ringwood Plus Pty Ltd v Commissioner of State Revenue [2004] VSC 494 at [8] and [20]-[23]; Patsios at [8].

[9] Commonwealth v Verwayen (1990) 170 CLR 394.

[10] Ugly Tribe Co. Pty Ltd v Sikola & Ors [2001] VSC 189 at [7].

At a glance

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Judgment (35 paragraphs)

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Cases Cited (3)