Plaintiff v Defendant

Supreme Court of Victoria|2011-02-07|Before: ALMOND J

COSTS - Offer of compromise - Calderbank offer - Defendant seeking indemnity costs or solicitor and client costs - Whether it was unreasonable for the plaintiff to reject the offers - Whether the abandonment of claims requires a special costs order -

1 On 16 December 2010 I published my reasons for decision following a trial during September 2010. I dismissed the claims of the plaintiff, Philip Pepe ("Pepe"), against the defendant, Platypus Asset Management Pty Ltd ("PAM"). I reserved the question of costs. The parties exchanged and filed written submissions on costs and requested that I determine the question of costs on the basis of the written submissions which I now do. In substance the plaintiff accepts that the defendant should be awarded its costs and says that the ordinary rule that costs be awarded on a party and party basis should apply. The defendant seeks its costs on an indemnity basis or alternatively on a solicitor and client basis.

2 The proceeding commenced in April 2008. In its statement of claim the plaintiff alleged a contractual entitlement to the allocation of shares or options equivalent to 5% of the then issued capital of PAM ("equity term"), a contractual entitlement to a bonus of $82 500, and further or alternatively an entitlement by quantum meruit to the monetary value of the equity entitlement and the bonus entitlement. Subsequently, by amendments to the pleadings, the plaintiff introduced a claim for misleading and deceptive conduct and sought rectification of the contract to reflect the alleged equity term.

3 At trial, the plaintiff amended his contract claim by abandoning reliance on an alleged trust and confidence term. He also abandoned the alleged contractual entitlement to a bonus and the quantum meruit claim.

Offers of Compromise and Calderbank Offers

4 The defendant made two offers of compromise. The first offer of compromise was made on 2 June 2008 offering to compromise the proceeding for $65 000 plus party and party costs; the second was made on 18 July 2008 offering to compromise the proceeding for $90 000 plus party and party costs.

5 The defendant made two offers of settlement on a 'without prejudice' basis. These were expressed to be made in accordance with the principles enunciated in Calderbank v Calderbank.[1]

6 The first Calderbank offer was made on 1 September 2008 for $90 000 plus party and party costs, and proposing that a deed of release be prepared by the solicitors for PAM and terms as to confidentiality. The offer remained open for acceptance until 4.00pm on 12 September 2008. The second Calderbank offer was made on

16 April 2010 proposing an order that the proceedings be dismissed by consent with no order as to costs and proposing that a deed of settlement be prepared by PAM containing mutual releases. This offer remained open for acceptance until 4.00pm on

7 The rules applicable to offer of compromise are found in Order 26 of the

Supreme Court Rules 2005 (Vic). There are no technical issues between the parties in this case as to whether the offers of compromise comply with the requirements of Order 26. Both parties however recognise that r 26.08(3) of the

Supreme Court Rules 2005 (Vic) (which deals with offers of compromise made by a defendant) applies only where the plaintiff obtains a judgment on the claim to which the offer relates on terms no more favourable than the terms of the offer. The rule is silent in circumstances where the plaintiff's claim fails entirely. It is clear that in such cases and in this case that the rule is not engaged. [2]

8 The tenor of the defendant's argument is that I should nevertheless take account of the terms of the offers of compromise in the exercise of my general discretion as to costs on the basis that the plaintiff's rejection of each offer of compromise was unreasonable. In Foster v Galea (No. 2) Byrne J took account of an unaccepted offer of compromise which fell outside the regime contemplated by r 26.08(3) of the Supreme Court Rules 2005 (Vic) where the plaintiff's claim had failed entirely.[3]

9 In Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No. 2) (Hazeldene) the Court of Appeal set out the policy rationale underlying the availability of special orders for costs in circumstances where offers of compromise or Calderbank offers are rejected. [4]

10 Stated shortly the policy rationale is to encourage the saving of private costs and the avoidance of the inherent risks, delays and uncertainty of litigation by promoting early offers of compromise by defendants; to save the public costs which are necessarily incurred in litigation which events demonstrate have been unnecessarily incurred; and to indemnify the plaintiff who has made the offer of compromise later found to have been reasonable against the costs later incurred.[5] The Court of Appeal noted there were competing objectives of equal importance citing Redlich J in Oversea-Chinese Banking Corporation v Richfield Investments Pty Ltd who said: [6]

Potential litigants should not be discouraged from bringing their dispute to the Courts. It is such considerations which underlie the general rule that an order for special costs should only be made in special circumstances.

11 In Hazeldene the Court of Appeal stated that the critical question is whether the rejection of the offer[7] was unreasonable in the circumstances. Without in any way purporting to circumscribe the exercise of the discretion with respect to costs, the Court of Appeal set out some matters to which the Court should ordinarily have regard when considering unreasonableness in this context:[8]

(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.

12 In this case offers were made by the defendant in sufficiently clear terms, mostly at an early stage of the proceeding. They gave sufficient time to the offeree to consider the terms of the offer.[9] The defendant submits that properly advised, the potential cost consequences of rejecting the offers would have been known to the plaintiff. I accept this submission. In these circumstances the defendant submits that rejection of each of the offers was unreasonable.

13 The outcome of this case turned on the proper construction of the terms of an employment contract, whether there had been misleading and deceptive conduct and whether in the circumstances the contract should be rectified. It depended heavily upon events leading up to and culminating in a meeting on 11 March 2006 between the plaintiff Mr Pepe and Mr Bryant of the defendant. Changes were made to documents during the discussion at the critical 11 March meeting which, in part, reflected what was discussed, but neither party made contemporaneous notes of the discussion. Each relied principally on an oral account of what occurred. The defendant submits that the details of the narrative of events preceding the plaintiff's contractual arrangements with the defendant were well-known to him and the case turned primarily on the plaintiff's own evidence. Whilst the plaintiff must be taken to have known of the narrative of events and his own evidence, in my view it does not follow that the plaintiff was necessarily in a position to adequately assess his prospects of success as at the date of the respective offers. The plaintiff submits that the first time he was apprised of the defendant's evidence relating to the

11 March 2006 meeting was when Mr Bryant gave evidence in court. Based on the evidence before me there is force in this submission.

14 The formal court documents as filed do not contain any particulars of Mr Bryant's version of the discussion on 11 March 2006. The first Calderbank offer made by letter dated 1 September 2008 set out in detail the reasons why the plaintiff's claims were rejected by the defendant but did not contain any particulars of Mr Bryant's version of the discussion on 11 March 2006. By the time of the second Calderbank offer, outlines of evidence had been exchanged. The outline of evidence filed on behalf of Mr Bryant was uninformative in this respect, relevantly stating that they had "discussed the draft employment letter and the executive employment agreement" and had "discussed changes to the wording of the (equity participation) paragraph" without descending into the content of the discussion. During final submissions senior counsel for the defendant submitted (in the context of rebutting an attack on the veracity of Mr Bryant) that it was not the function of an outline of evidence to provide a detailed recitation of conversations at meetings. He referred to the difficulty of giving a "half-baked version" in an outline and said that a decision was made on behalf of the defendant not to give "the whole conversation chapter and verse" in the outline. I accept these observations and have no criticism of the defendant in this regard. There may have been sound forensic reasons for the course adopted. However the incontrovertible fact remains that the plaintiff did not at the relevant time have the opportunity to consider an account of Mr Bryant's version of the discussion which had occurred at the 11 March 2006 meeting. The documents in the court book produced on discovery or pursuant to subpoena, did not shed any direct light on the content of the discussion on 11 March 2006 between Mr Pepe and Mr Bryant.

15 Further, in my view the monetary amount offered pursuant to the offers of compromise (being $65 000 and $90 000 respectively) was relatively small by comparison to the amount of the claim (in excess of $1 000 000). In the case of the second Calderbank offer to "walk away" the offer did not involve any monetary payment.

16 After consideration, I conclude that in the circumstances it was not unreasonable for the plaintiff to reject the offers at the time they were made.

17 The plaintiff abandoned the quantum meruit claim, the claimed contractual entitlement to a bonus, and the claim that the employment contract had an implied term of mutual trust and confidence which was breached.

18 The defendant submitted that it is clear that the abandoned claims had no real prospects of success. In support of its submission the defendant cited

Peet v Richmond (No. 2) in which Hollingworth J set out the relevant principle as follows: [10]

One of the situations in which it is appropriate to consider making a special costs order is:

Whenever it appears that an action has been commenced or continued in circumstances where the applicant, properly advised, should have known that he had no chance of success. In such cases the action must be presumed to have been commenced or continued for some ulterior motive, or because of some wilful disregard of the known facts or the clearly established laws.[11]

The mere fact that a party has chosen to reduce its case as it proceeds, by abandoning issues, does not establish that there were allegations which ought never to have been made, or that the case was prolonged by groundless contentions. Everything depends on the circumstances of the individual case, including the nature of the allegations and any explanation of it for the abandonment.[12]

20 In substance, the defendant submits that on the better view of the authorities the alleged implied term of trust and confidence does not form part of the law of Australia and that even if it did, such a term did not have any application in respect of the defendant's contractual right to terminate the plaintiff's employment. The plaintiff submits that the law in Australia is not settled on the question of the existence of an implied term of trust and confidence in contracts of employment. In its outline of argument, the plaintiff cited relevant authorities for and against the proposition.[13]

21 Whilst there are very strong grounds to argue that the alleged implied term did not affect the defendant's right to terminate the contract of employment,[14] the alleged breach of the implied term was not confined to the issue of termination. The plaintiff foreshadowed in its outline of argument dated 16 August 2010 that it would argue that the defendant had failed to allocate the equity within a reasonable time after the expiration of the qualifying period and had attempted to unilaterally alter the contract by making an offer of 2.5% equity interest to Pepe, both in breach of the alleged implied term. In my view, neither argument was hopeless and it could not be said that properly advised the plaintiff should have known he had no chance of success in advancing those arguments.

22 In its outline of argument dated 17 August 2010, referred to in the defendant's written submissions on costs, the defendant argued that no action in quantum meruit lies where an existing contract governs the subject matter.[15] This is undoubtedly correct but as I understand the plaintiff's pleaded case and submissions, the plaintiff's claim for quantum meruit was premised on the equity term and the bonus term being found to be void or otherwise unenforceable. It would only apply where the employment contract was found not to govern the subject matter. [16]

23 In its submissions in reply as to costs, the plaintiff states:

"there is no reason that a role for quantum meruit should not be permitted to fill the gap."

24 Whilst the plaintiff's argument on the quantum meruit claim could have been expressed more clearly, viewed overall and making allowance for the fact that evidence was not led on the issue and that the argument on the issue was not refined by reason of it having been abandoned, it is difficult to conclude that that quantum meruit claim lacked any arguable foundation. In its defence the defendant did not maintain that it ought be struck out but joined issue. No application was made to strike out the quantum meruit claim. In my view, it cannot be said that properly advised the plaintiff should have known that this claim had no chance of success.

25 I was informed by counsel for the plaintiff that the quantum meruit claim was being abandoned in a genuine attempt to shorten the trial. I accept that explanation. There is no doubt that had the quantum meruit claim been pursued, it would have substantially added to the length of the trial.

26 In its written submissions on costs, counsel for the plaintiff asserted that "this would have simply put the cost of the trial beyond the reach of the plaintiff". There was no evidence adduced before me as to the plaintiff's financial position. Accordingly I have no regard to the submission made by the plaintiff in this regard.

27 I accept the plaintiff's submission that the bonus claim was a minor claim involving limited costs as it was defended on the same basis as the claim in respect to the alleged equity entitlement.

Plaintiff's assertion of unreasonable conduct by the defendant

28 In its written submissions the plaintiff asserts that the defendant's conduct during the trial counts against any order being made for costs in excess of costs on a party and party basis.

29 In my view there is no foundation in this submission. Senior counsel for the defendant conducted a robust cross-examination of Mr Pepe and Mr Culleton, the plaintiff's expert witness, concerning the explanation for redactions which had been made to documents required to be produced to the Court on subpoena. Suffice it to say, in my view the cross-examination was conducted properly and legitimately tested the veracity of the relevant witnesses in relation to the documents produced.

30 For the foregoing reasons in the exercise of my discretion as to costs, I have decided that the fair and just outcome is not to make any special costs order against the plaintiff arising either from non-acceptance of offers of settlement or in relation to the abandoned claims.

31 Accordingly, there will be an order to the following effect:

That the plaintiff pay the defendant's costs of and incidental to the proceeding, including any reserved costs and costs thrown away by reason of amendments to the statement of claim on

8 and 10 September 2010 on a party and party basis.

[2] See Foster v Galea (No. 2) [2008] VSC 331, [3]-[4].

[7] Whether it be an offer of compromise or a Calderbank offer.

[9] 14 days in respect of each offer of compromise; 11 days in respect of the Calderbank offer made on 1 September 2008 and 7 days in respect of the Calderbank offer made on 16 April 2010.

[11] Ibid [94], citing a passage from Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd [1988] FCA 202; (1988) 81 ALR 397, 401.

[13] Quinn v Gray [2009] VSC 136; (2009) 184 IR 279, 282-283 (Byrne J); Rankin v Marine Power International Pty Ltd [2001] VSC 150; (2001) 107 IR 117, [411] (Gillard J); Russell v The Trustees of the Roman Catholic Church for the Archdiocese of Sydney [2007] NSWSC 104; (2007) 69 NSWLR 198, 214, 224 and 232 (Rothman J); Russell v The Trustees of the Roman Catholic Church for the Archdiocese of Sydney [2008] NSWCA 217; (2008) 72 NSWLR 559, 561 (Giles JA) and 576 (Campbell JA); Heptonstall v Gaskin (No. 2) [2005] NSWSC 30, [22] (Hoeben J).

[14] Russell v The Trustees of the Roman Catholic Church for the Archdiocese of Sydney [2007] NSWSC 104; (2007) 69 NSWLR 198, 232 (Rothman J); Russell v The Trustees of the Roman Catholic Church for the Archdiocese of Sydney [2008] NSWCA 217; (2008) 72 NSWLR 559, 567 (Basten JA).

[15] Pavey and Matthews Pty Ltd v Paul [1987] HCA 5; (1987) 162 CLR 221, 256 per Deane J.

[16] Plaintiff's Amended Statement of Claim [46], Plaintiff's Submission in Reply as to Costs [18].

Supreme Court Rules 2005(Vic)

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Cases Cited (6)