Plaintiff v Defendants

Supreme Court of Victoria|2011-02-17|Before: KYROU J

COSTS - Plaintiff awarded nominal damages of $1 for breach of contract - Offer of compromise in the amount of $10,000 - Rule 26.08(3) of the Supreme Court (General Civil Procedure) Rules 2005 (Vic) - Special circumstances warranting departure from the usual order set out in the rule.

2 On 17 December 2010, Riordans applied for indemnity costs based on the service of a Calderbank offer dated 2 October 2008. On that day, I ruled that, having regard to the circumstances in which the offer was made, including the fact that the offer had been made a few weeks after service of the statement of claim and prior to the completion of discovery, Simply had not acted unreasonably in rejecting the Calderbank offer. Accordingly, I refused the application.

3 Riordans, relying on an offer of compromise dated 10 May 2010, then sought an order in accordance with r 26.08(3) of the Supreme Court (General Civil Procedure) Rules 2005 ('Rules'). The offer of compromise was for the amount of $10,000. The offer was not accepted and it expired on 24 May 2010.

4 Rule 26.08(3) provides that, where an offer of compromise is made by a defendant and not accepted by the plaintiff, and the plaintiff obtains a judgment on the claim that is not more favourable to the plaintiff than the terms of the offer, then, unless the Court otherwise orders:

(a) the plaintiff is entitled to an order against the defendant for the plaintiff's costs in respect of the claim, up to and including the day that the offer was served, taxed on a party and party basis; and

(b) the defendant is entitled to an order against the plaintiff for the defendant's costs in respect of the claim that are incurred after the day that the offer was served, taxed on a party and party basis.

5 Simply has resisted the making of an order in accordance with r 26.08(3) of the Rules on the basis that there were special circumstances.[2] The special circumstances upon which Simply relied were:

(a) the significant amendments proposed, and subsequently made, by Riordans to their defence after the offer of compromise expired;

(b) Riordans' disputing of documents and facts pursuant to Simply's notices to admit documents and facts;

(d) the additional costs occasioned by the hearing not proceeding on the initial scheduled hearing date of 3 June 2010; and

(e) the unattractiveness of the offer of $10,000 at the time that it was made.

6 On 3 February 2011, contrary to the application they made on 17 December 2010, Riordans submitted in writing that Simply should be ordered to pay all of their costs. They contended that, as Simply was wholly unsuccessful in the proceeding, r 26.08(3) of the Rules did not apply.

7 For the reasons set out below, I have concluded that the fact that Simply was awarded only nominal damages did not render r 26.08(3) of the Rules inapplicable; that the matters set out at [5](a) and (b) above warrant departure from the usual order set out in r 26.08(3); and that the appropriate order for costs is as follows:

(a) Riordans pay Simply's costs of the proceeding up to and including 10 May 2010, taxed on a party and party basis; and

(b) Simply pay 80 per cent of Riordans' costs of the proceeding incurred after 10 May 2010, taxed on a party and party basis.

8 I will deal with each of Simply's alleged special circumstances in turn.

9 As at 10 May 2010, the date on which the offer of compromise was served, the proceeding was listed for hearing on 3 June 2010. The hearing did not commence on that day, however, because no judge was available. The proceeding was subsequently re-listed for hearing on 3 November 2010 and the hearing commenced on that day before me.

10 As at 10 May 2010, the defence put in issue the scope of Riordans' retainer. It also denied that Riordans breached their retainer or tort duty and that any such breach caused Simply to suffer any loss.

11 On 1 June 2010, Riordans gave notice to Simply that they intended to amend the defence to rely upon additional facts on the issue of causation; to include allegations that Simply had failed to mitigate its loss; and to rely upon the doctrine of merger. A proposed amended defence was served on 29 October 2010, which pleaded the above matters and added a defence of contributory negligence.

12 On 3 November 2010, the first day of the hearing, Riordans were granted leave to file and serve an amended defence, and Simply was granted leave to file and serve an amended reply. The amended defence and the amended reply were filed and served on 3 November 2010.

13 The amendments to the defence expanded the evidence upon which Riordans relied in relation to the issues of causation, failure to mitigate loss and contributory negligence. There was significant overlap in the evidence that related to these issues. Some of the evidence - namely, evidence of 'without prejudice' settlement offers that Simply had rejected - became admissible only after my ruling dated 8 November 2010.[3]

14 I have estimated that the amendments to the defence had the effect of increasing the costs of the proceeding by approximately 18 per cent.

15 The factual and legal issues that were added to the proceeding by virtue of the amendments to the defence materially contributed to the findings of the Court in relation to causation.

16 The fact that the amendments were made after the expiration of the offer of compromise meant that Simply could not take them into account when it was considering the offer of compromise and that it could not assess their possible impact on the outcome of the proceeding. In my opinion, it would be unfair for Simply to pay to Riordans the additional costs that were incurred as a consequence of the amendments. Accordingly, the amendments and their timing constitute special circumstances warranting departure from the usual order set out in r 26.08(3) of the Rules.

17 On 3 May 2010, Simply served on Riordans a notice to admit documents and, on 5 May 2010, it served on Riordans a notice to admit facts. The notices to admit were served under rr 35.05(1) and 35.03(1) of the Rules, respectively. On 19 May 2010, Riordans served on Simply notices of dispute under rr 35.05(2) and 35.03(2) disputing, respectively, the authenticity of all the documents and some of the facts specified in Simply's notices to admit. Riordans disputed the authenticity of the documents on the basis that Simply's notice to admit documents was irregular. Under cover of a letter dated 19 May 2010, however, Riordans' solicitors informed Simply's solicitors that, for the purposes of the trial, Riordans would admit the authenticity of all except one of the documents that were the subject of the notice to admit documents.

18 At trial, many of the documents whose authenticity had been disputed by Riordans were tendered by Simply without objection. Likewise, a large number of facts that were disputed by Riordans were accepted by the Court.

19 Rules 35.06 and 63.18 of the Rules provide that, where a party serves a notice of dispute under r 35.03(2) or r 35.05(2) disputing a fact or the authenticity of a document and that fact or the authenticity of that document is later proved in the proceeding, the party shall pay the costs of proof, unless the Court otherwise orders.

20 The costs of proving the authenticity of documents that Riordans disputed were negligible because the documents were tendered without objection. Riordans' disputing of facts, however, increased the costs of the proceeding by approximately two per cent. I have assigned a low percentage because some of the facts in Simply's notice to admit were expressed imprecisely and, in any event, many of them became non-contentious or were proved by the tendering of documents without objection.

21 Riordans' disputing of facts warrants departure from the usual order set out in r 26.08(3) of the Rules.

22 In my opinion, the fact that the offer of compromise was served a short time prior to the initial scheduled hearing date of 3 June 2010 does not constitute a special circumstance.

23 In my opinion, the fact that the hearing did not proceed on the initial scheduled date of 3 June 2010 because no judge was available does not constitute a special circumstance. This was a regrettable consequence of limited judicial resources. The additional costs that had to be incurred as a result of the postponement of the trial cannot be attributable to Riordans.

24 Simply submitted that the offer of $10,000 was unattractive at the time that it was made because it was relatively small having regard to the amount of its claim and because Simply had provided security for Riordans' costs in the amount of $107,000. In my opinion, these matters do not constitute special circumstances. An offer of compromise is almost invariably rejected because the party in receipt of the offer regards it as inadequate.

25 I reject Riordans' submission that r 26.08(3) does not apply because Simply 'wholly failed' in the proceeding. In my opinion, r 26.08(3) applies because Simply has obtained judgment for an amount that is not more favourable than Riordans' offer of compromise.

26 Even if it were appropriate to consider whether Simply 'wholly failed' in the proceeding, the fact is that Simply did not wholly fail. Although it is true that Simply was awarded nominal damages of $1, rather than the compensatory damages of $1,452,661.40 that it claimed, it was successful on the key issues of the scope of the retainer and breach of the retainer and the tort duty. It was also successful on the issues of failure to mitigate loss and contributory negligence, even though it became unnecessary for the Court to decide these issues, and on some ancillary issues, such as the doctrine of merger. Simply established its cause of action in contract, as reflected by the award of nominal damages. In the circumstances of this case, the fact that the damages were nominal is not, of itself, sufficient to justify an order for costs wholly in Riordans' favour.

27 As I have rejected Riordans' submission that r 26.08(3) does not apply, I also reject their further submission that the exercise of my discretion in relation to costs should be governed by whether it was unreasonable for Simply to reject the offer of compromise based on the circumstances prevailing in May 2010.[4] Had it been necessary for me to do so, I would have found that Simply had not acted unreasonably in rejecting the offer in May 2010.

28 For the above reasons, Simply has satisfied me that there are special circumstances that warrant the making of an order that departs from the usual order set out in r 28.06(3) of the Rules. I will make the order set out at [7] above.

[1] Simply Irresistible Pty Ltd v Couper [2010] VSC 601 (17 December 2010).

[2] Simply relied upon IFTC Broking Services Ltd v Commissioner of Taxation [2010] FCAFC 31 (1 April 2010) [9]-[13] ('IFTC').

[3] See Simply Irresistible Pty Ltd v Couper [2010] VSC 505 (8 November 2010).

[4] Cf IFTC [2010] FCAFC 31 (1 April 2010) [12].

Court (General Civil Procedure) Rules 2005

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