Plaintiff v Defendants

2 On 4 September 2013 I made orders which included orders dismissing the claims against the AAMI Defendants with costs, including reserved costs. The order for costs was stayed for 14 days with liberty to apply.

3 The indemnity costs are sought by the AAMI Defendants for the costs of the proceeding. They do so by reference to the merits of the claims made by Bodycorp and also on the basis of an offer made by way of a Calderbank[1] letter served by the AAMI Defendants on Bodycorp on 8 May 2012 ("the Offer"). Alternatively, indemnity costs are sought from 8 May 2012. The Offer stated that the AAMI Defendants were prepared to "pay to [Bodycorp] $200,000.00 inclusive of interest, costs and the satisfaction of any outstanding costs orders in full and final settlement of [Bodycorp's] claims" against the AAMI Defendants.

4 The Offer stated that upon acceptance the AAMI Defendants would not pursue Bodycorp for any outstanding costs orders and they would agree to the release to Bodycorp of security funds held by the court.

5 The Offer further stated that it was subject to conditions, namely the execution of terms of settlement acceptable to the AAMI Defendants, "including, inter alia" releases by Bodycorp of the AAMI Defendants and their directors, officers and employees, payment within 28 days of execution of settlement, and confidentiality. Beyond this, no details were given of the terms that would be acceptable to the AAMI Defendants. The Offer was open for acceptance for a period of 21 days from the date of receipt.

B. Indemnity costs - the applicable legal principles

6 Harper J set out a non-exhaustive list of the circumstances in which a court may depart from the usual costs order in Ugly Tribe Co Pty Ltd v Sikola.[2] Of those factors, the AAMI Defendants submit that the following are relevant:

(1) Conduct which causes loss of time to the court and to other parties.

(2) The commencement or continuation of proceedings in wilful disregard of known facts or clearly established law.

7 To that the AAMI Defendants add the situation where, it is submitted, there was an unreasonable refusal to accept the Offer. The AAMI Defendants rely upon the principles set out in Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2).[3] Finally, the AAMI Defendants place reliance on the court's power to have regard to contraventions of the overarching obligations in the Civil Procedure Act 2010 (Vic) in the imposition of costs. They refer to s 28(2) of that Act, which relevantly provides:

[I]n exercising its discretion as to costs, a court may take into account any contravention of the overarching obligations.

8 In summary, the AAMI Defendants submit as follows:

(1) Contrary to the overarching obligations in s 18 of the Civil Procedure Act, most of the claims did not have a proper basis.

(2) Certain claims were pursued in knowing disregard of the facts and clearly established law.

(3) Bodycorp's failure to accept the Offer was unreasonable.

It is convenient to consider the first 2 of these matters together and the third separately.

9 The AAMI Defendants identify 6 discrete claims. The first claim is the claim for breach of "the AAMI Agreement".[4] In respect of this claim the AAMI Defendants refer to the fact that it was held by the court to be narrowly confined.[5] They submit that no factual evidence as to loss of opportunity or general damages was led to support it. Consequently, they submit, it could never have resulted in substantial damages. In addition, the AAMI Defendants also contend that Bodycorp's position in relation to the restraint of trade, which was ultimately held to be unenforceable by reason that it was unreasonable, showed that Bodycorp had failed to have regard to clearly established law.

10 I reject these submissions. As to the last submission, the AAMI Agreement was drafted by solicitors for AAMI. I must infer that AAMI, with appropriate advice, entered into the AAMI Agreement in good faith and therefore on the basis that AAMI was bound by the restraint of trade. Certainly some of the contemporaneous business records of AAMI demonstrated that AAMI considered for a period of time that it was bound by the restraints of trade. It was not disputed that absent a finding that the restraint of trade was unenforceable, the AAMI Defendants would have been held to have been in breach of the relevant clauses of the AAMI Agreement.

11 Although far from being a decisive factor, I also note that the statement of claim introducing the relevant causes of action was signed off by very experienced senior counsel.[6]

12 In these circumstances, it cannot be said that the claim with respect to the AAMI Agreement lacked a proper basis or was pursued in wilful disregard of clearly established law.

13 As to damages, the court did not explore what amount might have been awarded by way of general damages if Bodycorp had been successful. Without expressing any view about it, I am not satisfied that no substantial award of damages might have been made if Bodycorp had otherwise been successful. In any event, at the stage of the proceeding that the Offer was served, no expert had been retained by Bodycorp in relation to quantification of Bodycorp's claims. Moreover, discovery was still in an ongoing phase. Therefore, assessment of the likely quantum of the claim was problematic at that time.

14 The second and third impugned claims are "the South Melbourne Agreement" claim[7] and "the All States Agreement" claim.[8] The AAMI Defendants correctly point out that the South Melbourne Agreement claim failed at the threshold. Similarly, the All States Agreement as alleged and sought to be proved by Bodycorp could never have amounted to a binding agreement. As regards both claims, they were the subject of very limited evidence from Bodycorp.

15 Against these matters, it must be said that both the South Melbourne Agreement claim and the All States Agreement claim formed a very minor part of Bodycorp's case. There was also evidence sought to be adduced from the defendants' witnesses which might have assisted Bodycorp's case if the evidence had been forthcoming as advanced by Bodycorp. In my view, in the broader context of the case advanced by Bodycorp, the fact that these somewhat fragile claims were pursued to the conclusion of the trial does not, of itself, amount to the sort of exceptional circumstances that would be required to justify the court departing from the usual costs order.

16 The fourth claim identified by the AAMI Defendants is that brought by Bodycorp for inducement of breach of contract.[9] The AAMI Defendants rely on the fact that ultimately the evidence did not establish the requisite intentional element of the tort. It is said that this ought to have been obvious from the outlines of evidence and that the claim was made in the absence of proper consideration of the legal principles.

17 I also reject these submissions. The facts were uncertain in a number of respects. Bodycorp could not have been certain as to what the AAMI Defendants' key witness, the sixth defendant Barry Martin ("Martin"), would say at trial. What was led by way of evidence by Bodycorp, including by way of coincidence evidence, meant that the AAMI Defendants had a case to answer. Moreover, the findings by the court of what Martin said were understood in a particular context; but from the point of view of Bodycorp in pursuing its claim, these facts might have been understood differently in a perceived different context. Again, it cannot be said that the claim lacked a proper basis or foundation in clearly established law.

18 The fifth claim raised is for work and labour done.[10] The AAMI Defendants submit that this claim was speculative and unsubstantiated, that it was pursued at trial in a manner at odds with how it was pleaded, and that substantial time and costs were wasted in respect of it. They contend that the instruction provided by Bodycorp to its expert, namely, to assume that certain "authorised amounts" in AAMI documentation represented "income", had no foundation.

19 It is true that Bodycorp's work and labour claim was held to be unsubstantiated by the evidence led by Bodycorp. However, broadly speaking, this conclusion hinged on a finding that the so-called "authorised amounts" in the AAMI documentation did not amount to "income". While the weight of evidence ultimately (and, in my view, clearly) favoured this conclusion, a contemporaneous report of Martin to the state manager of AAMI did refer to these amounts as "income". This document was discovered by the AAMI Defendants before the Offer was served.

20 In light of this fact, I do not consider that Bodycorp prosecuted its work and labour claim in a manner that lacked foundation. Accordingly, this too is not a proper basis on which to order indemnity costs.

21 The sixth and final claim is the claim under Trade Practices Act 1974 (Cth) ("the TPA Claim"). The TPA Claim was abandoned by Bodycorp on the first day of trial. An affidavit was previously served and filed with the court setting out the relevant history in relation to this part of the claim.[11] However, when I made reference to the affidavit during the course of argument on costs, I was informed no reliance was placed upon it for the purposes of this application.

22 What was relied upon were more recent events. On 2 occasions before trial, Bodycorp declined to abandon the TPA Claim. This occurred on 24 April 2013, at a hearing at which security for costs was sought by the defendants, and also at a subsequent directions hearing on 2 May 2013. This was notwithstanding the defendants had expressly invited Bodycorp on both occasions to desist with this part of its case in circumstances where no evidence had been filed or served to support it. The TPA Claim remained in Bodycorp's pleadings and, as noted above, was only abandoned by Bodycorp on the first day of trial. It was withdrawn without explanation after the opening of Bodycorp had been concluded.

23 The court still has been given no explanation as to why this course of conduct was adopted. This is an entirely unsatisfactory way to conduct commercial litigation. I consider it to be high-handed and contrary to the overarching obligations set out in the Civil Procedure Act 2010 (Vic). Accordingly, in relation to this aspect of the claim, I will make an order for indemnity costs in favour of the AAMI Defendants from the period of time I have been invited to consider, namely from 24 April 2013 to 6 May 2013.

24 Save for the finding in the previous paragraph, I do not consider the submissions made by the AAMI Defendants in reliance upon the Civil Procedure Act take the matter any further. The AAMI Defendants refer to s 28(2) as the premise upon which the application is made. They also refer to s 18, which provides:

A person to whom the overarching obligations apply must not make any claim or make a response to any claim in a civil proceeding that -

(a) is frivolous; or

(b) is vexatious; or

(c) is an abuse of process; or

(d) does not, on the factual and legal material available to the person at the time of making the claim or responding to the claim, as the case requires, have a proper basis.

25 For the reasons already stated, I am not of the view that any of the claims were frivolous, vexatious or an abuse of process. Paragraph (d) of s 18 may be satisfied in relation to the South Melbourne Agreement claim and the All States Agreement claim. However, the court has a discretion under s 28(2), and, for the reasons already stated, I have decided not to exercise that discretion to make a special costs order.

D. Whether rejection of the Offer was unreasonable

26 The AAMI Defendants submit that the rejection of the Offer was unreasonable. They submit that the Offer was clear and concise, capable of acceptance, open for a reasonable time and made at a time when Bodycorp ought to have known the case it had was deeply flawed. Accordingly, the unreasonable rejection of the Offer should justify a special costs order.[12]

27 The key aspects of the Offer are referred to in paragraphs 3 to 5 above. I do not regard the Offer to have been a genuine attempt to settle the dispute.[13]

28 First, the amount of $200,000 inclusive of interest and costs for a complex proceeding that had been running for approximately 9 years suggests otherwise. I accept $200,000 is a significant sum of money, but it must be considered in the relevant context.

29 Although there is no direct evidence as to the precise costs involved, based on the evidence that has been put before the court previously, it is very likely Bodycorp would have incurred legal costs well in excess of this amount at the time the Offer was made. The Offer was intended to address not only these costs, but also possible interest that might have been awarded on any judgment in favour of Bodycorp; and, of course, the amount of that possible judgment. The claims made against the AAMI Defendants were, in total, for substantial amounts.

30 The Offer appears to be an attempt by the AAMI Defendants to try and obtain some advantage on costs rather than to be an offer of an amount that Bodycorp would properly consider to be a reasonable attempt to compromise the proceeding.

31 Although there were other defendants, the AAMI Defendants were, viewed collectively, key parties to the proceeding. Further, I cannot be satisfied that the amount would have even come close to meeting the costs of Bodycorp referable to the AAMI Defendants up until that time.

32 Secondly, if contrary to this view, the Offer could be characterised as genuine, the Offer failed to provide an indication of the basis on which it was calculated, so as to enable Bodycorp to assess its reasonableness.[14]

33 Thirdly, the Offer sought the attainment of matters that were not attainable by the AAMI Defendants in the event they obtained judgment in their favour; namely, the release of directors, officers and employees from any claim by Bodycorp, as well as confidentiality.

34 Fourthly, it is doubtful whether the Offer was capable of acceptance in the sense that it would have given rise to a binding agreement if it were accepted. Some of the terms of the Offer remained undisclosed. Counsel for the AAMI Defendants could not say what those terms might have been. There was simply no relevant evidence from which an inference might properly be drawn.

35 To elaborate, because some terms were undisclosed, what the Offer encompassed was not entirely clear. By using the words, "including, inter alia", the precise ambit of what was being offered was obscured. This was compounded by the fact that the Offer was expressly subject to "execution of terms of settlement in a form acceptable to [the AAMI Defendants]". From what follows in the Offer, it is clear that the reference to "a form acceptable" was a reference to matters of substance, not just matters of form. Broadly speaking, if the substance of the scope of an offer is not disclosed, it is not possible for an offeree to properly consider its position without more.

36 The AAMI Defendants submitted that the obligation was on Bodycorp to seek clarification in relation to what was contained in the Offer. No authority was cited for this proposition. Without purporting to express any general rule, in my view, consistent with the line of authorities referred to in Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2),[15] in the circumstances of this case it was for the offerors to make an offer which was sufficiently clear in its terms if the offerors ultimately wanted to rely upon the Offer to improve their position on costs. The issue of lack of clarity was not merely some minor ambiguity in the language used. The AAMI Defendants simply failed to disclose all the terms of the Offer.

37 As to the timing of the Offer, it was approximately 9 years after the proceeding had commenced. However, there had been significant delays in some of the usual interlocutory steps. By way of example, it was shortly after very substantial discovery had been provided by the AAMI Defendants, which occurred on 22 March 2012. I was informed that the discovery at that point in time by the AAMI Defendants consisted of some 1,400 to 1,500 documents. Discovery by Bodycorp was still a work-in-progress. In addition, the experts in relation to quantum were not retained until after the Offer had lapsed. The expert for Bodycorp was not retained until 21 November 2012. This is relevant to the ability of Bodycorp to have assessed properly the quantum of its claims.

38 Consequently, it was not plainly unreasonable for Bodycorp to reject the Offer. Therefore, the rejection does not provide an adequate basis for the court to depart from the usual order for costs.

39 Bodycorp submits that any costs order in favour of the AAMI Defendants ought to exclude the AAMI Defendants' costs in respect of their security for costs applications. These applications were dismissed by the court, with costs reserved, on 13 May 2013[16] and 31 July 2013.[17] In my view, the exclusion sought would not be appropriate.

40 The evidence provided by Bodycorp in response to these applications, and specifically in response to the legitimate concerns raised by the AAMI Defendants was, in part, ambiguous, and was incomplete. Moreover, this was in the context of the AAMI Defendants having previously sought successfully to obtain security for costs from Bodycorp.

41 Finally, the success of Bodycorp in resisting these applications partially was due to the timing of the applications. This timing, to a large extent, was not within the control of the AAMI Defendants, but was because of other matters, including very unfortunate matters beyond the control of the parties.

42 There was clearly a reasonable basis for the bringing of both applications. In the circumstances, the appropriate order is that the costs of these applications ought to be costs in the proceeding. This is already the effect of the orders that were made by the court on 4 September 2013. Accordingly, no further order is required in this regard.

43 I will invite counsel to prepare an order which reflects my findings that costs in favour of the AAMI Defendants shall be awarded on the usual basis, save for the TPA Claim, which shall be on an indemnity basis from 24 April 2013 to 6 May 2013, inclusive.

[1] See Calderbank v Calderbank [1976] Fam 93.

[2] [2001] VSC 189, [7]. This case has been referred to with approval subsequently in numerous cases.

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

[4] See Bodycorp Repairers Pty Ltd v Maisano (No 8) [2013] VSC 472 ("the Principal Judgment"), [8].

[5] See Principal Judgment, [47]-[51], [119], [132].

[6] This observation applies to all the impugned claims, except for the basis upon which the claim for work and labour done was particularised.

[9] See the Principal Judgment, [43]-[44].

[10] See the Principal Judgment, [52].

[11] Affidavit of Cameron Ian Forster affirmed 6 May 2013.

[12] See, for example, Oversea-Chinese Banking Corporation v Richfield Investments Pty Ltd [2004] VSC 351, [75] (Redlich J).

[13] See observations in Oversea-Chinese Banking Corporation v Richfield Investments Pty Ltd [78]-[81].

[14] MT Associates Pty Ltd v Aqua-Max Pty Ltd (No 3) [2000] VSC 163, [123]-[126].

[15] [2005] VSCA 298; (2005) 13 VR 435, 440 [17].

[16] Bodycorp Repairers Pty Ltd v Maisano (No 4) [2013] VSC 247.

[17] Bodycorp Repairers Pty Ltd v Maisano (No 7) [2013] VSC 345.