Plaintiff v First Defendant

1 On 14 December 2012 I published my reasons for concluding that the plaintiff ('Nicholson') had entered into a binding and enforceable agreement ('the Agreement') with the first defendant ('Hilldove') on 15 December 2011 in relation to the purchase by Nicholson of the Crown Hotel in Lilydale from Hilldove.[1]

2 The Agreement contemplated a ten year lease (with three further options of ten years each) at a starting rental of $680,000 per annum with market reviews. The landlord, Terrabridge Pty Ltd ('Terrabridge'), the second defendant in this proceeding, was not a party to the Agreement. It was not suggested by Nicholson that there was any obligation on the part of Terrabridge (whether promissory or representational) to grant a lease on the terms contemplated or at all. Rather, it was pleaded and submitted that there was an implied term of the Agreement that Hilldove, as a party related to Terrabridge, would procure the contemplated lease. It was further alleged that Hilldove had made representations to such effect.

3 It was held that there was no such implied term and that Hilldove had not made any representations to the effect alleged. [2]

4 In the final analysis the Agreement was subject to the execution of a lease on the terms contemplated. However there was no obligation on the part of Terrabridge or Hilldove to grant or procure such a lease. It was a matter for negotiation between the parties. Clearly Nicholson lost the opportunity to negotiate such a lease. Without a lease he would not have gone ahead with the purchase of the Crown Hotel.

5 On 7 May 2013 I dismissed an application by Nicholson to re-open the case on the grounds that there was evidence of an existing lease and that this constituted fresh evidence that required investigation.[3]

6 Taking the view that there was no binding and enforceable agreement, Hilldove sold the Crown Hotel to David John Tomsic ('Tomsic') or nominee on or about 7 February 2012. Terrabridge sold the freehold to interests associated with Tomsic.

7 Nicholson elected to pursue a claim for damages against Hilldove for breach or repudiation of the Agreement. The First Judgment dealt with liability only. On 2, 3 and 16 September 2013, I heard the damages part of the case. I held that Nicholson had failed to establish any loss and damage arising out of the repudiation of the Agreement by Hilldove and was only entitled to nominal damages.[4] However, the loss of opportunity claim made by Nicholson was not the loss of an opportunity to negotiate a lease but the loss of an opportunity to nominate a purchaser for a consideration of $1 million.[5]

8 I do not propose to rehearse the facts and I will assume familiarity with the First, Second and Third Judgments. Definitions and terms used in these reasons are the same as those used in the three Judgments.

10 The defendants submitted that as the award is vindicatory and not compensatory, the amount should not exceed $100. The defendants relied on a number of authorities to such effect.[6]

11 Nicholson did not dispute that the sum of $100 was appropriate.

12 In my opinion the appropriate amount is $100 and I will order accordingly.

13 Nicholson submitted that although he failed to establish any loss and was only awarded nominal damages, he succeeded in establishing his claim, namely that there was a binding and enforceable agreement between him and Hilldove. Senior Counsel for Nicholson argued that in these circumstances, Nicholson succeeded in establishing his primary case and costs should follow the event. It was submitted further that he was entitled to establish his primary case - whatever the damages - because there were reputational and credit issues at stake, mainly associated with the execution of the Agreement.

14 Nicholson submitted further that in relation to costs the case should be considered as a whole and not in stages. On this basis he submitted that he should recover his costs of the entire proceeding. Nicholson contended that such costs should be on an indemnity basis because the defendants in effect made allegations of fraud not only without foundation but also without having expressly pleaded fraud. An alternative basis for submitting that an indemnity costs order was appropriate was that the defendants had acted with "high handed presumption" in accordance with the principle established in Australian Guarantee Corp Ltd v De Jager.[7]

15 Finally, Nicholson contended that if the Court was not minded to award indemnity costs for the entire proceeding, an order for indemnity costs was appropriate for the liability phase of the trial. Thereafter costs should be on a party and party basis up to 31 March 2013 and on a standard basis from 1 April 2013.

16 The defendants submitted that as Nicholson in effect lost the case - he sought substantial damages and was awarded nominal damages - he should pay the costs.

17 The defendants submitted that the costs should, at the very least, be on a party and party basis up to 31 March 2013 and thereafter on a standard basis. However, the defendants' primary submission was that the existence of special circumstances called for an award of costs on an indemnity basis with effect from 1 August 2013, alternatively 18 February 2013, alternatively 21 March 2013. These were the dates on which settlement offers were made to Nicholson.

18 Neither party is entitled to indemnity costs for the reasons set out hereunder. The remaining question is who should pay the party and party or standard costs. This is not an easy question. It is also a question on which minds may differ. Although Nicholson only recovered nominal damages and to this extent may properly be regarded as the loser, he did win a critical part of the case, which was the main focus of the liability stage of the trial.

19 I cannot ignore the fact that the case was conducted in stages. At each stage the position of each party became clearer and more precise advice and risk assessment was possible.

20 From the date of the Second Judgment, Nicholson's damages claims became untenable. There was no lease. He was never going to obtain a lease and for the reasons stated in the Third Judgment he personally was never going to receive $1 million. This was fanciful and to some extent disingenuous. Nicholson must pay the costs from 7 May 2013 on the new standard basis. This is fair and appropriate. He lost this part of the case. He was always going to get only nominal damages.

21 Nicholson failed to discover significant documents during the damages phase of the trial. This had adverse consequences for Hilldove, who had to obtain documents by the issue of subpoenas. Subpoenas were served on Eden Hotel Group Pty Ltd ('Eden') and Dominion Hotel Group Pty Ltd ('Dominion') respectively. Both parties produced documents. That, in turn, required Hilldove to incur further legal costs associated with inspecting all and copying most of the documents produced in response to the subpoenas and including a large number of these documents in the Court Book for the damages phase of the trial.

22 It also resulted in Hilldove being liable to pay the reasonable costs of Eden and Dominion in complying with the subpoenas. The evidence establishes that a total claim of $18,864.49 has been made. I am unable to assess whether this amount claimed is reasonable.

23 Nicholson should pay these costs (or whatever figure may be negotiated by him) directly to Eden and Dominion. Many of the documents were relevant and if they were not in Nicholson's possession or custody he had the power to obtain them.

24 From the date of the First Judgment and despite having established that there was an enforceable agreement, Nicholson knew that the defendants had no obligation at all to procure a lease and that he was not going to get a lease. There was accordingly no loss of opportunity in this regard. However, Nicholson was, in the circumstances, entitled to endeavour to run the argument that there was a lease. There was clearly a factual basis for such an argument notwithstanding the apparent legal complexities given the way in which the case was pleaded. However, Nicholson lost the argument. No doubt this led - some months later - to the revised formulation of damages which I have called disingenuous. Nicholson must pay the costs from 15 December 2012 to 31 March 2013 on a party and party basis and from 1 April 2013 to 6 May 2013, and of course after this date given the ruling above,[8] on the new standard basis.

25 This leaves the costs of the liability stage of the trial. The trial was in many respects unsatisfactory as is apparent from the First Judgment.

26 Nicholson was successful on an important issue that took up most of the liability stage of the trial and it would not be appropriate or fair to order that (despite being the overall loser) he pay these costs. Further, there were substantial costs associated with the third party proceeding, a point emphasised by Senior Counsel for Nicholson. However, it must also be recalled that Nicholson failed on a critical issue being the very issue that underpinned his alleged substantial claim for damages. This was truly a pyrrhic victory (and the basis of the defendants' submission that Nicholson could not be regarded as the successful party, and therefore not only should Nicholson not get his costs but he should pay the defendants' costs.)[9] However, it was not an insubstantial victory and Nicholson should not be required to pay the costs particularly in circumstances where I have found Benjamin Patrick Niall ('Niall') not to be a witness of truth. The remaining question is whether the defendants should pay these costs in whole or in part.

27 In the exercise of my discretion and having considered the way in which the proceeding unfolded before, during and after the liability stage of the trial, I consider that the defendants should pay one half of the costs on a party and party basis. They lost a critical issue that took up most of the liability stage of the trial. Although the issue they succeeded on took far less time, it was a key issue. For this reason they should only pay one half of the costs. For the reasons set out hereunder, I do not consider that the Calderbank letter of 1 August 2012 affects the analysis.

28 Finally, there is nothing in Motium or Oshlack that affects this conclusion. These cases emphasise that each case must depend on its own facts. In some cases it would not be appropriate that a party recover any costs having effectively substantially failed in the proceeding.[10] In fact, as the cases demonstrate, depending upon the facts of a particular case, that party may be required to pay the costs. For the reasons given this is not such a case. Nicholson is liable, however, for the costs from 15 December 2012 for the very reason that he failed to establish any damages.[11]

29 Although the defendants are only entitled to costs from 14 December 2012, they seek such costs on an indemnity basis based on the offers referred to below.

30 The defendants made the following three offers to Nicholson in an endeavour to settle this proceeding.

(a) On 1 August 2012, the defendants made a without prejudice Calderbank offer to pay Nicholson $400,000, including costs ('the First Offer').

(b) On 18 February 2013, the defendants made a verbal offer to pay Nicholson $500,000, including costs, subject to execution of terms of settlement ('the Second Offer').

(c) On 21 March 2013, the defendants made a without prejudice Calderbank offer to pay Nicholson $350,000, including costs ('the Third Offer').

31 The defendants contended that it was unreasonable for Nicholson to refuse each of the offers. Accordingly, the Court should, it was submitted, exercise its discretion and order Nicholson to pay the defendants' costs of the proceeding on an indemnity basis from 1 August 2012, alternatively from 18 February 2013 or 21 March 2013.

32 Nicholson submitted that it was not unreasonable to reject each of the offers. I agree.

33 On Wednesday, 1 August 2012, the defendants offered to pay Nicholson $400,000, including costs. That offer was in writing. It was open until 10am on Monday, 6 August 2012. Its terms were clear and comprehensible. The offer lapsed without any response from Nicholson or his solicitors.

34 Nicholson had, it was submitted, sufficient time to evaluate the offer and decide whether to accept or reject it. The offer was made at a time when the proceeding was well advanced. All of the parties had 'put their cards on the table' and Nicholson was in a position to make an informed decision. In particular it was submitted that the offer was made:

(b) after the evidence of all the parties had concluded in the liability phase of the trial;

(c) shortly before the parties were required to exchange their written outlines of submissions on 6 August 2013;

(d) shortly before the parties were required to return to Court on 13 August 2012 for closing submissions; and

(e) at a time when Nicholson's legal costs in the proceeding were less than $378,625, and may have been in the vicinity of $282,000.

35 It was submitted that Nicholson should have been aware that his prospect of obtaining an order for specific performance or substantial damages was very low. In his evidence during the liability phase Nicholson said that it was his intention to nominate Eden as the purchaser of the Crown Hotel business. He was a consultant to Eden and he did not yet earn a salary with that company as it had yet to take possession of any hotels. Further, Nicholson was in Court when Mr Jones, his expert witness, gave evidence (in his report) that the Crown Hotel 'is not unique'. In cross-examination Mr Jones reiterated that he did not believe that the Crown is one of a kind. His evidence supported the defendants' position that Nicholson was not entitled to specific performance of the Heads of Agreement. It established that, from the very beginning of this proceeding, the defendants' position in relation to the alleged uniqueness of the Crown Hotel was correct.

36 The defendants contended that even if Nicholson did not know, or was not told, that his prospects of success were very low (both of which seem implausible), the written offer explained in detail why his claim for specific performance was likely to fail and why his claim for damages was likely to be significantly less than the amount in the Stillwell report.

37 Finally it was submitted that the written offer clearly stated that if Nicholson did not accept it and achieved a result that was less favourable, the defendants would apply for an order that he pay their costs from the date of the letter on an indemnity basis.

38 If Nicholson had accepted the offer, allowing for his costs on a party and party basis, he would have recovered approximately $230,800 in damages.

39 In the circumstances, and particularly given Nicholson's poor prospects of recovering substantial damages, it was submitted that it was unreasonable for Nicholson to have rejected the offer of $400,000. It was a genuine offer to settle with a real compromise that required the defendants to pay a substantial sum of money. Accordingly it was submitted that Nicholson should be ordered to pay the defendants' costs of the proceeding on a party and party basis up to 1 August 2012 and on an indemnity basis thereafter.

40 In relation to the First Offer, Nicholson submitted that having regard to the evidence - which had concluded - he was entitled to secure a finding that there was a binding and enforceable agreement, particularly in light of the critical puttage and suggestions surrounding the execution of the Agreement and his involvement and knowledge thereof. He contended that he was entitled to protect his reputation and seek vindication and that he succeeded despite the Calderbank letter suggesting otherwise.

41 On 18 February 2013, the defendants offered to pay Nicholson $500,000, including costs, subject to execution of a deed of settlement which contained a release. The genesis of the offer was an indication given by Nicholson to Stuart Richardson that he (Nicholson) might be able to persuade 'his investors' to settle the proceeding for $500,000. The offer was made by Stuart Richardson during a telephone conversation and was initially accepted by Nicholson. However, Nicholson ultimately failed to execute the deed of settlement, apparently determining instead to proceed with his application to re-open the liability phase of the proceeding.

42 The offer was, it was submitted, made at a time when (in addition to the matters apparent to Nicholson at the time of the First Offer):

(a) the proceeding between the defendants and the third parties had settled;

(b) Nicholson had abandoned his claim for specific performance;

(c) Nicholson's claims against both Niall and Terrabridge had failed;

(d) the Court had found that there was no binding obligation on Terrabridge to grant a lease, and there was no obligation on Hilldove to ensure that Terrabridge granted a lease;[12]

(e) Nicholson had indicated a willingness to settle the proceeding for $500,000; and

(f) his legal costs in the proceeding were $378,625.

43 If Nicholson had executed the deed of settlement, allowing for his costs on a party and party basis, he would have recovered approximately $272,825 in damages.

44 In the circumstances, it was submitted that it was unreasonable for Nicholson to have refused to execute the deed of settlement. It was a genuine offer to settle with a real compromise that required the defendants to pay an even greater sum of money (when compared to the First Offer), particularly given the findings of this Court during the liability phase of the trial.

45 Accordingly it was submitted that if the Court was not minded to order Nicholson to pay the defendants' costs on an indemnity basis from 1 August 2012, Nicholson should be ordered to pay the defendants' costs of the proceeding on a party and party basis up to 18 February 2013 and on an indemnity basis thereafter.

46 In relation to the Second Offer, Nicholson submitted that on the evidence he was entitled to form the view that there had been and was a lease in existence between Hilldove and Terrabridge at the time of the Agreement, that the defendants were not telling the truth about its existence, and that he may well have been entitled to an assignment of that lease. In these circumstances he was entitled to explore the matter further.

47 On Thursday, 21 March 2013, the defendants offered to pay Nicholson $350,000, including costs. That offer was in writing, made by Minter Ellison to Williams Winter Solicitors. It was open for acceptance until 10am on Friday, 5 April 2013. Its terms were clear and comprehensible. The offer lapsed without any response from Nicholson or his solicitors.

48 The offer was made at a time when (in addition to the matters apparent to Nicholson at the time of the First and Second Offers):

(a) Nicholson's application to re-open the proceeding was unlikely to succeed and, even if it did succeed, there was a real risk that the Court would find that there was no lease; and

(b) Nicholson faced the real prospect of being awarded nominal damages, particularly given his evidence in relation to Eden during the liability phase of the trial.

49 Again it was submitted that even if Nicholson did not know, or was not told, that his prospects of success were very low (both of which again seem implausible), the written offer explained in detail why his application to re-open the liability hearing would fail and why this Court would ultimately find that he is only entitled to nominal damages.

50 Finally, the written offer clearly stated that if Nicholson did not accept it and achieved a result that was less favourable, the defendants would apply for an order that he pay their costs on an indemnity basis.

51 If Nicholson had accepted the offer, allowing for his costs on a party and party basis, he would have recovered approximately $122,825 in damages.

52 In the circumstances, it was submitted that it was unreasonable for Nicholson to have rejected the offer of $350,000 and if the Court was not minded to order Nicholson to pay the defendants' costs on an indemnity basis from either 1 August 2012 or 18 February 2013, Nicholson should be ordered to pay the defendants' costs of the proceeding on a party and party basis up to 21 March 2013 and on an indemnity basis thereafter.

53 In relation to the Third Offer Nicholson submitted that in addition to testing the lease issue, Tomsic had sworn an affidavit on 5 March 2013 to the effect that he would have paid $1 million for the right to purchase the Crown Hotel had he known that Nicholson had an enforceable agreement.

54 In considering whether the rejection of an offer to settle the proceeding was unreasonable, the Court should have regard to at least the following matters:[13]

(a) the stage of the proceeding at which the offer was received;

(b) the time allowed to the offeree to consider the offer;

(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; and

(f) whether the offer foreshadowed an application for indemnity costs if it was rejected.

55 In relation to the First Offer, I find that in the peculiar circumstances of this case, and avoiding the substantial benefit of hindsight, Nicholson did not act unreasonably in failing to accept the First Offer. I accept his submission in this regard. Although he should and may well have given thought to the extent of any damages consequent on a finding of a binding Agreement, he was entitled to endeavour to secure such a finding which he ultimately did. It was not unreasonable for Nicholson to proceed to final submissions after completion of the evidence most of which was directed to the point that he succeeded on. He was indeed vindicated in relation to his assertion that there was a valid and binding Agreement and for the reasons previously given he is entitled to an order for costs in his favour. Further, his claim for specific performance was still on foot.

56 Nicholson was entitled to run the argument that there was misleading or deceptive conduct in relation to the procuring of a lease, a matter that he ultimately lost. For this main reason he was only awarded one half of his costs.

57 The First Offer suggested that there was no binding Agreement and that Nicholson faced the risk of adverse credit findings.[14] This did not happen. Paragraphs 2 and 3 of the First Offer endeavoured to demonstrate why specific performance would not be granted and why the damages were likely to be significantly less than the expert report. Despite being cogent, given the timing of the offer, the matters referred to in paragraphs 1 and 4 of the First Offer and the main focus of the evidence at trial, being a trial as to liability only, it was, on balance, not unreasonable for Nicholson to reject the offer.

58 In relation to the Second Offer, I find that in the peculiar circumstances of this case, and avoiding the substantial benefit of hindsight, Nicholson did not act unreasonably in failing to accept the Second Offer. I accept his submissions in this regard. The offer was made before the argument as to whether there was a lease. Although he lost, Nicholson was entitled to run the argument which despite the legal complexities had a sufficient factual basis. The evidence disclosed a transfer of lease. Nicholson was therefore entitled to assume that there was a lease. It was only after I accepted Niall's evidence - despite having found him not to be a witness of truth - that this was held not to be the case. The argument was lost and Nicholson must pay the costs but not on an indemnity basis.

59 In relation to the Third Offer, I find that in the peculiar circumstances of this case, and avoiding the substantial benefit of hindsight, Nicholson did not act unreasonably in failing to accept the Third Offer. I accept his submissions in this regard. Again, this offer was made before the argument as to whether there was a lease and I refer to my comments in relation to the Second Offer.

60 Accordingly, for these reasons and generally in the exercise of my discretion there is no basis for any award of indemnity costs in favour of the defendants.

61 I also reject Nicholson's claim for indemnity costs. Fraud was not pleaded and was not part of the defendants' case. Further, the defendants did not act with high handed presumption. Based on instructions, they were entitled to subject Nicholson's version of the circumstances surrounding execution of the Agreement to vigorous scrutiny and microscopic examination. They were faced with instructions from a client that propounded a radically different version of events. There is no easy way of testing rival factual contentions. Rigorous cross-examination with some innuendo and probing is unavoidable. I find that the defendants, in seeking to establish Niall's version as the correct version, did not cross the line.

62 In summary, and for the sake of clarity, I set out my conclusions in relation to costs hereunder:

(a) Although Nicholson was awarded nominal damages, he should properly and reasonably be regarded as the unsuccessful party.

(b) As the unsuccessful party it does not follow by this fact alone that he should be liable for the costs of the entire proceeding.

(c) Each case must be considered on its own facts and in appropriate cases such unsuccessful party will not only be denied the costs of the pyrrhic victory but be ordered to pay the costs of the truly successful party either in whole or in part. By the same token in appropriate cases the unsuccessful party may recover part of the costs.

(d) For better or for worse, liability was determined first. This is the usual position in the Commercial Court. Unfortunately not much attention was given to the proper formulation or quantification of damages and, perhaps more relevantly, Nicholson maintained his claim for specific performance. Establishing the Agreement was fundamental to his case whatever the remedy.

(e) Having established the central pillar of his case, at a stage where the remedy received little focus, it would be manifestly unjust to require him to pay the costs because subsequent findings and events turned his success into a pyrrhic victory. Further and more relevantly I would not order Nicholson to pay the costs of this stage of the trial in circumstances where the evidence of the defendants' key witness was thoroughly discredited.

(f) Consequently the costs of the liability stage of the trial can be dealt with in one of two ways. Either there should be no order as to costs or Nicholson should recover his costs.

(g) I have decided that Nicholson should recover one half of his costs. He won a point that took much time and was the critical focus of the liability stage of the trial. He lost the other critical point which took far less time but undermined his damages claim. To deny him costs altogether in the circumstances would be unfair. To recover all of his costs would also be unfair.

(h) However, after the First Judgment things changed. Having lost the critical point that underpinned his claim for damages it was and became clear after the Second Judgment that Nicholson would not succeed in the damages claim. He must pay these costs.

(i) For the reasons given this is not an appropriate case for indemnity costs. The circumstances may be peculiar and in some instances even bizarre but they are not special in the sense used in the authorities.

(1) The plaintiff is awarded $100 as nominal damages.

(2) The defendants pay one half of the plaintiff's costs, including any costs reserved, on a party and party basis, up to 14 December 2012.

(3) The plaintiff pay the defendants' costs of the proceeding, including any costs reserved, on a party and party basis, from 15 December 2012 up to and including 31 March 2013 and on the standard basis thereafter.

(4) The plaintiff pay the reasonable costs of Eden Hotel Group Pty Ltd and Dominion Hotel Group Pty Ltd of complying with the subpoenas dated 3 July 2013, served by Hilldove on those parties.

[1] Nicholson v Hilldove Pty Ltd & Ors [2012] VSC 598 ('the First Judgment').

[3] Nicholson v Hilldove & Ors (No 2) [2013] VSC 231 ('the Second Judgment').

[4] Nicholson v Hilldove Pty Ltd & Ors (No 3) [2013] VSC 500 ('the Third Judgment').

[6] NCON Australia Ltd v Spotlight Pty Ltd [2012] VSC 604; Kosho Pty Ltd & Anor v Trilogy Funds Management Ltd, Trilogy Funds Management Ltd & Ors v Fujino [2013] QSC 135; Motium Pty Ltd v Arrow Electronics Australia Pty Ltd (Supplementary Decision) [2011] WASCA 65 ('Motium'); Thiess Contractors Pty Ltd v Placer (Granny Smith) Pty Ltd [2000] WASCA 102; State of New South Wales v Stevens [2012] NSWCA 415; (2012) 82 NSWLR 106; Timpar Nominees Pty Ltd v Archer [2001] WASCA 430.

[7] [1984] VicRp 40; [1984] VR 483, 502.

[9] Reference was made to Motium and Oshlack v Richmond River Council [1993] HCA 11; (1998) 193 CLR 72 ('Oshlack'), a decision relied upon by the Court of Appeal (WA) in Motium.

[10] Motium, [10] (McLure P, Newnes and Murphy JJA).

[12] Nicholson v Hilldove Pty Ltd & Ors [2012] VSC 598, [123] - [124].

[13] Hazeldene's Chicken Farm Pty Ltd v Victorian Workcover Authority (No 2) [2005] VSCA 298; (2005) 13 VR 435, 442 [25].

[14] In paragraphs 1 and 4 of the First Offer.