Plaintiffs / Defendants by Counterclaim v Defendants / Plaintiffs by Counterclaim

1 On 22 March 2023 and 8 February 2024, I delivered reasons in this matter.[1] In the former, I dealt with contested issues that had been identified by the parties and which were the subject of an order of Riordan J. In the latter, I resolved the outstanding issues in dispute for the purpose of making final orders. Regrettably, the parties still cannot agree, to the point of arguing over minor amounts owing or said to be owing.[2] The parties cannot even agree on the form of words to be used in the recital.

2 It is the role, indeed the duty, of this Court to resolve claims that are brought before it. The Court cannot shirk that duty. But it is important to recall that the duty of the Court is not one owed just to the parties, and judges must be conscious of the proportionate use of Court resources to resolve a dispute or aspects of a dispute. So much has been made clear by authority and by statute.[3]

3 That obligation may be relevant in the assessment of interest and costs. Damages in the way of interest compensate a party for being held out of money to which they were entitled and reflect the time cost of money. Interest may also serve a broader interest of encouraging settlement and avoiding protracted litigation. Where penalty interest is imposed, the burden of delay can be a relatively heavy one. The Court has a discretion as to the method of calculation. In this case, it has been determined that the penalty interest rate is appropriate.

4 Directions were made regarding the filing of submissions and affidavits on costs. After the parties had filed their submissions and affidavits, the Plaintiffs/Defendants by Counterclaim ('the TPC Group') sought leave to file a reply submission. This was refused on the basis that no party had proposed any order for the filing of a reply submission when the orders were made and because it would further delay the proceeding. As things transpired, the affidavit filed by the TPC Group inadvertently omitted two pages. At the request of the Court, TPC refiled the affidavit and, as a result, the Defendants/Plaintiffs by Counterclaim ('Castleway') were granted leave to file any responsive material. Given this delay, I considered it to be in the interests of justice to accept the filing of the TPC Group's reply submission and I have referred to it.

6 I do not propose to make declarations other than as to the amount of the service fee for the financial year ending 30 June 2017 and the commission. It is not necessary for the findings contained in the reasons of the Court on various matters to be recorded in a declaration.

7 I consider it useful in the final order to set out the components of the final service fee that have been determined. I accept the calculations proffered by Castleway.

8 I accept the calculations in respect of interest on the undisputed component of the final service fee as proffered by the TPC Group, which slightly favour Castleway.

9 On the interest payable on the disputed components, including those that were the subject of agreement or concession during the course of the proceeding, I accept the interest calculations proffered by the TPC Group. As will appear, all amounts owing have been paid and there is no basis to order continuing interest on Issue 2.3.2.1 as sought by Castleway of $31.36 beyond 28 March 2024.

Interest on disputed components of the termination adjustment

10 The first main issue of contention deals with interest payable in respect of termination adjustment and commission for the same project. I dealt briefly with the topic in my reasons of 8 February 2024.[4] At that point I was dealing with the submission made by the TPC Group that the price ultimately realised for a project would affect the calculation of the unrealised capital gain at the time of the termination of the Property Development Services Agreement. It was in that context that I emphasised that the termination adjustment and commission were separate entitlements.

11 In the case of Rokeby Street, the TPC Group failed to pay a termination adjustment having regard to the unrealised capital gain. The TPC Group was liable to pay $2,587,209 on 19 September 2019 but failed to do so. From that day it was liable to pay the amount and penalty interest until the amount was paid.

12 On 9 August 2022, the TPC Group paid a commission to Castleway in respect of a number of introduced projects, including Rokeby Street. Had it performed its obligation to pay the termination adjustment correctly, it would have paid a commission that took that amount into account, which would have been less than the amount paid. Since it did not pay the termination adjustment, it overpaid the commission. In my opinion, the appropriate course is to credit the amount owing for termination adjustment by the amount of overpayment from the date of payment. That discharged the termination adjustment on 9 August 2022. Accordingly, Castleway is entitled to the adjusted termination payment and penalty interest up to 9 August 2022. At that date, it was paid in full the equivalent of the unrealised capital gain payable as a termination adjustment.

13 It would be overcompensating Castleway for it to receive interest on the termination payment once it had been overpaid commission in respect of the same property. The appropriate course is to net the payments as and from settlement. As I explained, this does not mean that Castleway does not enjoy the benefit of an unrealised capital gain that ultimately does not come to pass and Castleway could enjoy an unrealised capital gain at termination even if the project ultimately produced a loss. But it would have to account for the loss from the date of settlement.

14 As for the commission, Rokeby Street settled on 14 February 2020 and Castleway was entitled to a commission of $491,418. This was paid on 9 August 2022 and Castleway is entitled to penalty interest on this amount for the period between settlement and payment on 9 August 2022.

16 I have accepted the calculations proffered by TPC Group which limit interest on Rokeby and Garfield to 9 August 2022. I will also order the additional amount raised by the TPC Group in favour of Castleway of $62,036.39.

17 I prefer the form of order proposed by the TPC Group.

18 The net difference between the parties is approximately $212,000, resulting from three matters:

(a) that the TPC Group adds a banding effect to the properties settled between financial years 2018 and 2022;

(b) the amount owing for Hillside; and

(c) Hallam South Road.

19 In relation to the quantification of the amounts payable in respect of Hillside and Hallam South Road, I agree with the submissions of the TPC Group.

20 As for Hillside, the amount of land tax and land tax penalty were properly deducted in assessing the gain. I am satisfied that there was no income for that period so it was not necessary to exclude income and expenses incurred in deriving that income in order to determine the gain for the purposes of the commission.

21 As for Hallam South Road, I agree with the TPC Group that it is entitled to deduct holding costs that were not expensed. I accept the calculations provided by the TPC Group.

22 On the question of costs, the TPC Group makes three principal submissions:

(a) it relies on offers of compromise, which it contends Castleway did not beat;

(b) Castleway had only partial success having regard to its claimed amount and the declaratory relief provided to the TPC Group; and

(c) Castleway delayed the final resolution of the proceeding by opposing, and then accepting, that the Court should deal with introduced projects settled after the hearing and before judgment.

23 As to the first two issues, the TPC Group relies on its service of offers of compromise and the 'mixed result' to submit that there should be no order as to the costs of the proceeding up to 11:00 am on 11 August 2022 and thereafter Castleway should pay its costs on the standard basis.

24 The TPC Group served three formal offers of compromise in relation to the proceeding on 9 August 2022. The three offers separately offered to resolve the issues in the claim and counterclaim regarding the base service fee elements then in dispute ('Service Fee Offer'), the termination adjustment ('Termination Adjustment Offer'), and commissions on introduced projects sold and settled at the time the offers were made ('Introduced Projects Offer'), and the covering letter serving the offers explained the basis for the offers and why Castleway ought to have accepted them.

25 The offers, made on a plus-costs basis and inclusive of any GST, were in the following amounts:

(a) $700,000 under the Service Fee Offer;

(b) $5,492,341.30 under the Termination Adjustment Offer; and

(c) $150,000 under the Introduced Projects Offer.

26 In its letter accompanying the offers, the TPC Group explained the basis on which the offers were made. In the case of the termination adjustment, the offer distinguished between those introduced projects that had been sold and settled before the offer, which are dealt with at paragraph 29 of the letter, and those that were to be settled after the offer, which were dealt with at paragraph 34. In relation to the latter, the offer was framed in a way that reflected the full claimed amount applicable to those properties in the sum of $1,892,341.30. An additional amount of $3.6 million was offered in respect of the other introduced projects which were the subject of a claim of some $7.5 million. That is made clear in paragraph 46 of the letter.

27 Taking into account amounts received by Castleway to the date of the offer, the TPC Group submits that the total amount payable would have been $20,173,632 (including GST).

28 It says that, having regard to the orders, Castleway obtained $18,524,001.01 (including interest to the date of offer) comprising:

(a) $12,521,246.94 in respect of the final service fee;

(b) $2,228,291 in respect of commissions on introduced projects; and

(c) $3,798,976.73 for interest.

29 As to the second issue, the TPC Group says further that it was substantially successful in its declaration proceeding - Castleway in its counterclaim had sought damages of $31,001,389.37 but the final year's service fee was less than half of that, being approximately $12.5 million (including GST).

30 As to the third issue, the TPC Group says that, should the Court not be minded to award the TPC Group its full costs from 11:00 am on 11 August 2022 onwards, Castleway's opposition to the Court dealing with all settled properties resulted in the adjournment of the hearing on 28 August 2023 and unnecessary further costs. Consequently, Castleway should bear the TPC Group's costs of and incidental to the re-opening application after 28 August 2023.

31 Castleway seeks its costs of the proceeding. It argues that costs should follow the event, which lies in Castleway's favour.

32 On the offers of compromise, Castleway submits that it beat the Termination Adjustment Offer. It says the Court should consider together the offers regarding the 'Termination Adjustment Questions' and the 'Introduced Projects Questions'. This is because amounts Castleway did not receive on the termination adjustment it then stood to receive on the commission. Therefore, although Castleway did not succeed on Issue 2.4.1, regarding the Termination Adjustment in respect of projects held on current account at the Termination Date, this resulted in a commensurate increase in the commission payable as part of Issue 3.1. When these amounts are aggregated, Castleway comfortably beat the TPC Group's offers. To consider the offer regarding the 'Termination Adjustment Questions' in isolation would disregard the interrelated nature of the issues before the Court.

33 Castleway submits that the TPC Group's offer was accompanied by a letter of the same date enclosing Grant Thornton's calculations of the commission. That letter specified that, even if Castleway accepted the TPC Group's offer regarding the 'Termination Adjustment Questions', the TPC Group reserved its rights regarding the determination of Castleway's termination adjustment and commission entitlements in numerous respects, including adjustment on settlement of introduced projects and the attribution of overhead costs including in relation to Rokeby Street.

34 Castleway contends that the form of the offers, which sought to confine the costs of each offer to the costs applicable to the topic, was also liable to result in disputation. For example, the issues relating to the termination adjustment and commission were interrelated but the offers confined the costs referable to each topic. This is not just a matter of difficulty in costs assessment but reveals an underlying interrelationship that made Castleway's assessment of the offers very difficult.

35 It is convenient to first address the offers of compromise.

36 Rule 26.08(3) of the Supreme Court (General Civil Procedure) Rules 2015 ('the Rules') 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 to which the offer relates that is not more favourable to the plaintiff than the terms of the offer, then, unless the Court otherwise orders, the plaintiff shall be entitled to an order for costs before 11:00 am on the second business day after the offer was served (taxed on the ordinarily applicable basis) and the defendant shall be entitled to an order for costs thereafter (also on the ordinarily applicable basis).

37 Where, as here, a defendant also serves a counterclaim, it is considered a 'plaintiff' for the purposes of that rule. In my view, r 26.08(3) applies in this case given that Castleway claimed a monetary amount by its counterclaim. Consequently, for the purposes of r 26.08(3) and its application in the present circumstances, the parties comprising Castleway are the 'plaintiffs' and those comprising the TPC Group are the 'defendants'.

38 The assessment of whether the Court should 'otherwise order' is a question of judgment and impression, assessed at the time the offer of compromise was made, without the advantages of hindsight.[5] The reasonableness of the rejection of an offer is one matter that may be taken into account in considering whether to exercise the power to 'otherwise order' but it is not, by itself, determinative.[6] It is not presumed that a refusal is unreasonable simply because the offered sum is higher than the ultimate award.[7]

39 From a strictly numerical point of view, Castleway beat the Service Fee Offer and Introduced Projects Offer but fell short on the Termination Adjustment Offer. Looked at globally, I accept the TPC Group's submission that Castleway fell short of the offer. I do not accept the calculations performed by Castleway in Annexure C of the affidavits of its solicitor Mr Kyriacou sworn 30 April 2024 because that annexure seeks to compare the amount ultimately ordered with the offer, but it includes interest and introduced projects settled after the date of the offer. As a result, it does not provide a meaningful comparison between the offer and judgment.

40 Was it unreasonable to reject the offers? I accept that the interrelated aspects of the termination adjustment and the commission payable on introduced projects made the offer a complex one. Further, the TPC Group made clear at the time that it reserved its rights to adjust the amounts in relation to introduced projects settled after the offer.

41 On the other hand, by that stage, the Court of Appeal had upheld the view that the termination adjustment and commission on introduced projects required reconciliation. Had Castleway accepted the offers, that would only have led to further issues in relation to introduced projects settled after that date. However, the form of the offers gave an allowance for each of these projects in the amount claimed, subject to later revision. This was made apparent by paragraph 46 of the letter accompanying the offer, which split the termination adjustment into two figures being $1,892,341.30 for the projects that had not settled and a compromise of $3,600,000 for the balance.

42 Had Castleway accepted all the offers, the area of disputation would have been small and confined to introduced projects that had not settled. In respect of those projects, the offer provided for the claimed amount in full as part of the termination adjustment.

43 Up until the date of offer in August 2022, the TPC Group continued to withhold payments that were properly owing to Castleway and it was appropriate and reasonable for Castleway to commence and prosecute its counterclaim. However, once the offer was made, the TPC Group offered to resolve the dispute as it existed at that time on terms that were more favourable than the ultimate result. Contrary to the submissions of Castleway, taken as a whole, the three components only left for future determination the amount of commission payable in respect of introduced projects that had not been sold and settled by that date. There can be no doubt that once those projects settled, there would have been a need for reconciliation in respect of any payments that had been made earlier in respect of the same project. This potentially unresolved issue did not make it reasonable to decline the offer.

44 Having regard to the nature of the dispute with its many specific aspects and the parties' overarching obligations under the Civil Procedure Act 2010, I am persuaded that the failure to accept the offer was unreasonable and that there is no other reason why the TPC Group should not be awarded costs from 11:00 am on 11 August 2022, being two business days after the offer was served.

45 As for the question of costs before 11:00 am on 11 August 2022, the default position under r 26.08(3)(a) is that Castleway is entitled to its costs on the ordinarily applicable basis. I do not accept the TPC Group's argument that the Court should 'otherwise order' on the basis that the TPC Group was in substance successful in its proceeding because the reasons of the Court reflected a number of the declarations that it had sought. Overall, the proceeding is properly seen as a claim for the recovery of money by Castleway and I do not think it is appropriate to use the declaration proceeding as the proper focus of the exercise of the costs discretion.

46 In summary, Castleway should have its costs before 11:00 am on 11 August 2022 and thereafter it should pay the TPC Group's costs.

47 Given that conclusion, it is unnecessary to deal with the TPC Group's alternative submission regarding the costs of the re-opening application after 28 August 2023.

ADAZ NOMINEES PTY LTD (ACN 006 228 119) ATF THE RADO NO 2 TRUST

Second Plaintiff / Second Defendant by Counterclaim

ROADING GROUP PTY LTD (ACN 097 993 292) ATF THE RADO INVESTMENT TRUST NO. 2

Fourth Plaintiff / Fourth Defendant by Counterclaim

ROADING INVESTMENTS PTY LTD (ACN 104 325 797) ATF THE RADO INVESTMENTTRUST NO 3

LOOILLA PTY LTD (ACN 092 067 322) ATF LOOILLA TRUST

BELLONIC PTY LTD (ACN 092 015 828) ATF BELLONIC TRUST

Seventh Plaintiff / Seventh Defendant by Counterclaim

TYNONG PASTORAL CO PTY LTD (ACN 060 828 364) ATF TYNONG PASTORAL UNIT TRUST

Eighth Plaintiff / Eighth Defendant by Counterclaim

PIP MELBOURNE PTY LTD (formerly PARTNERS IN PROPERTY PTY LTD) (ACN 120 760 125)

TYNONG PROPERTY DEVELOPMENTS PTY LTD (ACN 081 950 647) ATF AMARCO SERVICES TRUST

CASTLEWAY PTY LTD (ACN 131 870 481) ATF THE CASTLEWAY TRUST

Second Defendant / Second Plaintiff by Counterclaim

[1] Adaz Nominees Pty Ltd v Castleway Pty Ltd [2023] VSC 129; Adaz Nominees Pty Ltd v Castleway Pty Ltd (No 3) [2024] VSC 25.

[2] A document comprising draft proposed orders and submissions that set out the various disputes will be an exhibit in the proceeding.

[3] Aon Risk Services Australia Ltd v Australian National University [2009] HCA 27; (2009) 239 CLR 175, 217 [113]-[114] (Gummow, Hayne, Crennan, Kiefel and Bell JJ); [2009] HCA 27; Civil Procedure Act 2010, ss 7(1), 22, 23.

[4] Adaz Nominees Pty Ltd v Castleway Pty Ltd (No 3) [2024] VSC 25.

[5] Cargill Australia Ltd v Viterra Malt Pty Ltd (No 32) [2022] VSC 299 [45] (Elliot J) ('Cargill'), citing, among other authorities, Hazeldene's Chicken Farm Pty Ltd v Victorian Workcover Authority (No 2) [2005] VSCA 298; (2005) 13 VR 435, 441-2 [23]-[24], 443 [30] (Warren CJ, Maxwell P and Harper AJA); [2005] VSCA 298.

[6] Nakos v Serdaris [2016] VSC 179, [39] (Zammit J), cited in Stevens v Spotless Management Services Pty Ltd (No 2) [2016] VSCA 311, [26] (Kyrou and McLeish JJA and Elliott AJA).

[7] Cargill [2022] VSC 299 [43]-[45] (Elliot J), citing Hazeldene's Chicken Farm Pty Ltd v Victorian Workcover Authority (No 2) [2005] VSCA 298; (2005) 13 VR 435, 442 [25] (Warren CJ, Maxwell P and Harper AJA); [2005] VSCA 298.